Question

In: Finance

Insurance regulation requires that rates insurers charge customers must be “adequate” as well as “fair and...

Insurance regulation requires that rates insurers charge customers must be “adequate” as well as “fair and equitable”.  Explain what each of these means and why each is important. (2 points)

Explain why regulators may have public hearings before rate increases are approved

Solutions

Expert Solution

According to the dictionary meaning, the word " Adequate" means which is acceptable in quantity and the quality and is satisfactory. So, by the general meaning, we can say, Adequate means that the rates that insurers charge customers must not be too high and too low and must be within the acceptable limits. It is important because, only if the charges are within the acceptable limits, the company will attract more and more customers and it will improve the business.

The words Fair and equitable means that the rates should be charged equally to all the customers and there should not be any bias or unevenness of the rates charged. There should be uniformity in the rates charged.

This is important because if different rates will be charged to the different customers, it will ruin the trust within them which will result in the loss of customers and thus will adversely affect the insurance business.

When the rate increases are approved, the regulators may have public hearings because, the public can accept or reject the increase in the rates on the grounds of fair and equitable and adequacy. The public can review their rights and can decide weather they are agreed on the increase of the rates and weather that increase is within the limit.


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