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IAI Actuarial Core Principles · Business Economics · Supply-side policies and their impact on businesses

How would a successful supply-side reform, such as simplifying licensing and reducing red tape, most directly benefit an insurance company operating in India?

Simplifying licensing and reducing red tape lowers an insurer's costs of doing business and makes it easier to enter new markets or launch products. It does not guarantee higher premiums, remove supervision, raise capital requirements or directly increase claims, so only the cost and entry benefit is correct.

  1. AIt raises the minimum capital the insurer must hold
  2. BIt lowers the insurer's costs of doing business and eases entry into new marketsCorrect
  3. CIt guarantees higher premium rates on all products
  4. DIt removes the need for any regulatory supervision
  5. It increases the insurer's claims by raising policyholder demand for payouts

Explanation

Cutting red tape reduces compliance and administrative costs and lowers barriers to entering new markets or products, which improves efficiency. It does not guarantee premium rates or remove supervision, and it has no direct effect on claims or capital requirements.

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