Insurance companies Case study

Document Type:Coursework

Subject Area:Finance

Document 1

The credit worthiness of a firm is of significant importance because it safeguards the general public wealth. The insured make monthly payments in form of premiums, which they expect to cushion the in the event of loss. In case an insurance company goes bankrupt, there will be huge loss of public funds The insurance regulations are meant to guard the ignorant public who engage with insurance companies and stand a chance to be exploited because of their inadequate knowledge. The insurance contracts s are bound by law, therefore some insurance companies may take advantage of the people who are not knowledgeable in law and engage them in contracts that may ne of no value to them in future Ensuring the solvency of the insurer is important because they need to be in a position to compensate the insured in case of loss.

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If the insurer is not in sound financial health and goes bankrupt, in the event of loss the insured will not be compensated for loss. Discuss the major arguments in favor of federal vs. state regulations in the insurance industries The state regulations are considered to be supreme to the federal regulations, however tables were turned during the financial crisis between 2007-2009, when the financial sector crumbled and state regulations prevailed. The present state regulations are considered to be ineffective, complex and expensive to implement. Thus federal regulations have gained the favor of some of the critics for the following reasons; Federal regulations facilitate homogeneity of the state laws and regulations which enhances efficiency and makes the legal system less complex.

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