Insurance in the United States

Insurance in the United States refers to the market for risk in the United States, the world's largest insurance market by premium volume.^[1] Of the $4.640 trillion of gross premiums written worldwide in 2013, $1.274 trillion (27%) were written in the United States.^[1]

Insurance, generally, is a contract in which the insurer (stock insurance company, mutual insurance company, reciprocal, orLloyd's syndicate, for example), agrees to compensate or indemnify another party (the insured, the policyholder or a beneficiary) for specified loss or damage to a specified thing (e.g., an item, property or life) from certain perils or risks in exchange for a fee (the insurance premium).^[2] For example, a property insurance company may agree to bear the risk that a particular piece of property (e.g., a car or a house) may suffer a specific type or types of damage or loss during a certain period of time in exchange for a fee from the policyholder who would otherwise be responsible for that damage or loss. That agreement takes the form of an insurance policy.^[3]

“	Insurance provides indemnification against loss or liability from specified events and circumstances that may occur or be discovered during a specified period.	”
— FASB Statement of Financial Accounting Standards No. 113, "Accounting for Reinsurance of Short-Duration and Long-Duration Contracts" December 1992

Contents

  [show] 

History[edit]

See also: History of insurance

The first insurance company in the United States underwrote fire insurance and was formed in Charleston, South Carolina, in 1735.^[4] In 1752, Benjamin Franklin helped form a mutual insurance company called the Philadelphia Contributionship, which is the nation's oldest insurance carrier still in operation.^[5][6] Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses.^{[citation needed]}

The first stock insurance company formed in the United States was the Insurance Company of North America in 1792.^[7]Massachusetts enacted the first state law requiring insurance companies to maintain adequate reserves in 1837. Formal regulation of the insurance industry began in earnest when the first state commissioner of insurance was appointed in New Hampshire in 1851. In 1869, the State of New York appointed its own commissioner of insurance and created a state insurance department to move towards more comprehensive regulation of insurance at the state level.^[8]

Insurance and the insurance industry has grown, diversified and developed significantly ever since. Insurance companies were, in large part, prohibited from writing more than one line of insurance until laws began to permit multi-line charters in the 1950s. From an industry dominated by small, local, single-line mutual companies and member societies, the business of insurance has grown increasingly towards multi-line, multi-state and even multi-national insurance conglomerates and holding companies.^[4]

Regulation[edit]

Main article: Insurance Regulatory Law

State-based insurance regulatory system[edit]

Historically, the insurance industry in the United States was regulated almost exclusively by the individual state governments. The first state commissioner of insurance was appointed in New Hampshire in 1851 and the state-based insurance regulatory system grew as quickly as the insurance industry itself.^[9] Prior to this period, insurance was primarily regulated by corporate charter, state statutory law and de facto regulation by the courts in judicial decisions.^[10][11]

Under the state-based insurance regulation system, each state operates independently to regulate their own insurance markets, typically through a state department of insurance. Stretching back as far as the Paul v. Virginia case in 1869, challenges to the state-based insurance regulatory system have risen from various groups, both within and without the insurance industry. The state regulatory system has been described as cumbersome, redundant, confusing and costly.^[12]

The United States Supreme Court found in the 1944 case of United States v. South-Eastern Underwriters Association that the business of insurance was subject to federal regulation under the Commerce Clause of the U.S. Constitution.^[13] TheUnited States Congress, however, responded almost immediately with the McCarran-Ferguson Act in 1945.^[14] The McCarran-Ferguson Act specifically provides that the regulation of the business of insurance by the state governments is in the public interest. Further, the Act states that no federal law should be construed to invalidate, impair or supersede any law enacted by any state government for the purpose of regulating the business of insurance, unless the federal law specifically relates to the business of insurance.