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US government regulation of insurance

Introduction

A look at the history of insurance regulation in the United States reveals that there have been periodic federal-state accommodation and tensions. With the proposals to merge industries in the financial sector, there are questions that come up on the appropriateness of insurance regulatory structures, which have an effect on the functional regulation of the financial industries. These industries are inclusive of securities, banking and insurance organizations. Apart from coming up with proposals to functionally regulate the industries, the state regulators and legislators, as well as the insurance industry has expressed some level of commitment to maintain the insurance regulatory structure as it is in the current state (Randall 629). By examining the current insurance regulation systems, as well as problems the problems that come about due to insurance regulation, this paper discusses some of the justifications that prompt insurance regulation in the United States.

Justification for insurance regulation

One of the problems that face the insurance industry is the presence of some form of potentially vicious competition, which might be excessive at some point. This necessitates the regulation of the industry since it is virtually impossible to determine the real costs of insurance policies unless the policy reaches its maturity, to which all claims are paid. For this reason, there is a tendency that the insurance business adopts competitive pricing (Randall 638). In case of insolvency, the consequences to the beneficiaries, as well as the insurer might bring about some devastation, which is preventable through regulatory measures.

On the other hand, it is essential to have some uniformity of insurance regulation, which is achievable through centralization. With the consideration that there is an increasing interdependence in the insurance industry, it is possible to determine that the American insurers are consolidating into large national, as well as international businesses. Consequently, the numbers of non-U.S. insurers coming into the U.S. market is escalating. With this consideration, it is possible to question the ability of the states to monitor the global and complex enterprise, prompting the need to include the federal government. In order to fill the centralization gap, the National Association of Insurance Commission (NAIC), essentially assists in the centralization process (Randall 660). This responsibility is an expansion of the initial responsibilities that were inclusive of model law drafting and its initial advisory functions.

Federal regulations

The McCarran-Ferguson Insurance Regulation Act indicates provides for the idea indicating federal law is not subject causing any form of impairment to the state law, which regulates the business of insurance. However, the federal law can exercise some regulatory authority only if it has some form of relation to the business of insurance. According to the act, federal antitrust legislation will only apply to the business of insurance, taking into account the fact that the business should not be under the regulation of the state antitrust laws. Consequently, the Federal Insurance Office (FIO) report, 2012, gives a leeway of establishing a blueprint for the way in which the state and the federal regulators can be able to work collectively to reshape the insurance industry (Postal and Festa). This development was necessitated by the economic slump of the year 2007-2008. This means that together with the state regulation, the Federal Reserve Board, have the mandate to establish standards of greater capital. It also evaluates the management of the insurance companies in order to ensure that they do not present a risk to the financial systems around the globe (Postal and Festa).

Works cited

Postal, Arthur, D., & Festa, E. FIO report: The hinge on insurance regulation. Retrieved from: <http://www.lifehealthpro.com/2013/10/17/fio-report-the-hinge-on-insurance-regulation?t=fixed-indexed>

Randall, S. insurance regulation in the United States: Regulatory federalism and the national association of insurance commissioners. University of Alabama. 1992. Print