Insurance before 1810
The American insurance industries that developed during
the late eighteenth and early nineteenth centuries were modeled on those already existing in England, where marine, fire,
and life insurance all were well established by the eighteenth
century. State oversight of the industry initially went little beyond the state chartering of insurance companies.
Marine Insurance
Marine insurance, the oldest form of insurance, dates back to
ancient Greece or Babylonia, with modern marine insurance
contracts appearing in the Italian city-states of the thirteenth
and fourteenth centuries. As Britain became a commercial
sea power in the seventeenth century, English merchants
came to dominate the marine insurance field.
Until the nineteenth century, individual merchants, not
companies, wrote most British insurance contracts. A regular,
albeit informal, system whereby shippers and shipowners
could acquire insurance revolved around London’s coffeehouses, including Edward Lloyd’s Coffeehouse (the predecessor of Lloyd’s of London), which came to dominate the individual underwriting business by the middle of the eighteenth
century.
Individual underwriting in the London style was quite
common in eighteenth-century American seaports. Beginning in the 1720s, insurance “offices,” where local merchants
could underwrite individual voyages, began to appear in a
number of port cities, north and south, centered in Philadelphia. But the amount that Americans could cover was limited
enough that when larger sums of insurance were needed,
shippers and shipowners looked to the far better established
London underwriting market.
Fire Insurance
Compared to marine insurance, fire insurance is a relatively
recent innovation. The security it provides only became necessary once a certain level of both urbanization and wealthholding had been achieved. Vast, crowded cities, such as London in the middle to late seventeenth century, posed great fire
risks. British fire insurance began to develop after the Great
Fire of 1666, which burned nearly a square mile of the city
and destroyed over 13,000 houses.
By the early eighteenth century, three different kinds of
fire insurance companies were doing business in London: a
limited number of firms granting royal charters; unincorporated companies (a form of the extended partnership); and
mutual societies, in which each policyholder owned a share.
Although Americans were aware of these developments,
the colonies generated little demand for fire insurance. Families and communities could usually meet the needs of those
who were burned out of their homes. The first companies
formed were mostly mutual companies, filling the need for
insurance in a few urban centers where capital was concentrated. These were not considered moneymaking ventures
but outgrowths of volunteer firefighting organizations.
Benjamin Franklin was the organizing force behind the
first American mutual company, the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire
(known familiarly by the name of its symbol, the “hand in
hand”). With over 15,000 residents, thousands of buildings,
and scores of well-heeled citizens, Philadelphia in the 1750s
was the most populous city in North America and one of the
few places in the colonies where insurance seemed practicable.
By the 1780s growing demand in other urban areas had
led to the formation of additional fire mutuals in Philadelphia, New York, Baltimore, Norwich (Connecticut), Charleston, Boston, Providence, and elsewhere. All initially insured
buildings within one city and its immediate outskirts only, although some soon began employing agents to sell insurance
in nearby cities. At least one Virginia fire mutual initially sold
shares statewide, covering both town and country properties.
Mutual fire insurance companies played a crucial role in
the economic development of the new nation, serving as
sources of capital, routinely investing their surpluses in banks
and other institutions, and making loans. In a capital-poor
economy, insurance made a significant contribution to commercial and industrial expansion. Stock fire insurance companies, which would soon enter the market, would provide
even greater flows of investment capital than the mutuals.
Joint-Stock Companies
Around the same time that the first mutual companies appeared, a few businesses were formed on another model—the
joint-stock company, which raises capital through the sale of
shares and distributes dividends. The defining characteristic
of a joint-stock company is the limited liability that its charter
affords to shareholders. After the Revolution, American insurers found it fairly easy to obtain charters from state legislatures
eager to promote a domestic insurance industry, in contrast to
the difficulty of securing British royal charters. Joint-stock
companies first appeared in the marine sector, where both demand and the potential profit were greater. Not reliant on the
fortunes of any one individual, joint-stock companies provided greater security than private underwriting. In addition
to their premium income, they maintained a fixed amount of
capital, allowing them to cover larger insurance policies.
In 1792 the first successful joint-stock company, the Insurance Company of North America, was formed in
Philadelphia to sell marine, fire, and life insurance. By 1810
upwards of 70 such companies had been chartered in the
United States. Most of those incorporated prior to 1810 operated primarily in the marine sector, although they were
often chartered to handle other lines.
Joint-stock companies further advanced the role of insurers as financial intermediaries, loaning money to their own
shareholders and policyholders. In many ways, early insurance companies resembled the banks of the period, which
were often established by merchants primarily for their personal use. In many cities, a bank and an insurance company
might be closely aligned, sharing the same directors and owning each other’s stock.
Investment income kept many insurers afloat during the
periodic business disruptions that accompanied the
Napoleonic Wars. Despite the profitability of blockade running, increased war premiums could not always cover the
costs that were imposed on insurers when ships were seized.
When President Thomas Jefferson declared an embargo on
American shipping at the end of 1807, marine insurers’ premiums dried up completely, forcing them to seek other
sources of revenue. The Embargo Act and the War of 1812 also
stimulated domestic industries such as textiles. Both the need
for new sources of revenue and a growing demand moved
many marine insurers toward fire insurance after 1810.
The same growth of demand also led to the formation of a
few joint-stock companies that concentrated on fire coverage
from the beginning, with little or no marine business. These
differed from the mutual insurers in one significant way: They
insured personal property as well as real estate, a growing necessity as Americans’ personal wealth began to grow.
Life Insurance
Although life insurance also has ancient origins, it was often
considered little more than a form of gambling through the
eighteenth century. The sale of tontine insurance (whereby
those who survived the longest received the benefits) and
third-party policies taken out on the lives of famous people
did little to discourage this impression. Marine insurers also
sold life insurance to ship passengers, primarily to cover the
payment of ransom in case they were captured.
The first American life insurance companies were semicharitable institutions established by churches to insure the
lives of ministers. In 1759 the Presbyterian synods in
Philadelphia and New York created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers. Ten years later, Episcopalian ministers established a similar corporation. A few joint-stock corporations
also organized to sell life insurance in the years prior to 1810,
but they sold few policies. None lasted more than a few years.
Insurance from 1810 to 1870
The fire and life insurance industries experienced tremendous growth during the middle years of the nineteenth century, as urbanization and industrialization transformed the
risks that most individuals faced. An intensification of market activities resulted in more business and personal property
needing protection. At the same time, myriad risks—business
failure, disease, injury, and fire—loomed larger, particularly
in the cities. Both the wealthy and the members of an emerging middle class drove the demand for products that could
help them manage these risks.
By midcentury, most states had adopted general incorporation laws, making it even easier to start an insurance company. At the same time, a regulatory framework began to take
shape, with the creation of the first state insurance departments and the passage of laws focusing primarily on assuring
the solvency of insurers.
Fire Insurance
During this period, fire insurance developed from a local industry to a national one. Prior to 1835, a number of states enacted legislation taxing out-of-state companies’ premiums,
which discouraged “foreign” companies from entering markets such as New York City. In that year, a devastating fire destroyed New York’s business district, causing between $15
and $26 million in damage and bankrupting 23 of the 26
local fire insurance companies. Fire insurers learned a lesson
they were not to forget. From that date on, geographic diversification of risks became a cornerstone of the business.
Diversification meant expanding into new markets under
competitive conditions. To minimize costs, companies contracted with independent agents to sell their policies locally.
Pioneered mainly by firms based in Hartford, Connecticut,
and Philadelphia, the agency system did not become widespread until the 1850s. By 1860 the national company with
networks of local agents had replaced the purely local operation as the mainstay of the industry.
As the agency system grew, so, too, did competition. By the
1860s fire insurance was a national affair, with individual
firms competing in hundreds of local markets at once. Rate
wars and business failures were common.
Marine Insurance
Marine insurance, although still a distinct field, increasingly came to be conflated with fire insurance for regulatory purposes. During the mid-nineteenth century, marine
(and fire-and-marine) insurers served the growing river
trade, selling inland marine policies on goods traveling by
steamboat and other river conveyances. By the late 1870s, another subcategory of the insurance industry—the steam
boiler inspection and insurance company—emerged to insure boilers on steamers and in factories, which were known
for their tendency to explode.
Life Insurance
The life insurance industry experienced its first significant
period of growth during the 1830s and 1840s. By the 1850s
nearly $100 million in policies were in force. Unlike the fire
insurance industry, which spread insurance among hundreds
of firms of different sizes, a few large firms wrote over half the
life insurance in the country.
Two developments accounted for the growth of the life insurance industry during this period. The first was the passage
of the Married Women’s Acts in New York, Massachusetts,
and other states, measures that recognized the insurable interest that married women had in their husbands’ lives. These
laws allowed women to enter into insurance contracts in their
own names, thus protecting their insurance policies (up to a
certain value) from their husbands’ creditors.
The second factor was the development of mutual life insurance companies in the 1840s. Although this type of insurance had existed in England since the 1760s, no American life
insurers adopted this form of organization until the 1840s.
But following the panic of 1837, new joint-stock companies
were unable to raise enough capital to begin operating. Mutuals, by contrast, could and did enter into business with little capital.
To have enough money to pay claims, mutual life insurers
needed to sell large numbers of policies. To achieve the desired
volume, the mutual companies promoted membership extensively through advertising and solicitation. Life insurance sales
continued to grow during the 1860s, partly because of the
Civil War. Although standard life policies excluded coverage
for death caused by acts of war, a number of companies would
insure soldiers for an increased premium. The heightened
awareness of mortality during the war further contributed to
a surge in insurance purchases afterward. Dozens of new life
insurance companies were created between 1865 and 1870 to
meet the demand. As was the case in fire insurance, the late
1860s were years of intense competition.
Regulation
Until the middle of the nineteenth century, state oversight
was limited primarily to matters of incorporation and taxation. Most states modeled their insurance regulations after
those of either Massachusetts or New York, which established
general insurance codes and created bodies to oversee the
new laws in the 1840s and 1850s. The first general insurance
law, passed in New York in 1849, required all insurers incorporating or doing business in the state to have a minimum
capital stock of $100,000; an 1851 statute stipulated that all
life insurance companies had to deposit $100,000 with the
comptroller of New York. Such capitalization laws were intended to protect consumers from company failures. The
measures had the support of the more established insurance
companies, whose officers hoped they might block competition from new firms, especially from mutuals.
In 1853 New York passed separate statutes for fire and life
insurance. (Massachusetts codified all its insurance laws
under a single statute in 1854.) One year earlier, Massachusetts had established a board of insurance commissioners.
Made up of the secretary of state, the state auditor, and the
state treasurer, the commission was charged with examining
the annual returns filed by each insurance company operating in Massachusetts. In 1855 the state organized an insurance department.
Following these examples, other states codified their insurance laws and established insurance boards to supervise
companies over the next few decades. As the laws governing
insurance became more numerous and complex, states created separate insurance departments to oversee them. Following Massachusetts, those establishing insurance departments included Vermont (1852), New Hampshire (1852),
and Rhode Island (1856). By 1870 they were joined by New
York (1860), Connecticut (1865), Indiana (1865), California
(1868), Maine (1868), West Virginia (1868), Missouri
(1869), and Kentucky (1870). Eight other states supervised
insurance without establishing separate departments by this
time.
The U.S. Supreme Court affirmed state supervision of insurance in 1868 in Paul v. Virginia, which found insurance
not to be interstate commerce and thus not eligible for regulation by the federal government. Prior to the ruling, the insurance industry had campaigned for federal regulation. For
both life and fire insurance firms, the variability of regulations in different states made doing business on a national
scale increasingly complex. A Virginia fire insurance agent
brought the test case, challenging the state’s right to require
all out-of-state insurance companies operating in Virginia to
obtain a license by depositing special bonds with the state. As
a result of Paul v. Virginia, insurance would not be subject to
any federal regulations over the coming decades.
Insurance from 1870 to 1920
During the late nineteenth and early twentieth centuries, as
both industrialization and urbanization intensified, insurers
expanded to meet the growing demand for their products.
Regulation assumed a new urgency. By the early 1900s, nearly
every state had an insurance department. The maturing fire
and life insurance industries both sought to shape their own
regulatory frameworks, which, in turn, were influenced by
larger societal forces. By the 1920s, the foundations of modern insurance regulation were established.
Fire Insurance and Regulation
Rate competition proved disastrous for the fire insurance industry in the early 1870s. The Chicago fire of 1871 and the
Boston fire of 1872 bankrupted some 100 companies, leaving
policyholders with little or no recompense. After the fires, the
industry began to organize in order to set rates collectively. By
the mid-1880s, most fire insurance rates were set by boards of
local agents, with regional organizations determining rates
for areas outside local boards’ jurisdictions. Unlike the at-
tempts to set rates in the 1850s and 1860s, which had always
broken down, these agreements endured through both the
economic boom of the 1880s and the downturn following
the panic of 1893. By the early 1900s, local rate setting was
entrenched.
At the end of the first decade of the 1900s, fire insurance
therefore was regulated as much by the companies as by state
governments. This situation prevailed despite the passage of
anticompact legislation in 12 states between 1885 and 1900
(22 by 1908). Passed primarily in Populist strongholds in the
Midwest and the central states, the laws featured in the larger
national antitrust movement. But their effectiveness was limited. Where open collusion was outlawed, insurers established
private rating bureaus to set “advisory” rates instead.
Among other regulations opposed by the fire insurance
industry were valued-policy laws, which required the face
value of a policy to be paid in case of a total loss. Insurers argued that property was often insured for more than it was
worth, but consumer lobbying pushed the legislation
through, first in Wisconsin in 1874 and then in 22 other states
between 1880 and the early 1900s.
By the 1910s, states had begun to abandon anticompact
laws in favor of rate regulation, meaning the state either set
the rates itself or reviewed industry-set rates. Nearly 30 states
had some form of rate regulation by the early 1920s. In 1909,
Kansas had become the first to adopt strict rate regulation,
followed by Texas in 1910, and Missouri in 1911.
Contesting the constitutionality of the rate regulation law,
the insurance industry took the state of Kansas to court. In
1914 German Alliance Insurance Co. v. Ike Lewis, Superintendent of Insurance was decided in the state’s favor, with the U.S.
Supreme Court declaring insurance to be a public good and
thus subject to rate regulation.
In 1911, although the Kansas case was still pending, New
York entered the rating arena with a much less restrictive law.
New York’s law was greatly influenced by a legislative investigation undertaken the previous year. The Merritt Committee
concluded that cooperation between firms was often in the
public interest and recommended that insurance boards continue to set rates. The law mandated state review of rates to
prevent discrimination. It also required insurance companies
to submit uniform statistics on premiums and losses for the
first time. Other states soon adopted similar requirements.
New York’s data-collection requirement had far-reaching
consequences for the entire fire insurance industry. Because
every major insurer in the United States did business in New
York (and often a great deal of it), any legislation passed there
had national implications. And once New York mandated
that companies submit data, the imperative for a uniform
classification system was born.
In 1914 the industry responded by creating the Actuarial
Bureau within the National Board of Fire Underwriters, the
industry’s main national organization, to collect uniformly
organized data and submit them to the states. Supported by
the National Convention of Insurance Commissioners (today
called the National Association of Insurance Commissioners,
or NAIC), the Actuarial Bureau was soon able to establish
uniform classification standards across the industry.
Related Lines
Casualty insurance regulation most closely resembled fire insurance regulation, with the states supervising or setting the
rates that companies could charge. From a single firm offering accident insurance in 1864, casualty insurance developed
into a full-fledged industry in the early 1900s. By 1910 a total
of 23 companies sold liability policies.
In the early years of the twentieth century, both fire-andmarine insurers and casualty companies sold automobile insurance policies. Regulators determined that fire-and-marine
companies could write auto policies covering property damage and casualty companies could cover the liability portion.
Single forms were used to provide coverage in two companies.
Life Insurance and Regulation
As the demand for life insurance increased during the late
nineteenth century, competition continued to rule the industry. To gain market share, life insurers introduced new products, which their agents marketed aggressively. New types of
life insurance companies were also established, primarily to
serve working-class Americans. A variety of consumer abuses
led to calls for increased regulation, but not until after 1906
did real change occur.
In the late 1860s, life insurers began selling tontine, or
deferred-dividend policies, in which only part of each premium payment went directly toward an ordinary insurance
policy. The rest was held in an investment fund for a set period of time (10, 15, or 20 years), with the benefits paid to
those who survived the required period of time without letting his or her policy lapse. Insurers found these types of policies profitable because, unlike traditional policies, they did
not pay yearly dividends to policyholders. They also did not
require payment of the cash surrender value on forfeited
policies (which Massachusetts began requiring in 1880). Policyholders bought the policies hoping for large returns. By
1905 an estimated two-thirds of life insurance policies featured deferred dividends.
Although tontine insurance grew in popularity, new types
of insurance companies also formed to serve the emerging
market for smaller insurance policies. One was the fraternal
benefit society, a cooperative firm whose members contributed to pay death benefits when a member died. (Fraternal societies also sometimes provided sickness benefits, as did
unions and employer-sponsored mutual benefit societies.)
The other new type of company was the industrial life insurer
(following the British model). Starting in the 1870s, a number of firms began to market low-value insurance policies (as
small as $100) to working-class families. Premiums for these
policies were collected on a door-to-door basis.
With the expansion of the industry came a number of
problems, many associated with cutthroat competition: rebating (returning part of the premium to select customers),
twisting (convincing people to trade in old policies with accrued cash value for new ones without), and exaggerated
claims of future payments on tontine policies. Through local
and regional organizations and a national body—the National Association of Life Underwriters (NALU), formed in
1890—the life insurance industry attempted to end these
practices. But unlike their colleagues in the fire insurance industry, life underwriters did not succeed at self-regulation.
To raise revenues during the depression of the 1890s, a
number of states tried to increase taxes on life insurers significantly. This was not the first time they attempted such legislation. During the 1870s, New York had tried to raise taxes
but met strong industry opposition. Midwestern states, including Missouri, Kansas, and Wisconsin, passed life insurance taxes during the 1880s and 1890s, as did Texas, although
they were all eventually reduced or repealed. Texas and
Kansas also led a movement in the 1890s to try to force insurance companies doing business in those states to invest locally. Despite public support for such measures, the life insurance lobby was strong enough to keep the laws from
passing.
Three large New York firms—New York Life, the Equitable
Life Assurance Society, and Metropolitan Life Insurance
Company—dominated the life insurance industry of the late
nineteenth and early twentieth centuries. They successfully
squashed most efforts at reform prior to 1906. Concerns
about how the industry did business (including its high operating expenses and salaries, surreptitious financial procedures, and various consumer abuses) eventually led to an investigation of the industry. New York’s Armstrong
Committee investigation, which commenced in 1905,
brought to light myriad improprieties, including political
kickbacks, nepotism, extremely high salaries for top officials,
and misuse of funds.
New York’s investigation led many other states to conduct
their own reviews. Their findings led to the passage of a number of life insurance reforms and resulted in strict supervision of the industry for the first time. In 1907 New York outlawed deferred-dividend policies, rebating, and twisting. The
new law curtailed lobbying activities, eliminated proxy voting, and mandated standardized policy forms. Other states
passed similar laws, but because companies operating in New
York were required to follow the new regulations in any state
where they did business (the so-called Appleton Rule), New
York’s life insurance statutes essentially became national.
Following the Armstrong investigation, the life insurance
industry experienced another period of tremendous growth,
with the number of companies nearly quadrupling between
1905 and 1914. In 1911 the Equitable Life Assurance Society
wrote the first group insurance policy. By 1919 a total of 29
companies were writing policies that covered groups of employees (with states requiring a minimum of 50 or 100 individuals to constitute a group).
Related Lines
The first health insurance policies were sold in the 1890s. Between 1900 and 1918, the total amount of health insurance
premiums collected annually grew from half a million dollars
to over $12 million. This coverage was expensive and excluded many common diseases. During the 1910s, the insurance industry fought a movement for compulsory health insurance, a movement that ultimately failed.
During World War I, the federal government began offering life and disability policies for active service members. State
governments had also recently gotten involved in another
form of social insurance; during the 1910s, over 40 states
mandated some type of workers’ compensation coverage.
Insurance from 1920 to 1960
By the 1920s insurance had reached far beyond just the fire,
marine, and life fields. With a variety of new products, fire
and life evolved into property/casualty and life/health categories, each with its own set of regulations. With multiple
lines and more sophisticated technology, insurance regulation became increasingly complex over the following
decades. The most substantial changes prior to 1960 focused
on property/casualty rating. Life insurance, meanwhile, remained a competitive market, as did the expanding health insurance industry. Starting in the 1930s, the federal government also became increasingly involved in social insurance,
creating Social Security in 1935 and expanding it in 1939 and
1954.
Property/Casualty Insurance
Through the 1920s and 1930s, property insurance rating continued as it had before, with various rating bureaus determining the rates that insurers charged and the states reviewing or approving them. Casualty insurance rates were set in
much the same way. But in 1944 the Supreme Court struck a
blow to the status quo, overturning Paul v. Virginia. In a case
brought against the Southeastern Underwriters Association
(SEUA), which set rates in a number of southern states, the
Court decided that the SEUA was in violation of federal antitrust statutes. As a result of U.S. v. South-Eastern Underwriters Association, the industry became subject to federal
regulation for the first time.
Within a year, to avoid conflicts between federal and state
laws, Congress passed the McCarran-Ferguson Act, which allowed states to continue regulating insurance as long as they
met certain federal requirements. Congress also granted the
industry a limited exemption from antitrust law. The NAIC
was given three years to develop model rating laws for the
states to adopt.
In 1946 the NAIC adopted model rate laws for fire and casualty insurance, which required a state’s “prior approval” of
rates before the insurer could use them. Although most of the
industry supported this requirement as a way to prevent
competition, a group of independent insurers opposed prior
approval and instead supported file and use rates, whereby
insurers pay on the basis of use.
By the 1950s all states had passed rating laws, although not
necessarily the model laws. Some allowed insurers to file deviations from bureau rates; others required bureau membership and strict prior approval of rates. Most regulatory activity through the late 1950s involved the industry’s attempts to
protect the bureau rating system.
The bureaus’ tight hold on rates was soon to loosen, however. In 1959 an investigation into bureau practices by a U.S.
Senate antitrust subcommittee (the O’Mahoney Committee)
found that competition should be the main regulator of the
industry. As a result, states began to make it easier for insurers to deviate from prior approval rates.
Life/Health Insurance
The McCarran-Ferguson Act had much less influence on the
life and health insurance industries. Because life insurance
rates were based on standard mortality tables, no model rate
laws were necessary. The main concern of regulators after
1920 was the solvency of life insurance companies and the assurance of adequate reserves.
Meanwhile, the health insurance industry began to grow.
A plan offering a set level of hospital benefits for a monthly
fee was first offered in 1929. Within a decade, such hospital
plans were identified as Blue Cross plans. The first Blue Shield
plan, which covered physician care for a similar monthly fee,
was established in California in 1939. Group coverage in Blue
Cross/Blue Shield plans and through traditional fee-forservice plans expanded between the 1940s and 1960s as organized labor was able to bargain for better benefit packages.
The first health maintenance organizations (HMOs) had also
made an appearance by the 1960s.
Insurance from 1960 to 2003
In recent decades, insurance has become an increasingly
complex industry with a huge array of lines and products.
The private sector of the industry has expanded into new
forms of risk management and financial services, and moreover, the federal and state governments have become increasingly involved in providing insurance—often in areas where
the private market has failed. Through an expansion of social
insurance programs and through the creation of guarantee
funds provided by the states to compensate policyholders
when companies fail, the government has developed an ever
growing level of protection. Most recently, the passage of the
Gramm-Leach-Bliley Financial Services Modernization Act
of 1999 has revived the debate over federal regulation of the
insurance industry.
Property/Casualty Regulation
By the mid-1960s, two different systems of property/casualty
regulation were beginning to develop. Although many states
got rid of the prior approval requirement and began competitive rating, others strengthened strict rating laws. At the same
time, the many rating bureaus that had provided rates for different states began to consolidate. By the 1970s the rates that
these combined rating bureaus provided were officially only
advisory. Insurers could choose whether to use them or develop their own rates.
Although membership in rating bureaus is no longer
mandatory, these advisory organizations continue to play an
important part in property/casualty insurance by providing
required statistics to the states. They also allow new firms easy
access to rating data. The Insurance Services Office (ISO),
one of the largest “bureaus,” became a for-profit corporation
in 1997 and is no longer controlled by the insurance industry.
The end of bureau rates did not mean the end of state rating. A number of states have continued to regulate rates for
certain lines (such as automobile and workers’ compensation
coverage) and require prior approval, often as the result of
rising insurance costs. Since the 1970s, states have also taken
into consideration companies’ investment income when reviewing rates.
Since the 1960s, liability insurance has become increasingly important, with liability components included in both
commercial and personal policies. Automobile liability insurance is mandated by most states, and insurance companies
are required to provide coverage (often through “assignedrisk pools”) to high-risk drivers.
The federal government has also expanded its involvement
in property/casualty insurance, providing or guaranteeing
coverage in a number of areas where the private market has
failed. The National Flood Insurance Act of 1968 made affordable flood insurance available to at-risk homeowners. Although the origins of the federal crop insurance program lie
in the depression, the program expanded greatly in the 1980s,
covering many more acres and crops. Most recently, in November 2002, Congress passed a bill providing up to $100 billion in reinsurance for the insurance industry over three years
in case the country should experience another terrorist attack
on the scale of that on September 11, 2001.
Life/Health Insurance Regulation
In 1965 the federal government entered the realm of health
insurance with the establishment of Medicare and Medicaid.
HMOs received a boost with the passage of the Health Maintenance Organization Act of 1973, which required insurers to
offer an HMO option when they provided health insurance
for their employees. By the 1980s another form of managed
care, the preferred provider network (PPO), was also offered.
Important health care legislation includes the Consolidated Omnibus Budget Reconciliation Act (COBRA) of
1986, which requires employers to provide continuation of
coverage for a varied period of time when an employee leaves
a job, and the Health Insurance Portability and Accountability Act (HIPAA) of 1996, which allows insurance benefits to
be carried from job to job without a waiting period for coverage of preexisting conditions.
Gramm-Leach-Bliley
Gramm-Leach-Bliley (as the Financial Services Modernization Act of 1999, or GLB, is commonly known) went into effect in November 2000, and leaves state regulators in charge
of the day-to-day regulation of insurance. However, it opens
the door for federal regulation. GLB has the greatest impact
on life insurance companies because of their involvement in
the financial services sector, but provisions of the act have
consequences for all lines of insurance.
GLB requires states to create uniform “producer” statutes
for licensing agents and brokers in all lines. The law mandated that by 2002, over half of the states were to adopt either
uniform or reciprocal licensing, a condition that regulators
have met. GLB also contains privacy provisions requiring
policyholders to give permission before the insurer releases
personal data, a condition that is particularly relevant to
health insurance. Today, insurance regulation can best be described as a system that is moving slowly toward dual
state/federal regulation.
—Dalit Baranoff