RM 430 Exam 1 Study Guide Solutions

RM 430 Exam 1 Study Guide Solutions Perfectly competitive market characteristics - Ans:-1. Large numbers of buyers and sellers 2. No barriers to entry and exit 3. Homogenous product 4. Equal info available to buyers and sellers HHI - Ans:-HHI1500 - Not concentrated 1500HHI2500 - Moderately concentrated HHI2500 - Highly concentrated Legitimate barriers to entry - Ans:-Brand awareness Distribution system (exclusive agent or independent agent) Sticky consumers Economies of scale Economies of scope ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 2/9 Basis for insurance differentiation - Ans:-Rating from agency Dividends from participating policies Claims service Advisory service Financial supermarket? Asymmetric Info favoring suppliers - Ans:-Insurers have better info on their financial strength than consumers Asymmetric info favoring consumers - Ans:-Adverse selection Moral hazard Adverse selection - Ans:-High risk customers take advantage of an insurer using their info to their advantage Controlled by underwriting, enhanced data collection, legal implications of misrepresentations Moral hazard - Ans:-Behavioral tendency by PH that increases the expected loss to the insurer after the policy is in place controlled by policy deductibles, loss verification, and underwriting ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 3/9 Paul vs. Virgina - Ans:-Agent fined by VA for selling insurance for non-licensed NY insurer SC finds insurance is not interstate commerce and the states should regulate it Southeastern Underwriters Association Case - Ans:-Rating bureau found guilty of violating Sherman Antitrust Act by price fixing SC overturns Paul vs. VA, saying insurance is interstate commerce and it should be federally regulated McCarran Ferguson Act - Ans:-State regulation of insurance is in best public interest Exempts insurers from federal regulation to the extent that they are