INS -21

Who Provides Insurance and How is it Regulated ?

Insurance Types

Types of Insurance

Private Stock Mutual Reciprocal Lloyds Ass.

Government

Captive

Reinsurance

Fedral

State

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Private Insurers
Type Stock Insurer Purpose Earns profit for its stockholders Legal Form Corporation Ownership Stockholders Method of operation The board of directors, elected by stockholders appoints officers to manage the company

Mutual Insurer

To provide insurance for its owners (policyholders)

Corporation

Policyholders

The board of directors, elected by Policyholders appoints officers to manage the company Subscribers choose an attorney-in-fact to operate the reciprocal The committee of Lloyd's is the governing body and must approve all investors for membership

Reciprocal To provide reciprocity for subscribers Lloyd's of London To earn profit for its individual investors

Unincorporated association Unincorporated association

Subscribers

Investors

Confidential 2004 Syntel, Inc.

Federal Government Insurance Program

Social Security Program : Formally known as the Old Age, Survivors,Disability and Health Insurance program (OASDHI). Retirement benefits for the elderly Survivorship benefits for dependents of deceased workers Disability payments for disabled workers Medical benefits for the elderly

Other Programs :Other programs provide coverage for loss exposures that private insurers have avoided largely because of the potential for catastrophic losses

National Flood Insurance Program Federal Crop Insurance Programs

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State Government Insurance Programs

State workers Compensation Insurance Funds Insurance that pays for medical care and physical rehabilitation of injured workers and helps to replace lost wages while they are unable to work. State laws, which vary significantly, govern the amount of benefits paid and other compensation provisions All employers who need insurance must obtain it from the monopolistic state fund.

Other State Insurance Programs Following are the other insurance programs operated by State Government: Unemployment insurance programs Automobile insurance plans FAIR plans Beachfront and windstorm pools

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Captive Insurance Companies

A subsidiary company for the purpose of having the subsidiary provide all or part of the insurance on the parent company Advantages Low insurance cost Insurance availability Improved cash flow

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Reinsurance Companies
Reinsurance is a contractual arrangement that transfers some or all of the Reinsurance enables small insurer to provide insurance for large accounts whose insurance needs would potential costs of insured losses from policies written by one insurer to another insurer.

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Insurance Regulation
Maintain broad powers to regulate insurance business in the public interest. Monitors the operations of insurance companies an to investigate complaints from insured's. Scrutiny by insurance regulation helps to protect the public from irresponsible, unwise, or dishonest activities that could leaves consumers with worthless insurance policies. Insurance regulation vary by state.

Confidential 2004 Syntel, Inc.

NAIC as Insurance Regulatory body

Co-operation, Co-ordination and uniformity in insurance regulation among the states. Creates a uniform financial statement for property and liability insurance companies simplifying the insurance departments task of comparing the financial reports of many different insurers. It accredited programs to increase uniformity and improve state regulation of insurance. NAIC develops a MODEL LAW that reflects its proposed solution to any new issue/problem.

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Rate Regulation
Insurance rates developed by Insurers affect most people, the laws of nearly all states give the state insurance commissioner the power to enforce regulation of insurance rates. Ratemaking - Process by which insurers calculate rates that determine the premium for insurance policy. Rate The price of insurance for each unit of exposure. Premium- Periodic payment by an insured to an insurance company in exchange for insurance coverage. Rate x Number of exposure units = Premium

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Objectives of Rate Regulation

To ensure that rates are adequate To ensure that rates are not excessive To ensure that rates are not unfairly discriminatory.

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Insurance Rating Laws

Prior approval laws
Rates must be approved before the use

Flex rating laws

Prior approval is required only if the new rates are specified percentage above or below previously filed rates

File-and-use laws
Rates must be filed but do not have to be approved before use

Use-and-file laws
Rates must be filed within specified period after they are used first.

Open competition (no-file law)

Rates do not have to be filed with the state

State-mandated rates
State specified rates must be used by all insurers.

Confidential 2004 Syntel, Inc.

Solvency Surveillance
Solvency Ability of an insurance company to meet its financial obligations. Solvency Surveillance process conducted by state insurance regulators of verifying solvency of insurance companies and determining whether the financial condition of insurers enables them to meet their obligations and to remain in business in the long term.

Confidential 2004 Syntel, Inc.

Major aspects of Solvency Surveillance

Insurance Company Examinations periodically conducting examination of insurance companies which consists of thorough analysis of the insurance companys operation (Claims, Underwriting, Marketing, accounting procedures etc. ) and financial condition. Insurance Regulatory Information Systems (IRIS)
NAIC designed, collects data from insurers financial statements and develops financial ratios to determine insurers overall financial condition. Provides all state insurance departments with a timely and objective method of identifying companies that might have financial problems

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Consumer Protection
Licensing insurers Licensing insurance company representatives Approving policy conduct Examining market conduct Investigating consumer complaints.

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Excess and surplus lines

E&S insurance consists of insurance coverage, usually unavailable in the standard market, that are written by unlicensed insurers. Types of businesses covered. Unusual or unique exposures Nonstandard business Insureds needing high limits Insureds needing unusually broad coverage Exposures that require new forms.

Confidential 2004 Syntel, Inc.