The insurance market of the United States is very competitive because of the presence of various specialized and multi-line insurers operating at both regional and national levels through different channels of distribution. According to the data of 2016 year-end, there were approximately 2,628 U.S. inland property casualty insurance companies (Consisting of 1,186 organizations) having direct premium of about US$612 billion and policyholders more than approximately US$734 billion. In addition to that, based on the data of the year 2016, there were approximately 769 U.S.
life insurance and annuity insurance companies operating in the United States with an average premium of about US$606 billion and combined surplus and capital of approximately US$394 billion.
There is competition for both life insurance policy and commercial policy, but product regulation can limit the flexibility in pricing in some lines of casualty and property insurance. Moreover, it can take more than one year to finish the filings required to launch a new life insurance plan. Some markets present larger regulatory challenges for the insurance companies due to quick change in loss experience and/or suppression of rate, such as:
- Coverage of the property in certain natural disaster exposed areas
- Casualty coverage in various medical professions of certain states
- Coverage of workers’ compensation
In these markets, there are state-run options and coverage plans available and a licensed insurer can be restricted for its various abilities to exit.
Regulatory Framework for Insurance and Reinsurance Activities
Insurance in the United States is primarily regulated by the states instead of the U.S. federal government, but if the insurers that present risk as a whole, are designated for greater supervision by the Federal Reserve only. Additionally, all the insurance groups that own savings, banks, and loans are also regulated as holding companies of bank by the Federal Reserve.
Both insurers and reinsurers are regulated by the officials of the state government in the domiciliary state and potentially in their non-domiciliary states where their business is present.
The regulatory system of a state protects the insurance and reinsurance customers through the supervision of:
- Licensing of the insurance company
- Licensing of the producer
- Product regulation
- Market conduct rules
- Regulation of the investments
- Financial reporting by the insurers
- Requirements of the capital
- Own Risk Solvency Assessment (ORSA), corporate governance standards and requirements, and Enterprise Risk Management (ERM).
- Regulation of the holding companies
- Financial examination
- Consumer protection services
Regulatory Bodies of Insurance and Reinsurance in the U.S.
An officer from the branch of state’s executive is designated as the chief supervisory official in each state for enforcement and implementation of the state insurance laws. This official can be called as the insurance superintendent, insurance commissioner, or insurance director and is appointed or elected by the governor, depending upon the state. This official controls the regulatory agency, which is generally known as insurance department; however, the precise name of the agency varies according to the state.
The state insurance regulatory of all 50 states of the United State, five U.S. territories, and the District of Columbia have a voluntary association with the National Association of Insurance Commissioners (NAIC). For the implementation and development of the uniform policy, the NAIC provides a forum. Its main tools are:
- Development of model rules and laws. These rules and laws can or cannot be represented into law by each territory or state
- Development of standard financial reporting and ratios of solvency
- Information sharing
- Co-ordination of insurers’ examinations
Life insurance plans are subject to regulation by the United States Securities and the State Exchange Commission (SEC), if the plans or policies qualify as “securities”, which are not relieved under the law of U.S. federation securities. The life insurance plans or life insurance policies also can be subject to regulation by the labor department of the United States, if they offer plans for employees’ benefit.
Contract of Insurance
In the U.S., a contract of insurance is normally an agreement wherein the insurer agrees to bestow a benefit of monetary value to another party known as insured, when some specific events occur, which are beyond the control of any of the participating parties. In exchange for coverage, the insurer gets the premium payments from the insured. In some states, the spreading and pooling of the risk is also an important element of the insurance. To obtain insurance, an insured must have a material interest, which could be adversely affected by the occurrence of any specified event, and hence, it is known as insurable interest.
Contract of Reinsurance
It is an agreement between the ceding insurer and reinsurer (assuming insurer). According to this contract of reinsurance, the reinsurer agrees to compensate the ceding insurer for all loses, which are paid by the ceding insurer and all the expenses of the policies written by the ceding insurer.
Basically, reinsurance is a form of insurance; however, you can call it insurance on insurance. Since contracts of the reinsurance mostly are considered as agreements between two parties having same bargaining power, they are not regulated.
Therefore, according to the current regulatory system of most of the states of the U.S., contracts of the insurance are covering different risks in a state and should meet the requirements of the law of the state as for content. The contract forms used by the insurers must be filed with the state department of insurance for most of the insurance and can be disapproved. The rates that are to be charged are subject to disapproval or approval of filing for some lines of the insurance.