How Do Insurers Succeed?

Which of the following is NOT one of the three primary reasons for insurance regulation?

• To protect consumers

• To maintain insurer solvency

• To increase insurer profits

• To prevent destructive competition

Explain why insurance operations are regulated. Fill in the blank.

• Guaranteeing

• Delaying

• Ignoring

• Complicating

Which of the following is a reason regulators enact rules to maintain insurer solvency?

• To guarantee that insurers have enough cash on hand to pay for future claims

• To ensure that a catastrophe does not deplete insurers’ resources

• To prevent reckless investing or fraudulent activities

• All of the above

Regulation seeks to keep insurers from pricing policies too low for two main reasons. Which of the following is NOT one of those reasons?

• Not charging enough premium could leave the insurer without enough cash on hand to pay covered claims.

• Charging low rates could be an attempt to drive competitors out of business.

• Charging high rates increases insurer profits.

• Both A and B

Insurance regulation helps protect consumers by requiring insurers to pay legitimate claims and honestly represent the benefits of a policy.

• True

• False

Regulators enact and enforce rules that encourage insurers to maintain and enhance their ________ position.

• financial

• marketing

• operational

• customer

Explain why insurance operations are regulated.

• By making insurance policies more expensive

• By guaranteeing that insurance is available and accessible to everyone who needs it

• By allowing insurers to avoid paying claims

• By encouraging insurers to invest recklessly

What is the primary source of an insurer’s revenue?

• Investments

• Premiums paid by policyholders

• Government grants

• Loans

An insurer’s expenses include which of the following?

• Losses from claims

• Cost associated with paying those claims

• Cost associated with underwriting

• All of the above

Fill in the blank: The income statement includes calculation of the insurer’s net income from underwriting, as well as its net income from _________.

• investments

• premiums

• claims

• commissions