The insurance industry in the United States has a rich tradition that spans over a century and a half. It comes as no surprise that insurance is a common practice for almost everyone. According to the American Institute of Insurance Information Institute, car insurance by individuals is the dominant segment in the US insurance market, with insurance premiums growing almost four times faster than homeowner’s insurance.
The Two Sectors of Insurance
Insurance in the United States can be categorized into two sectors: life insurance and other types of insurance. In 2013, some of the largest insurance companies in the US included AAA Insurance, AIG Insurance, Allstate Esurance, GEICO, Liberty Mutual, 21st Century Insurance, AARP, and Aflac.
The Size and Scope of the Industry
In 2011, insurance premiums in the United States amounted to a staggering $1.1 trillion, with life insurance and medical insurance premiums making up 58% of that total. Property insurance, which includes auto, home, and commercial insurance, accounted for $442 billion in net insurance premiums.
The insurance industry is substantial, with 6,296 insurance companies operating in the United States. These companies are categorized into property insurance (2,686 companies), life insurance (1,013 companies), and health insurance (803 companies). In 2010, insurance and related activities contributed $405 billion, or 2.8% of the US GDP.
Employment and Economic Impact
The insurance industry also plays a significant role in employment. In 2011, approximately 2.3 million people were employed in the insurance sector. Of these, 1.4 million worked in insurance companies, while the remaining 883,600 worked in insurance agencies, brokerage agencies, and other related companies.
Insurance companies have a considerable impact on the US economy. In 2011, life insurance and endowment insurance premiums alone amounted to $16.4 billion. Insurers also paid $33.6 billion in property losses related to disasters during the same year.
State Regulation of Insurance
Unlike many other countries, the United States does not have a single federal insurance law or agency. Each state has its own insurance legislation and regulatory body. These state regulatory bodies set requirements for minimum capital levels, types of insurance offered, and conduct audits of insurance companies. They also issue licenses to brokers, agents, and insurance companies.
Types of Insurance Companies
There are two primary types of insurance companies in the United States: joint-stock companies (AO) and mutual insurance companies (OVS). Joint-stock companies can be owned by both individuals and legal entities. The creation and operation of AO companies are subject to stringent regulations. Mutual insurance companies, on the other hand, are traditionally smaller but operate under more liberal regulations. OVS companies are widely used in the USA for life insurance, insurance of agricultural producers, and other property and liability insurance.
Types of Insurance Provided
Insurance companies in the United States offer three main types of insurance:
- Benefits: This includes life and health insurance, medical insurance, pensions, savings plans, and more.
- Commercial Insurance: This covers a wide range of insurance needs for businesses.
- Personal Insurance: This type of insurance covers the buildings, automobiles, and other property owned by individuals.
Regulation and Analysis of Insurance Companies
The US insurance industry is unique in that it does not fall under antitrust laws. The activities of all US insurers are carefully analyzed by three rating agencies: A.M. Best, Moody’s, and Standard & Poor’s. These agencies assess the financial situation, claims payments, level of service, safety measures, loss prevention, and other criteria to determine the effectiveness and reliability of insurance companies.
In addition, there is an electronic database of all insurance companies in the United States, which allows for better risk assessment and analysis.
International Presence and Leading Companies
The largest insurance companies in the world, including those in the United States, are often financial conglomerates. These conglomerates provide not only insurance services but also loans, check services, real estate transactions, and more. The internationalization of the insurance business has further solidified the dominance of US companies in the industry.
American International Group (AIG) is one such leading international insurance group. It is the largest insurer of trade and industrial risks in the USA, with operations in 130 countries.
Regulation and Reforms
The regulation of the insurance market in the United States is primarily carried out by individual states. The McCarran-Ferguson Act of 1945 grants states the power to regulate insurance within their jurisdictions. Each state has a regulatory body, usually headed by a commissioner appointed by the state’s governor.
In 2010, the US Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. This act brought about significant reforms in the financial regulation landscape, including the insurance industry. It established the Federal Insurance Agency to monitor and regulate the insurance industry comprehensively.
FAQs
-
How are insurance companies regulated in the United States?
- Insurance companies in the United States are regulated by individual states, with each state having its own regulatory body.
-
What are the types of insurance companies in the United States?
- There are two types of insurance companies in the United States: joint-stock companies (AO) and mutual insurance companies (OVS).
-
What types of insurance do US insurance companies provide?
- US insurance companies provide benefits insurance, commercial insurance, and personal insurance.
Conclusion
The insurance industry in the United States is vast and diverse, with a wide range of insurance companies and products. It plays a crucial role in the US economy, providing protection and financial security for individuals and businesses alike. With state regulation and ongoing reforms, the industry continues to evolve and adapt to changing times, ensuring the stability and reliability of insurance services for the American public.
