Research Handbooks in Financial Law series
Edited by Julian Burling and Kevin Lazarus
Peter Kochenburger and Patrick Salve1 1. COMMON CONCERNS IN INSURANCE REGULATION Insurance is a contract based upon money for a promise. The policyholder’s premium is consideration for the insurer’s agreement to pay a covered claim that may occur months, years or even decades in the future and where the amount of the claim is likely to be signiﬁcantly greater than the premium collected. Once the premium is paid, the policyholder is dependent on the insurer’s ongoing ability and willingness to pay the claim should an insured loss occur as it cannot contract with another insurer to cover a known loss.2 While other ﬁnancial products present related solvency and consumer protection concerns, these central features of the insurance relationship provide unique challenges to government regulators in ensuring that policyholders obtain their beneﬁt of the insurance bargain.3 Insurance policies sold to individuals4 are virtually all ‘contracts of adhesion’, as are most of the insurance contracts purchased by commercial and public entities. Adhesion contracts are characterized by the use of standard form agreements drafted exclusively by one party and for which there is little or no bargaining over terms other than price; the discretion or choice is whether to agree to the contract as written or forgo it altogether.5 Adhesion contracts are universal in most consumer agreements including insurance, credit cards, residential mortgage transactions, and individually-purchased software agreements. The typically lengthy and complex structure of such contracts virtually makes certain that the great majority of consumers will neither read nor necessarily...