Question

What is the best way to regulate insurance and why?

Answer 1

The insurance regulations consist mainly of state laws and other rules pertaining to insurance companies' solvency and markets. Solvency laws aim to guarantee that insurers' solvency is preserved and where it happens, to address the consequences of an insolvency. Business rules attempt to ensure that policyholders are handled equally, to stop discrimination and questionable premium practises, and to control advertisement and other marketing, enrollment, charging of premiums, prices paid, and insurance plans. When selling legislation, settling lawsuits, and other practises, states also forbid unequal or misleading practises.

Insurance firms that offer insurance within a state typically have to be approved by that state. As a licence is obtained by an insurance company, the insurance regulator of that State shall decide if the insurance company's owners are qualified and knowledgeable and if the insurance firm has the necessary resources to pay future lawsuits and retain solvency. The amount of capital needed by the state to be retained by the insurance company would vary depending on the jurisdiction, the type of insurance offered by the company, and whether it is structured as a partnership or joint business.

In order to help bankrupt insurers, all states have solvency provisions and grant assets, or at least to retain risk and pay the insolvent insurers' customers' claims. In the absence of an insurer, policyholders may be obliged to give up such privileges, such as access to their assets for a given period of time, or, in the case of life insurance, they may earn less interest than the minimum promised by the life insurance plan.