|CHAPTER 1. LEGISLATIVE REGULATION OF INSURANCE | |Insurance industry is HUGE and has very low regulation. Why should it be regulated? People have little ability to negotiate terms ( adhesion K – thus, the regulation comes as a matter of public policy. Ambiguity resolved in | |favor of the insured. Consumer protection. | |Also, insurance has important social policy considerations. | |Important to regulate in order to control rates – make it affordable. Make sure that there is enough $$ in a premium to create reserves in order to pay off claims. Also, insurance companies are for-profit companies – must have | |enough $$ to give a fair return to investors – pay stock holders or policy holders, depending on what type of insurance company it is. Also, must have enough $$ to protect against insolvency – insurance companies cannot go into | |bankruptcy – the regulatory scheme guards against bankruptcy. | |Insurance companies almost have a monopoly – only licensed carriers can sell insurance. | |Prevent against unfair practices – various states enacted UTPA’s – highly punitive (treble damages, attorney’s fees) – generally used where there is a pattern of conduct and where one party can show a potential for future harm. | |Problem: like bankruptcy code, UTPA specifically exempts regulated industries (banks, insurance carriers). Thus, there is an unfair practices section built into the insurance code. Examples of codified unfair claims practices: | |– carrier misleading insured as to the nature of the coverage of a policy; failure to respond timely to pertinent communication. | |State legislature – primary regulator of insurance industry. Creates administrative agencies to regulate the industry. | |Courts – not well-suited to regulate. Why? There must be a true case of controversy before the court can interpret the law. Even if a decision has precedential value, most carriers are very savvy and know how to avoid the | |wrath of the courts. | |3 sources of regulation: legislatures, administrative agencies, courts. | |National Regulation | |1869 in Paul v. Virginia, the Court held that issuing a policy of insurance is not a transaction in commerce ( thus, antitrust regulation did not apply to insurance. | |1890 ( Sherman Act...
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