Hazel Beh & Amanda M. Willis

J. Gabriel McGlamery

Abstract

This casenote explores the reasons why industrial life insurance—and the use of racial discrimination within it—disappeared. It reviews the history of industrial life insurance and the problems it posed, including discriminatory underwriting practices. The 2005 case Guidry v. Pellerin Life Insurance Company, although a minor lawsuit, is the only industrial life insurance case to address directly the use of race in underwriting. While the Guidry court held that no rule, law, or statute prohibits a life insurer from using race as an underwriting criterion, the decision is best understood as a provocative artifact, given that industrial life insurance had already effectively died out. The casenote evaluates several theories explaining this decline, including legislation barring the use of race in underwriting, social pressure discouraging racial discrimination, the narrowing of the racial mortality gap, and the growth of group life insurance. It concludes that no single theory is sufficient on its own, but collectively they provide insight into why industrial life insurance ultimately disappeared.

Steve Cooper

Abstract

This case note discusses whether biotechnology should be endorsed by federal crop insurance. It reviews the history and goals of the Federal Crop Insurance Corporation and the role it plays in the American agricultural system. Although genetically modified crops are becoming increasingly prominent in U.S. agriculture, they have not yet been addressed by federal crop insurance. The U.S. Department of Agriculture recently created the Biotech Yield Endorsement pilot program to connect the federal crop insurance system with the expanding industry and market for genetically modified seeds. The note also critiques agricultural policymaking as economically inefficient. It argues that a permanent biotechnology endorsement program should not be implemented until it is proven that the environmental and economic consequences do not make lower crop insurance premiums inadvisable.

Thomas Plotkin & Tarae Howell

Aviva Abramovsky

Abstract

This article argues that any discussion of insurance regulation should consider the impact reinsurance may have on insurer behavior. It reviews traditional types of reinsurance and examines how private reinsurance contracts can influence insurer actions. When reinsurance is excluded from a holistic analysis of the insurance system, its practical effects can misdirect regulatory assumptions. Moreover, reinsurance operates as a source of independent—and often unexamined—contractual influence on insurers, and as a potential source of interference with regulatory initiatives. Although reinsurance arrangements arise from private contracts, those contracts can exert regulatory effects significant enough to warrant answering this Essay’s central question affirmatively: reinsurance may indeed be correctly termed a “silent regulator.”

Louis Cruz

Abstract

This note distinguishes predatory lending from subprime lending while focusing on the insurance consequences of predatory lending. It examines how single premium credit insurance (SPCI) and private mortgage insurance (PMI), two mortgage-related insurance products, have contributed to the current predatory lending crisis. The note argues for reforms that would eliminate SPCI and make PMI a more feasible option for insureds, enabling subprime lenders to offer mortgages to qualified borrowers while reducing predatory lending and foreclosures. The introduction provides background on subprime and predatory lending; the second part analyzes several issues concerning the role of insurance in the subprime mortgage market; the third part discusses necessary reform measures to address problems with mortgage insurance; and the fourth part reviews recent Federal Reserve Board actions and evaluates whether they are likely to bring meaningful change. The note concludes that although the Fed’s new regulations are a step in the right direction, an outright ban on SPCI is necessary and predatory lending must be stopped completely.

Sara Nadim

Abstract

This note examines the 2008 Mental Health Parity and Addiction Equity Act and argues that although the Act represents a landmark improvement in mental illness parity coverage, it should be amended to define explicitly what constitutes a mental illness or substance use disorder. The first part explores the history of federal mental health parity efforts. The second part discusses the Act’s specific provisions, emphasizing that it does not provide explicit definitions of covered conditions. The third part reviews state definitions of mental illness, while the fourth highlights recent developments supporting the biological basis of mental illness. The fifth part evaluates the societal cost reductions that would result from expanding mental health insurance parity. The note concludes that certain severe biologically based mental illnesses should be expressly listed in the statutory definition and required, at minimum, to be covered by insurers. It supports this position by showing that the cost impact on employer group health plans would be minimal, whereas societal costs—such as homelessness and reduced workplace productivity—would decrease substantially when mental illness and substance use disorders receive adequate treatment.

Erin O’Leary

Abstract

This note distinguishes predatory lending from subprime lending while focusing on the insurance consequences of predatory lending. It examines how single premium credit insurance (SPCI) and private mortgage insurance (PMI), two mortgage-related insurance products, have contributed to the current predatory lending crisis. The note argues for reforms that would eliminate SPCI and make PMI a more feasible option for insureds—changes that would enable subprime lenders to offer mortgages to qualified borrowers while reducing predatory lending and foreclosures. The introduction provides background on subprime and predatory lending; the second part analyzes several issues concerning the role of insurance in the subprime mortgage market; the third part discusses necessary reform measures to mitigate problems associated with mortgage insurance; and the fourth part reviews recent Federal Reserve Board actions and evaluates whether they are likely to bring meaningful change. The note concludes that although the Fed’s regulations are a positive step, an outright ban on SPCI is needed and predatory lending must be stopped entirely.

John P. Harding & Stephen L. Ross

Abstract

This article applies a model of firm capital structure to the current financial crisis and summarizes the insights the model offers for regulating large financial institutions in a post-crisis world. Firm capital structure is evaluated by examining how firms finance their activities using debt and equity, which reflects an important component of firm risk-taking. The article first summarizes the simple model, then uses its results to interpret the evolution of the financial crisis and place it in context. Finally, it presents forward-looking observations and suggestions for future regulation. The article concludes that any effective new regulatory framework must include a robust method for addressing the expanded “Too Big to Fail” umbrella, which has extended moral hazard risks beyond depository institutions. It argues that a successful framework must impose stringent capital standards on financial institutions, backed by regulators with both the authority and the resolve to enforce those standards—putting owners and managers at risk when violations occur, even during crises when regulators may be tempted to accommodate firms to preserve asset value. The framework should also be flexible enough to adapt to changing financial conditions, especially developments affecting franchise value, and must expose uninsured debtors to risk when capital standards are violated so that debt holders have incentives to monitor the activities of very large financial firms.

Sharon Tennyson & William J. Warfel

Abstract

States differ in the legal avenues available to policyholders pursuing actions against their insurers for bad faith in claims settlement. This article discusses the various approaches that states have taken to first-party insurance bad faith law and examines the potential benefits and costs of each. Legal regimes that are likely to award large damages to aggrieved policyholders provide the strongest deterrent to insurer bad faith, but they may also encourage fraudulent insurance claims and discourage insurers from conducting rigorous claim investigations. The article evaluates the empirical significance of these potential incentive distortions by analyzing automobile insurance claim settlement data from states with different bad faith regimes. The data indicate that claim characteristics and investigative practices differ significantly in states permitting tort-based bad faith actions compared to those with other approaches, in ways consistent with the hypothesized incentive effects.