Casualty Actuarial Society (CAS) Practice Exam

In what way does regulation primarily influence underwriting policies?

1. Insurers must adopt international standards

2. Insurers must file rates, rules, and forms with regulators

3. Insurers can write on a non-regulated basis

4. Insurers determine their own underwriting guidelines freely

The correct answer is: Insurers must file rates, rules, and forms with regulators

The correct choice is focused on the requirement for insurers to file rates, rules, and forms with regulators. This aspect of regulation is fundamental because it ensures that the underwriting policies adhere to legal standards and consumer protection laws established by the state or national authorities. By mandating that insurers submit their rates and any underwriting guidelines to regulators, the regulators can review and approve these elements to prevent discriminatory practices and ensure that they are not excessively high or unfair. Regulatory filing serves as a check on insurers' decisions, creating a level of oversight that promotes transparency and fairness in the insurance market. Without this requirement, insurers could adopt practices that might be detrimental to consumers, leading to instability and inequity in the insurance marketplace. The other choices do not accurately represent the primary influence that regulation has on underwriting policies. International standards might influence certain large insurers, but they are not the primary regulation mechanism most insurers deal with. Writing on a non-regulated basis contradicts the fundamental structure of insurance regulation, which encompasses virtually all aspects of the insurance industry. Lastly, while insurers do have some freedom in determining their guidelines, that freedom is significantly constrained by the requirement to conform to regulatory frameworks, making the need to file rates and rules a more direct influence.