A "lite"discussion on property and casualty insurance regulation
The insurance industry in the United States is regulated primarily by the individual states. However, the industry (particularly the portion dealing with life and health insurance) is affected by federal law, especially in the areas of tax consequences of its various product protection, savings and investment benefits. In fact, in the area of property and casualty insurance, state laws originally became the dominant source of regulation because of the confusion over whether insurance could be defined as a tangible good. If it were, it would be considered commerce and therefore its regulation would be up to the federal government. It turned out that insurance was defined as an intangible good, so its regulation fell to the individual states. Following are some key events that helped create the regulatory status of the insurance industry.
In the 1860s, an agent working for a New York insurer extended his dealings to Virginia. Legal action was filed against the New York agent for failing to comply with Virginia state law. The case was eventually presented to the U.S. Supreme Court. The court needed to address whether individual states maintained the right to regulate the business of insurance. The court's decision preserved the prevailing assumption that the sale of insurance was not considered to be interstate commerce and should therefore stay under each state's jurisdiction. For the next 75 years, this decision was upheld.
In 1943, the Department of Justice sued a group of insurers known as the South-Eastern Underwriters Association (SEUA) for violating the Sherman Anti-trust Act. The SEUA members' agreement to use uniform insurance rates amounted to price fixing, a violation of federal law. The association defended itself by contending that insurance was not considered to be commerce and was therefore not subject to federal regulations. The case was appealed to the U.S. Supreme Court and in June of 1944, the Court reversed itself and ruled that insurance was commerce and, therefore, subject to federal regulation.
The brief period following the SEUA decision
was characterized by confusion. In 1945, the United States Congress
passed the McCarran-Ferguson Act. Through this law, Congress reaffirmed
the power of individual states by permitting the states to continue
to regulate insurance. However, in order to maintain regulatory
control after July 1, 1948, each state had to enact the same type
of anti-trust laws that the federal government had on their books.
All of the states eventually passed state-level anti-trust laws
and the insurance business is still regulated by the states.
The future of insurance, including regulation,
is in an important transition period. For many years, insurance
industry experts, executives, insurance commissioners, consumer
organizations and non-insurance business groups have debated the
need for change. The most commonly discussed options include:
A very hot topic is the role that banks may play in the insurance
industry. The banking industry has been making substantial inroads
into the marketing of insurance, seeing the industry as a natural
part of the world of financial services. However, the number of
proponents for bankers becoming insurers are equaled by those
opposing any bank involvement. Banks are ultimately regulated
by the federal government through the office of the Comptroller
of the Currency. Whatever decisions are finally made in this arena
will have a tremendous impact on how insurance is regulated.
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