Insurance

The United States computes to about 27 percent of the world’s total insurance premium. Compared to any other country, there is a huge market for insurance in the United States.

What is Insurance?

Insurance, in general terms, is an agreement between the insurers (any insurance company) and the insured; the insurer accepts to reimburse or indemnify the insured for any loss or damage done to a particular thing, property or life in lieu of a fee or the premium. The insurer assures the insured that in the event of any loss to his asset, the insurer will compensate for his loss as agreed between the two parties. The insurance contract is in the form of policy, which has all the facts and figures of the agreement. Insurance in the United States is widely popular; more number of people enroll in insurance in the United States than in any other country.

There are many types of Insurance; here are some of the major insurances:

  • Personal: Health and Life
    • Life insurance – (accidental, long life coverage, investment policies)
    • Health – (insurance for dental, medications, vision and other parts)
    • Annuities
  • Reinsurance
  • Auto related insurance
  • Cargo Insurance
  • Property Insurance (land, building, equipment, machinery, pets, others)

State-based Insurance System

Initially, the insurance industry in the United States was regulated solely by the individual state governments. The state had full control over the operations of the insurance markets in their respective states. However, this system had been described as costly, redundant, and ambiguous. Reforms were made in the insurance regulations in 1945.The McCarran-Ferguson Act came into existence; it states that insurance is the business of the state government in public interest. Insurance is still a state government’s subject; however, it is now being supervised by a federal body. No law made by the state government can supersede a law prevailing at the federal level to regulate the business of insurance.

Federal regulation of Insurance System

The need for federal regulation was felt after a series of solvency and ability issues stormed some insurers in the 1970s. The optional federal charter was a concept to establish a central regulatory plan that insurers could enroll into instead of the conventional state system. It failed in the 1970s; however, it became an important point for a debate on the optional federal charter system.

The Dodd-Frank Wall Street Reform and Consumer Protection Act passed by Congress was a game changer for the insurance industry in the United States. It is regarded as the most sought after regulation in finance since the Great Economic Depression. The Dodd-Franck Act significantly impacted the insurance industry; it created a Finance Insurance Office (FIO) and gave it the task of plugging the loopholes in the state made regulations. FIO is also responsible for identifying potential risks to the financial stability of the United States.

An insurance policy should always be made to help an individual or an organization and not to put such clauses so as to make it impossible for the insured to take benefit of the insurance. Some companies make their clauses so as to trap investors in for their profit. It is, therefore, very important to read the terms and conditions of the policy.

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