January 15, 2015
Introduction to Financial Services: Insurance Regulation
This In Focus provides a summary of the insurance
Property/casualty insurance typically is a shorter-term
regulatory system in the United States.
proposition with six-month or one-year contracts and
greater exposure to catastrophic risks.
Market Structure
Health insurance has evolved in a very different direction
Insurance companies constitute a major segment of the U.S.
than life and property/casualty insurance. Many health
financial services industry. The insurance industry is often
insurance companies are heavily involved with healthcare
separated into two parts: life and health insurance
delivery, including negotiating contracts with physicians
(life/health), which also includes annuity products, and
and hospitals, rather than purely insurance operations. The
property and casualty insurance (property/casualty), which
health insurance regulatory system is much more influenced
includes most other lines of insurance, such as homeowners
by the federal government through the Medicare, Medicaid,
insurance, automobile insurance, and various commercial
the Employee Retirement Income Security Act of 1974
lines of insurance purchased by businesses. According the
(ERISA; P.L. 93-406), and the Patient Protection and
insurance rating agency AM Best, 2013 premiums for the
Affordable Care Act (ACA; P.L. 111-148). The following
nearly 900 life/health companies in the United States
discussion concentrates primarily on property/casualty and
totaled $533.8 billion, with assets totaling $6.08 billion.
life insurance.
Premiums for 2013 p for the nearly 3,000 property/casualty
insurance companies totaled $484.4 billion, with assets
Role of Federal and State Governments
totaling $1.76 trillion. Despite the large numbers of
insurance companies, both life/health and property/casualty
The role of the federal government in regulating private
insurance are also reasonably concentrated industries, with
insurance is relatively limited compared with its role in
the top 25 life/health companies writing 63% of overall
banking and securities. Insurance companies, unlike banks
premiums and the top 25 property/casualty companies
and securities firms, have been chartered and regulated
writing 66% of overall premiums. Figure 1 displays the
solely by the states for the past 150 years. There are no
market share of the top 25 insurers versus the rest of the
federal regulators of insurance akin to those for securities or
market.
banks, such as the Securities and Exchange Commission
(SEC) or the Office of the Comptroller of the Currency
Figure 1. Market Concentration
(OCC), respectively.
Each state government has a department or other entity
charged with licensing and regulating insurance companies
and those individuals and companies selling insurance
products. States regulate the solvency of the companies and
the content of insurance products as well as the market
conduct of companies. Although each state sets its own
laws and regulations for insurance, the National Association
of Insurance Commissioners (NAIC) acts as a coordinating
body that sets national standards through model laws and
regulations. Models adopted by the NAIC, however, must
be enacted by the states before having legal effect. The
states have also developed a coordinated system of guaranty

funds, designed to protect policyholders in the event of
insurer insolvency.
Source: CRS using date from AM Best.
Different lines of insurance present very different
The limited federal role stems from both Supreme Court
characteristics and risks. Life insurance typically is a
decisions and congressional action. In the 1868 case Paul v.
longer-term proposition with contracts stretching over
Virginia, the court found that insurance was not considered
decades and insurance risks that are relatively well defined
interstate commerce, and thus not subject to federal
in actuarial tables. Annuity products, which are also usually
regulation. This decision was effectively reversed in the
offered by life insurers, present similar long-term insurance
1944 decision U.S. v. South-Eastern Underwriters
risks. Particular life insurance and annuity products,
Association. In 1945, Congress passed the McCarran-
however, may be based on securities like stocks or bonds,
Ferguson Act (15 U.S.C. §1011 et seq.) specifically
and thus may present shorter-term risks more similar to
preserving the states’ authority to regulate and tax insurance
investment products for both the consumer and the insurer.
and also granting a federal antitrust exemption to the
insurance industry for “the business of insurance.”
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Introduction to Financial Services: Insurance Regulation
The Dodd-Frank Act (P.L. 111-203) in 2010 significantly
Targeted Federal Legislation Changing the State
altered the overall financial regulatory structure in the
Regulatory System. The 50-state system of insurance
United States, but it largely left the state-centered insurance
regulation has been particular criticized on efficiency
regulatory structure intact. The areas where the act did
grounds due to perceived duplicative and burdensome
affect insurance regulation include (1) enhanced systemic
regulation. This resulted in proposals ranging from a full
risk regulatory authority, including authority over insurers,
federal chartering system for insurers to narrower targeted
was vested in the Federal Reserve and in the Financial
efforts to simplify the state system. Legislation from recent
Services Oversight Council (FSOC), a new council of
Congresses has included (1) creation of a National
regulators headed by the Treasury Secretary; (2) oversight
Association of Registered Agents and Brokers (NARAB) to
of bank and thrift holding companies, including companies
reduce the need for multiple licensures of insurance agents
with insurance subsidiaries, was consolidated in the Federal
and (2) expansion of the federal Liability Risk Retention
Reserve with new capital requirements added; and (3) the
Act, which preempts state insurance company licensure
creation of a new Federal Insurance Office (FIO) within the
laws for a small subset of insurance companies. The 114th
Treasury Department. The Dodd-Frank Act also included
Congress included NARAB provisions in Title II of H.R.
measures affecting the states’ oversight of surplus lines
26, which was enacted as P.L. 114-1 on January 12, 2014.
insurance and reinsurance.
Response to International Developments. The European
Policy Issues
Union (EU) and the International Association of Insurance
Supervisors (IAIS) are undertaking separate initiatives that
Recent congressional attention to insurance regulatory
have provoked concern in the United States. The EU’s
issues can be broken into three broad areas:
Solvency II regulatory modernization program includes a
reciprocity designation, which could disadvantage U.S.
Dodd-Frank Act Implementation. Among these issues
insurers if the United States is not judged a reciprocal
are
jurisdiction. The IAIS, following a charge from the
1. The application of new holding company capital
Financial Stability Board, is developing new capital
standards to insurers, particularly Section 171 (known
standards for insurers on a relatively tight timeframe, with
popularly as the Collins Amendment). Banking and
final standards planned to be in place by 2018.
insurance present different risk profiles and it is
generally accepted that they require different capital
CRS Resources
standards. Under the Collins Amendment, the Federal
Reserve indicated it believed it did not have the ability
CRS Report R43067, Insurance Regulation: Issues,
to suitably tailor capital rules for insurers and would
Background, and Legislation in the 113th Congress, by
need a legislative change in order to do so. The 113th
Baird Webel.
Congress passed S. 2270 (P.L. 113-279) to address
these concerns.
CRS Report R41372, The Dodd-Frank Wall Street Reform
2.
and Consumer Protection Act: Insurance Provisions, by
The treatment of insurers under Dodd-Frank’s systemic
Baird Webel.
risk regime. Under Dodd-Frank, insurers have been
designated as systemically important and insurers with
CRS Report RL32237, Health Insurance: A Primer, by
assets of more than $50 billion could be assessed for
Bernadette Fernandez and Namrata K. Uberoi.
future costs of the new resolution regime. Both the
systemic designation of insurers and the insurer’s role
Baird Webel, bwebel@crs.loc.gov, 7-0652
in resolution has been criticized, with legislative

proposals to address both issues.
3. The role of the Federal Insurance Office and the
IF10043
Federal Reserve. Dodd-Frank gave the FIO a number
of roles both domestically and internationally. Exactly
how the mandates are applied and how the FIO
interacts with existing actors like the NAIC, the
International Association of Insurance Supervisors
(IAIS), and the United States Trade Representative
(USTR), however, are not clear from the statute. Dodd-
Frank also resulted in the Federal Reserve taking role
overseeing many more insurers than it had in the past.
Some frictions have been reported, particularly
between state regulators and the new federal actors in
the international arena. To date, neither the FIO nor
the Federal Reserve have used significant portions of
their authority, such as FIO’s preemption authority
related to international covered agreements or the
actual application of Federal Reserve capital standards
to some insurers.
www.crs.gov | 7-5700

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