Regulating the Financial Service Industry

Regulating the Financial Service Industry

Bubsie McLean

Accounting 564

Instructor Achilles

September 20, 2010

There have been many recent changes to the financial services industry such as the Graham-Leach-Bliley Act and the Sarbanes Oxley Act of 2002. Although these acts made the job of financial regulators a little more difficult to perform, it has been put in place to protect the consumer, the lifeline of the economy. “Regulators are most concerned about industry practices or actions that have adverse and unfair effects on consumers, policyholders and claimants/beneficiaries. The types of practices that regulators view negatively and/or in violation of state laws and regulations would include:

• Misrepresentation of insurance products

• Excessive sales pressure

• Fraud

• Sale of unsuitable products

• Replacement of policies that are not in the best interest of the consumer

• Inappropriate risk classification

• Rejection of insurance applications not based on "acceptable" underwriting criteria

• Sale of policies not approved by regulators’ and/or in violation of state laws and regulations

• Premium calculations inconsistent with filed rates

• Prices that are excessive or unfairly discriminatory

• Improper terminations; failure to provide adequate notice of terminations

• Failure to refund premiums or dividends due to insureds

• Failure to pay legitimate claims, underpayment of claims and unreasonable delays in paying claims” [1]

Insurance companies have a vested public interest because the majority of consumers are affected by their contracts and transactions. They have a binding contract, referred to as a “promise to pay.” However, if the insurance company suffers too many catastrophic losses, this risk may in turn be passed on to the consumer.

Due to the fact that the average consumer cannot monitor the financial stability or improper practices of the insurance or financial...