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Regulation of insurance companies
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Insurance regulation that governs the business of insurance is typically aimed at assuring the solvency of insurance companies. Thus, this type of regulation governs capitalization, reserve policies, rates and various other "back office" processes.
In the United States
As a preliminary matter, insurance companies are generally required to follow all of the same laws and regulations as any other type of business. This would include zoning and land use, wage and hour laws, tax laws, and securities regulations. There are also other regulations that insurers must also follow. Regulation of insurance companies is generally applied at State level and the degree of regulation varies markedly between States.
Regulation of the insurance industry began in the United States in the 1940s , through several United States Supreme Court rulings. The first ruling on insurance had taken place in 1868 (in the Paul v. Virginia ruling[3]), with the supreme court ruling that insurance policy contracts were not in themselves commercial contracts. This stance did not change until 1944 (in the United States v. South-Eastern Underwriters Association ruling [4]), when the Supreme court upheld a ruling stating that policies were commercial, and thus were regulatable as other similar contracts were.
In the United States each state typically has a statute creating an administrative agency. These state agencies are typically called the Department of Insurance, or some similar name, and the head official is the Insurance Commissioner, or a similar titled officer. The agency then creates a group of administrative regulations to govern insurance companies that are domiciled in, or do business in the state. In the United States regulation of insurance companies is almost exclusively conducted by the several states and their insurance departments. The federal government has explicitly exempted insurance from federal regulation in most cases.
In the case that an insurer declares bankruptcy, many countries operate independent services and regulation to ensure as little financial hardship is incurred as possible (National Association of Insurance Commissioners operates such a service in the United States [5]).
In the United States and other relatively highly-regulated jurisdictions, the scope of regulation extends beyond the prudential oversight of insurance companies and their capital adequacy, and include such matters as ensuring that the policy holder is protected against bad faith claims on the insurer's part, that premiums are not unduly high (or fixed), and that contracts and policies issued meet a minimum standard. A bad faith action may constitute several possibilities; the insurer denies a claim that seems valid in the contract or policy, the insurer refuses to pay out for an unreasonable amount of time, the insurer lays the burden of proof on the insured - often in the case where the claim is unprovable. Other issues of insurance law may arise when price fixing occurs between insurers, creating an unfair competitive environment for consumers. A notable example of this is where Zurich Financial Services [6] - along with several other insurers - inflated policy prices in an anti-competitive fashion. If an insurer is found to be guilty of fraud or deception, they can be fined either by regulatory bodies, or in a lawsuit by the insured or surrounding party. In more severe cases, or if the party has had a series of complaints or rulings, the insurer's license may be revoked or suspended. It should be noted that bad faith actions are exceedingly rare outside the United States. Even within the US the full rigour of the doctrine is limited to certain States such as California.
In the European Union
Member States of the European Union each have their own insurance regulators. However, the E.U. regulation sets an harmonsied prudential regime throughout the whole Union. As they are submitted to harmonised prudential regulation, and in consistency with the European Treaty (according to which any legal or natural person who is a citizen of a Union member State is free to establish him-, her- or itself, or to provide services, anywhere within the European Union), an insurer licensed in and regulated by e.g. the United Kingdom's financial services regulator, the Financial Services Authority, may establish a branch in, and/ or provide cross-border insurance coverage (through a process known as "free provision of services") into, any other of the member States without being regulated by those States' regulators. Provision of cross-border services in this manner is known as "passporting".
Rest of World
Every developed sovereign state regulates the provision of insurance in different ways. Some regulate all insurance activity taking place within the particular jurisdiction, but allow their citizens to purchase insurance "offshore". Others restrict the extent to which their citizens may contract with non-locally regulated insurers. Still others do both. In consequence, a complicated muddle has developed in which many international insurers provide insurance coverage on an unlicensed or "non-admitted" basis with little or no knowledge of whether the particular jurisdiction in or into which cover is provided is one that prohibits the provision of insurance cover or the doing of insurance business without a licence.
In the United States
As a preliminary matter, insurance companies are generally required to follow all of the same laws and regulations as any other type of business. This would include zoning and land use, wage and hour laws, tax laws, and securities regulations. There are also other regulations that insurers must also follow. Regulation of insurance companies is generally applied at State level and the degree of regulation varies markedly between States.
Regulation of the insurance industry began in the United States in the 1940s , through several United States Supreme Court rulings. The first ruling on insurance had taken place in 1868 (in the Paul v. Virginia ruling[3]), with the supreme court ruling that insurance policy contracts were not in themselves commercial contracts. This stance did not change until 1944 (in the United States v. South-Eastern Underwriters Association ruling [4]), when the Supreme court upheld a ruling stating that policies were commercial, and thus were regulatable as other similar contracts were.
In the United States each state typically has a statute creating an administrative agency. These state agencies are typically called the Department of Insurance, or some similar name, and the head official is the Insurance Commissioner, or a similar titled officer. The agency then creates a group of administrative regulations to govern insurance companies that are domiciled in, or do business in the state. In the United States regulation of insurance companies is almost exclusively conducted by the several states and their insurance departments. The federal government has explicitly exempted insurance from federal regulation in most cases.
In the case that an insurer declares bankruptcy, many countries operate independent services and regulation to ensure as little financial hardship is incurred as possible (National Association of Insurance Commissioners operates such a service in the United States [5]).
In the United States and other relatively highly-regulated jurisdictions, the scope of regulation extends beyond the prudential oversight of insurance companies and their capital adequacy, and include such matters as ensuring that the policy holder is protected against bad faith claims on the insurer's part, that premiums are not unduly high (or fixed), and that contracts and policies issued meet a minimum standard. A bad faith action may constitute several possibilities; the insurer denies a claim that seems valid in the contract or policy, the insurer refuses to pay out for an unreasonable amount of time, the insurer lays the burden of proof on the insured - often in the case where the claim is unprovable. Other issues of insurance law may arise when price fixing occurs between insurers, creating an unfair competitive environment for consumers. A notable example of this is where Zurich Financial Services [6] - along with several other insurers - inflated policy prices in an anti-competitive fashion. If an insurer is found to be guilty of fraud or deception, they can be fined either by regulatory bodies, or in a lawsuit by the insured or surrounding party. In more severe cases, or if the party has had a series of complaints or rulings, the insurer's license may be revoked or suspended. It should be noted that bad faith actions are exceedingly rare outside the United States. Even within the US the full rigour of the doctrine is limited to certain States such as California.
In the European Union
Member States of the European Union each have their own insurance regulators. However, the E.U. regulation sets an harmonsied prudential regime throughout the whole Union. As they are submitted to harmonised prudential regulation, and in consistency with the European Treaty (according to which any legal or natural person who is a citizen of a Union member State is free to establish him-, her- or itself, or to provide services, anywhere within the European Union), an insurer licensed in and regulated by e.g. the United Kingdom's financial services regulator, the Financial Services Authority, may establish a branch in, and/ or provide cross-border insurance coverage (through a process known as "free provision of services") into, any other of the member States without being regulated by those States' regulators. Provision of cross-border services in this manner is known as "passporting".
Rest of World
Every developed sovereign state regulates the provision of insurance in different ways. Some regulate all insurance activity taking place within the particular jurisdiction, but allow their citizens to purchase insurance "offshore". Others restrict the extent to which their citizens may contract with non-locally regulated insurers. Still others do both. In consequence, a complicated muddle has developed in which many international insurers provide insurance coverage on an unlicensed or "non-admitted" basis with little or no knowledge of whether the particular jurisdiction in or into which cover is provided is one that prohibits the provision of insurance cover or the doing of insurance business without a licence.
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