The insurance market involves several key participants: buyers (consumers), sellers (insurance companies), and regulators. Regulators govern the market and enforce insurance laws and regulations at the state level to promote consumer protection. The insurance market is regulated due to its impact, unequal knowledge between buyers and sellers, pricing problems, and promotion of social goals. Some historical problems include the automobile, property, and medical malpractice insurance markets. While economic theory says the market requires perfect competition, the insurance market does not meet all the criteria for perfect competition due to supply and demand factors and insurer competition.

1. Insurance Markets
Brett DeLoach

2.  Main participants in an Insurance
Market
Sellers
Buyers
Regulators

3. • Examples of Participants
Buyers- The consumer/ Customer
Sellers- Insurance companies
Regulators- Govern the market

4. Historical problems
• The automobile insurance market
• The property Insurance market including
inner-city property has been a problem
• Special liability insurance markets, including
medical malpractice, environmental
impairment liability, and municipal liability
• Changes due to the terrorism attacks of 9/11

5. Economic Theory
Supply and Demand
• Requirements for perfect competition
• Numerous independent sellers, each holding a
market share that is too small to influence
price
• Numerous well-informed consumers
• A homogenous perfectly substitutable product
• Freedom of entry and exit

6. Continued
• Supply is in high demand
• There is high competition between insurance
companies
• Requirements for perfect competition do not
exist

7. The role of the courts, the law, and the
insurance companies
• The courts
• The insurer may deny claims for the following:
• The insured may have attempted to defraud
the insurer
• The contract might not be in force because
the insured did not pay premiums

8. Continued
• The coverage may have been suspended
because an insured violated a contract
condition
• The loss may have been caused by an
excluded peril

9. The law
• Insurance laws of various states provide
consumers with essential protection
• They establish the following:
• Conduct
• Behavior
• Forbidding others

10. The Insurance Commissioner
• In charge of insurance regulation
• Appointed by the governor in each state
• Responsibilities include interpreting the
insurance code and enforcing such code

11. Insurance regulation

12. Continued
• What is a regulation?
• They are the rules that must be followed
• McCarran-Ferguson ACT
• Turned over the regulation to the individual
state

13. Continued
• Gramm-Leach ACT
• Regulating the financial services and insurance
companies
• What do we regulate?
• Promoting and protecting the public interest

14. Reasons the insurance market is
regulated
• The potentially severe impact of an insurer’s
insolvency
• The unequal knowledge and bargaining power
of the buyer and seller
• The problem of insurance pricing
• The promotion of social goals

15. National Association of Insurance
Commissioners (NAIC)
• Develop model bills for the various states to
introduce in their own state legislature
• Meets twice a year to consider matters of
common concern

16. Regulatory activities of state insurance
departments
• Solvency regulation
• Rate regulation
• Investment regulation

17. Solvency
• Makes the result of the insurance transaction
certain and predictable
• Government monitors insurer solvency on the
public’ behalf
•

18. Rate regulation (Price)
• Cheapest is not always the best insurance
• Two regulatory responses
• Prior approval- requires insurers to get approval
from the regulator before using a rate
• Open rating- allows an insurer to use whatever
rate it chooses after filing the rate and the
supporting statistics with the regulator

19. Investment regulation
• NAIC requires life insurers to keep two
different reserve accounts
• The two reserves are asset valuation reserve
and interest maintenance reserve

20. Reference
Dorfman, M. S. (2008). Introduction to
risk management and insurance (9th
ed.). Upper Saddle River, NJ: Prentice
Hall.