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Updated January 4, 2021
Introduction to Financial Services: Insurance
This In Focus provides a summary of the insurance market
thus may present shorter-term risks more similar to
and regulatory system in the United States.
investment products for both the consumer and the insurer.
Property/casualty insurance typically is a shorter-term
Market Structure
proposition with six-month or one-year contracts and
Insurance companies constitute a major segment of the U.S.
greater exposure to catastrophic risks.
financial services industry. The insurance industry is often
separated into two parts:
Health insurance has evolved in a different direction than
life and property/casualty insurance. Many health insurance
life and health insurance (life/health), which also
companies are heavily involved with health care delivery,
includes annuity products, and
including negotiating contracts with physicians and
hospitals, rather than purely insurance operations. The
property and casualty insurance (property/casualty),
health insurance regulatory system is much more influenced
which includes most other lines of insurance, such as
by the federal government through Medicare, Medicaid, the
homeowners insurance, automobile insurance, and
Employee Retirement Income Security Act (ERISA; P.L.
various commercial lines of insurance purchased by
93-406), and the Patient Protection and Affordable Care
businesses.
Act (ACA; P.L. 111-148) than life and property/casualty
insurance. The following discussion focuses on
According to the insurance rating agency A.M. Best, 2019
property/casualty and life insurance.
net premiums for the more than 300 life/health companies
(with over 800 subsidiaries) in the United States totaled
Role of Federal and State Governments
$645.2 billion, with admitted assets totaling $7.07 trillion.
The role of the federal government in regulating private
The 2019 net premiums for the more than 1,000
insurance is relatively limited compared with its role in
property/casualty insurance companies (with over 2,800
banking and securities. Insurance companies, unlike banks
subsidiaries) totaled $637.1 billion, with admitted assets
and securities firms, have been chartered and regulated
totaling $2.2 trillion.
solely by the states for the past 150 years. There are no
federal regulators of insurance akin to those for securities or
Despite the large numbers of insurance companies, both
banks, such as the Securities and Exchange Commission
life/health and property/casualty insurances are also
(SEC) or the Office of the Comptroller of the Currency
reasonably concentrated industries, with the top 25
(OCC), respectively.
life/health company groups writing 60% of overall
premiums and the top 25 property/casualty company groups
Each state government has a department or other entity
writing 69% of overall premiums. Figure 1 displays the
charged with licensing and regulating insurance companies
market share of the top 25 insurers versus the rest of the
and those individuals and companies selling insurance
market in 2017.
products. States regulate the solvency of the companies and
the content of insurance products as well as the market
Figure 1. Insurance Market Concentration
conduct of companies. Although each state sets its own
(net premiums; $ billions)
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 must be enacted
by the states before having legal effect, which can be a
lengthy and uncertain process. The states have also
developed a system of guaranty funds, designed to protect
policyholders in the event of insurer insolvency.
The limited federal role stems from both Supreme Court
Source: Figure created by CRS using data from A.M. Best for 2019.
decisions and congressional action. In the 1868 case Paul v.
Virginia, the Court found that insurance was not considered
Different lines of insurance present different characteristics
interstate commerce and thus not subject to federal
and risks. Life insurance typically is a longer-term
regulation. This decision was effectively reversed in the
proposition with contracts stretching over decades and
Court’s 1944 decision, U.S. v. South-Eastern Underwriters
insurance risks that are relatively well defined in actuarial
Association. In 1945, Congress passed the McCarran-
tables. Annuity products, which are also usually offered by
Ferguson Act (15 U.S.C. §§1011 et seq.), specifically
life insurers, present similar long-term insurance risks.
preserving the states’ authority to regulate and tax insurance
Particular life insurance and annuity products, however,
may be based on securities, such as stocks or bonds, and
https://crsreports.congress.gov
Introduction to Financial Services: Insurance
and granting a federal antitrust exemption to the insurance
and S. 1298 would have added a voting state insurance
industry for “the business of insurance.”
regulator representative to FSOC.
The Dodd-Frank Wall Street Reform and Consumer
Federal Reserve Capital Standards and Insurers.
Protection Act (Dodd-Frank; P.L. 111-203) in 2010
Banking and insurance present different risk profiles , and it
significantly altered the overall U.S. financial regulatory
is generally accepted that they require different capital
structure, but it largely left the state-centered insurance
standards. In October 2019, the Federal Reserve put forth
regulatory structure intact. The act did affect insurance
proposed rulemaking outlining possible capital standards
regulation in several areas: (1) enhanced systemic risk
for insurers, but no such standards have been finalized. In
regulatory authority, including authority over insurers, was
the 116th Congress, S. 3123 would have directed the Federal
vested in the Federal Reserve and in the new Financial
Reserve to tailor its insurance capital standards and give
Stability Oversight Council (FSOC); (2) oversight of bank
additional deference to the state insurance regulators.
and thrift holding companies, including companies with
insurance subsidiaries, was consolidated in the Federal
The Role of the Federal Insurance Office and the
Reserve with new capital requirements added; and (3) a
Federal Reserve. Dodd-Frank gave the FIO a number of
new Federal Insurance Office (FIO) was created within the
roles both domestically and internationally. Exactly how the
Treasury Department. The Dodd-Frank Act also included
mandates are applied and how the FIO interacts with
measures affecting the states’ oversight of surplus lines
existing actors, such as the NAIC, the International
insurance and reinsurance.
Association of Insurance Supervisors (IAIS), and the
United States Trade Representative (USTR), is not clear
Policy Issues
from the statute. Dodd-Frank also gave the Federal Reserve
Recent congressional attention to insurance regulatory
a role in overseeing many more insurers than it had in the
issues can be broken into a number of broad areas:
past. Some frictions have been reported in this new system,
particularly between state regulators and federal actors in
Pandemic Response. As public health measures, such as
the international arena. In the 116th Congress, H.R. 1862
widespread lockdowns, were implemented addressing the
and S. 1586 would have abolished FIO.
Coronavirus Disease 2019 (COVID-19) pandemic, many
businesses faced denials of business interruption insurance
Response to International Developments. In 2017, the
claims. Such denials typically resulted from clauses
United States and the European Union (EU) concluded a
requiring physical damage for a claim or from language
covered agreement particularly addressing issues around
specifically excluding virus-related claims. While litigation
U.S. collateral requirements for non-U.S. insurers and EU
on current claims is ongoing, legislation was introduced in
supervisory requirements for non-EU insurers under the EU
the 116th Congress that would have directly addressed
Solvency II regulatory modernization program. This
insurance during the current pandemic (H.R. 7412) and
agreement provoked opposition by the states and some
created a longer-lasting program addressing pandemic
portion of the insurance industry but entered into force in
insurance going forward (H.R. 7011).
2018. On a separate but somewhat interrelated track, the
IAIS has been developing new supervisory and capital
Targeted Federal Legislation Changing the State
standards for insurers, which some fear could disadvantage
Regulatory System. The 50-state system of insurance
the U.S. system. P.L. 115-174 directed federal negotiators
regulation has been criticized on a variety of grounds,
to achieve consensus with the states in international
including for inefficiency due to perceived duplicative and
standard-setting negotiations.
burdensome regulation between states and for
ineffectiveness in ensuring nondiscriminatory outcomes for
CRS Resources
insurance consumers. Such criticism has resulted in past
CRS Insight IN11511, Insurance and Unexpected Risks:
proposals ranging from a full federal chartering system for
COVID-19 in 2020 and Terrorism in 2001
insurers to narrower targeted efforts to alter the state
system. Examples of such proposed legislation from the
CRS Insight IN11295, Business Interruption Insurance and
116th Congress included (1) expansion of the federal
COVID-19
Liability Risk Retention Act, which preempts state
insurance company licensure laws for a small subset of
CRS Insight IN11383, Business Interruption Insurance and
insurance companies (H.R. 4523); and (2) limited federal
COVID-19: Federal Legislative Initiatives
regulation of auto insurance rating factors (H.R. 156, H.R.
3693, and S. 4755).
CRS Report R45508, Selected International Insurance
Issues in the 116th Congress
The Treatment of Insurers Under Dodd-Frank’s
Systemic Risk Regime. Under the act’s provisions, the
CRS Report R41372, The Dodd-Frank Wall Street Reform
FSOC designated three of the largest insurers for enhanced
and Consumer Protection Act: Insurance Provisions
regulation by the Federal Reserve (known as systemically
important financial institutions or SIFIs) between 2013 and
CRS Report RL32237, Health Insurance: A Primer
2014. Since the initial designations, one insurer’s
designation was rescinded by a court decision and two were
Baird Webel, Acting Section Research Manager
rescinded by FSOC. At this time, no insurer is designated
for enhanced regulation. In the 116th Congress, H.R. 2479
IF10043
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Introduction to Financial Services: Insurance
Disclaimer
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