The Structure of the Business of Insurance

The business of insurance differs from most other businesses. Because insurers sell an intangible product—a promise to pay in the event of contingent losses—and because these promises potentially affect so many, the business of insurance is regulated more heavily than most other businesses. The business of insurance is regulated by the states, not by the federal government (with the exception of certain antitrust laws). As a result, while there is necessarily much uniformity of regulation in the business of insurance from state to state, there are also differences. NOTE: For any state-specific question, contact the department of insurance in your own state. The laws regulating the business of insurance in some states differ so greatly from other states that many insurers establish separate companies solely for the purposes of writing policies in a given state. Texas and Illinois are two states where this often occurs because of the difficulties imposed by complying with the laws of those particular states. Twelve states mandate some form of no-fault auto insurance. As a result of these differences, certain types of policies, particularly auto policies, must be written so that people can travel from state to state in their vehicles, yet not run the risk of uninsured losses due to variations in mandatory insurance requirements by state. Because of state regulations and other business concerns, a given insurance organization typically comprises multiple insurers. State Farm advertises nationally on television and through other media, but the organization operating under the State Farm moniker is actually comprised of twelve different insurance companies, each separately organized. Indeed, many of the separate insurance companies operating under a single trademark or service mark, such as State Farm, Farmers, Kemper, or Nationwide, have officers and a board of directors, but no actual employees. There are a number of practical reasons why many insurance organizations do business in this manner, which vary from organization to organization. Some states’ insurance codes and regulations are such that a given insurance organization will establish an insurance company solely for the purposes of writing all of its policies for insurance within a particular state. Another reason an insurance organization might establish multiple insurance companies to operate within a given state is to help the insurance organization track and assess business results. These business factors (and more), even before looking at the actual loss experience of an individual insured, can affect whether an insurer will categorize the insured as a preferred risk, a standard risk, or a substandard risk. Depending on how an insurance organization decides it wants to compartmentalize its ability to track its results, it may choose to do so based on a preferred, standard, or substandard risk basis, regardless of the line of business. It may establish separate companies in which to write policies issued to each of these categories of its business.

Aucun commentaire