In general, insurance is a contract in which the insurer agrees to compensate or indemnify another party (the insured, the policyholder, or a beneficiary) for specified loss or damage to a specified thing For example, a property insurance company may agree to bear the risk that a specific piece of property (e.g., a car or a house An insurance policy is the form of that agreement.
THE HISTORY OF INSURANCE
The first insurance company in the United States was founded in Charleston, South Carolina, in 1735. Benjamin Franklin helped establish the Philadelphia Contributionship, the nation’s oldest mutual insurance company that is still in business, in 1752. Franklin’s company was the first to contribute to the prevention of fires. The Insurance Company of North America was the first stock insurance company to be established in the United States in 1792. In 1837, Massachusetts enacted the first state law requiring insurance companies to maintain adequate reserves.
His company also refused to insure certain buildings where the risk of fire was too great, such as all wooden houses. In 1851, the appointment of the first state commissioner of insurance in New Hampshire marked the beginning of formal regulation of the insurance industry. In order to move toward more comprehensive insurance regulation at the state level, the State of New York appointed its own commissioner of insurance and established a state insurance department in 1859.
Since then, insurance and the insurance industry have grown, diversified, and developed significantly. Until the 1950s, when laws began to allow multi-line charters, insurance companies were largely prohibited from writing more than one line of insurance. The insurance industry has shifted from being dominated by small, local, single-line mutual companies and member societies to becoming increasingly dominated by multi-line, multi-state, and even multinational insurance conglomerates and holding companies.
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. Prior to this time, insurance was primarily regulated by corporate charter, state statutory law, and de facto regulation by the courts in judicial decisions. Under the state-based insurance regulation system, each state operates independently to regulate their own insurance markets, typically through a state department of insurance or division of insurance.
Challenges To The State Federal Regulation Of Insurance
Despite this, federal regulation has continued to encroach upon the state regulatory system. The concept of an optional federal charter was first proposed in response to a series of solvency and capacity issues that afflicted property and casualty insurers in the 1970s. This OFC idea was to create an elective federal regulatory scheme that insurers could choose to join instead of the traditional state system, similar to how banks are regulated by two charters. Although the proposal for optional federal chartering was defeated in the 1970s, it served as the basis for the current debate over optional federal chartering in the last ten years. President Obama signing the Dodd-Frank Reform Act The Federal Trade Commission attempted to regulate the insurance industry in 1979 and the early 1980s; however, the Senate Commerce Committee unanimously rejected the FTC’s efforts.
One common typology of insurance in the United States is to divide the industry into life and health insurers, on the one hand, and property and casualty insurers, on the other:
- Life and Health o Health (dental, vision, medications, and other) o Life (long-term care, accidental death and dismemberment, hospital indemnity)
- Annuities (securities)
- Life and Annuities
- Property and Casualty (P & C)
- Property (flood, earthquake, home, auto, fire, boiler, title, pet)
- Casualty (errors and omissions, workers’ compensation, disability,
The insurance industry in the United States is served by a number of associations, businesses, and government agencies. The National Association of Insurance Commissioners provides services to its members, which are state insurance departments or divisions, as well as models for standard state insurance law. The Insurance Services Office, which creates standard policy forms and rates loss costs on behalf of member insurers and then submits these documents to state insurance departments or divisions, is utilized by many insurance providers.