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In: Operations Management

What is the role of insurance legislation in effective management of insurance companies? Illustrate with one...

What is the role of insurance legislation in effective management of insurance companies? Illustrate with one example of a specific insurance legislation.

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Expert Solution

Role of insurance legislation in the effective management of insurance companies is to maintain the insolvency of the insurer by protecting the consumers and their ethical rights. Apart from that, making insurance available for the people who are unable to get insurance for future benefit and are less risky.
The McCarran-Ferguson Act (1945) was benchmark legislation for insurance companies and insurance holders. Section 12B, 15, 16A, and 20 successfully tried to protect the insolvency of the insurer by protecting their consumer rights. Section 16A was specially recommended to protect customers from the insolvency. The legislation allowed customers to claim their due compensation in case of insolvency. Moreover, section 23A was specially recommended to provide financial support to the insurance companies so that they can compensate consumers in case of insolvency maintaining their consumer right.


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