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Insurance, Regulation, and Distribution

The insurance industry protects policyholders' assets by transferring risk from an individual or business to an insurer. Insurers act as financial intermediaries by investing the premiums collected for this service. Company size is generally measured by net premiums written: premium revenue minus amounts paid for reinsurance.
  • There are three main insurance sectors: property/casualty, life/health (L/H), and health insurance.
  • Property/casualty (P/C) consists primarily of auto, homeowners, and commercial insurance.
  • Life/health consists primarily of life insurance and annuity products.
Health insurance is offered by private health insurers, some L/H and P/C insurers, and government programs such as Medicare.

Regulation

All insurance types are regulated by states, each with its own statutes and rules. State insurance departments oversee insurer solvency and market conduct and, to varying degrees, review and rule on rate-increase applications. The National Association of Insurance Commissioners develops model industry rules and regulations, many requiring state legislative approval. The McCarran-Ferguson Act (see naic.org), passed by Congress in 1945, established continued state insurance regulation as being in the public interest . Under the Gramm-Leach-Bliley Act of 1999, the Financial Services Modernization Act, insurance activities—whether conducted by banks, broker-dealers, or insurers—are regulated by states. However, some parts of the federal government and some financial services companies have challenged, and continue to challenge, state regulation.

Distribution

Life and property/casualty policies were sold almost exclusively by agents: captive agents representing one insurer or independent agents representing several. Insurers selling through captive agents, mail, telephone, or the internet are called "direct writers." However, distinctions between captive agents and independent companies or agencies (see American Agency System in our documentation) have blurred since the 1990s, when insurers began using multiple channels to reach prospects. Banks also began exploring insurance sales through independent agents in the 1980s, generally by buying agencies. Other channels include professional organizations and workplaces.