The organization of insurance industry in USA

The American system depends on a full decentralization of power. Each State is qualified to draft its legislation and supervise the activity of insurance companies established in its territory, with the federal State’s role being reduced to that of a coordinator.

Liberalism, competition and limited federal power constitute the foundation of the insurance system in the USA.

The insurance industry in USA: Organization at the level of the federated States

In order to operate within a state, an insurer is required to be registered there and to be granted a license. An insurance company keen on operating in another state is required to reapply for another license from the local authority of that State.

An insurer of national scale willing to operate in the 56 States and territories is required to obtain 56 licenses.

In the USA, each state has its own insurance legislation, which may differ from one state to another.

Insurance supervisory bodies

At the top of each state exists an insurance supervisory body with various names: “Insurance Department”, “Division of Insurance”, “Office of Insurance”, etc.

By 1 January 2021, there were 56 insurance supervisory bodies with each one being autonomous.

Supervisory bodies in all states have more or less the same duties, namely, to:

• protect consumers
• grant licenses to insurance companies and intermediaries
• set the market’s operating rules
• ensure insurers’ solvency
• verify companies’ accounts
• etc.

The size of insurance supervisory bodies varies substantially from one State to another. Economically powerful States (New York, California, Florida, Texas, etc) employ a large number of staff, while others less well-of States settle with smaller numbers.

For instance, in early 2021, California and Texas’ supervisory bodies employed 1398 and 1363 staff members respectively whereas the offices of Idaho and Rhode Island had merely 71 and 35 staff members respectively.

• The commissioner

The commissioner, the person in charge of the insurance oversight body, is either nominated directly by the Governor or elected based on the suffrage of the designation of Governors.

The oversight body and its commissioner are set under the authority of the local executive power whose names may also vary: Office of the Governor, Department of Commerce, Financial Service Commission, etc.

• Legislation

The legislative and regulatory provisions promulgated by the supervisory body of each State are the source of the insurance laws of the State. This specificity triggers variations at the level of the legislation of the different States, thus, compounding the hardships of numerous players in the insurance industry.

Therefore, each federated State has absolute control over the insurance activity under its jurisdiction.

The insurance industry in the USA: Organization at the federal level

Three agencies play a key role at the federal level:

• Le Federal Insurance Office (FIO)

The 2010 Act established the Federal Insurance Office (FIO) which is governed by the Department of the Treasury. The FIO President is nominated by the Secretary of Finance of the Federal State. FIO is tasked with monitoring the activity of insurance companies at the federal level, with the exception of health schemes and crop plans.

This body is entrusted with a second duty, that of enabling underprivileged classes to have access to insurance (apart from health policies).

The FIO also manages terrorism risks through the “Terrorism Insurance Program”.

• Le Federal Advisory Committee on Insurance (FACI)

The FACI is a major advisory federal agency providing assistance and support to the FIO in its statutory duties.

• The National Association of Insurance Commissioners (NAIC)

To oversee the structure, the different federal authorities founded in 1871 the National Association of Insurance Commissioners (NAIC) whose mission is to assist supervisory bodies in each State and territory.

The NAIC is also tasked with promoting market competitiveness, strengthening insurers’ financial solvency and soundness, and ensuring quality service to consumers, etc.

Additionally, the NAIC is constantly striving to ensure the harmonization of certain insurance activities in the U.S (technical, financial ratios…), the standardization of some practices and working norms as well as information sharing between States.

Classification of insurance companies in USA

In the USA, insurance companies are classified into three main categories.

• domestic insurers: insurance companies that are domiciled in the state in which the business operates.
• foreign insurers: a company whose State of domicile is different than the one in which the business operates. According to the official nomenclature, there are tens of thousands of foreign insurers.
• alien insurers: companies that are foreign to the United States but that operate on the territory, fall in this category. Some examples include Allianz, Axa, etc.

In addition to these three main types, there are other types of companies that are specific to the American market. These include Purchasing Groups and Risk Retention Groups.

• Purchasing Groups: these companies have a structure similar to a mutual insurance company and which gathers individuals with common interests (professional membership, trade unions, etc.).
• Risk Retention Groups: insurance companies that provide liability insurance to its members, also similar to mutual insurance companies.

Insurance industry in the USA : Main highlights (2000-2021)