Question

Under one type of rate regulation, insurers do not have to register their rates with state regulatory authorities. However, insurers may be required to furnish rate schedules and supporting data to state officials. A fundamental assumption underlying this type of rating law is that market forces will determine the price and availability of insurance, rather than discretionary acts of regulators. This type of rate regulation is called _________.

Answer 1

The rate regulation type where market forces determine insurance prices and regulators do not set rates is known as competitive rating or open competition systems.

Step-by-step explanation:

Under one type of rate regulation, insurers do not have to register their rates with state regulatory authorities but may need to provide rate schedules and supporting data to state officials.

This system is predicated on the idea that market forces will govern the price and availability of insurance, rather than the discretionary actions of regulators. This type of rate regulation is known as competitive rating or open competition systems.

Government regulators cannot mandate companies to maintain low insurance premiums if such rates fall below the actuarially fair level as other parties, like taxpayers or other insurance buyers, would have to subsidize these losses.

Furthermore, when regulations are imposed to keep premiums low, it often leads to insurance companies either seeking to avoid insuring higher risk individuals or exiting the market entirely, as seen in historical cases like those in New Jersey and Florida.