Page 419 - Encyclopedia of Business and Finance

eobf_I 7/5/06 3:04 PM Page 396

Insurance

In 2005, 85 percent of life insurers with life pre- CHALLENGES FACED BY THE
miums ceded at least some of those premiums as PROPERTY/CASUALTY SEGMENT
reinsurance. Among insurers with accident and Property/casualty firms have faced additionally significant
health premium, 82 percent ceded accident and challenges since Hurricane Katrina in 2005, including a
health premium; … only 40 percent of insurers
doing annuity business … ceded annuity consid- daunting claims-adjusting environment and litigation.
erations. (American Council of Life Insurers, The AIA has endeavored to aid companies addressing the
2005, Chapter 6) challenges and issues surrounding natural disasters on the
Gulf Coast. One outcome from the Katrina disaster was
renewed attention to improving building codes and build-
REGULATION
ing code enforcement.
Insurance companies are overseen by state insurance regu-
lators, whose authority is comprehensive. Insurance com-
panies must meet risk-based capital standards, adhere to GLOBALIZATION
investment guidelines, and undergo regular on-site finan- Globalization is reshaping much of the business world,
cial examinations. Companies must provide such infor- including the insurance world. The NAIC is one group
mation as changes in officers and directors, as well as that has increasingly been involved in insurance regula-
quarterly and annual financial statements that are signed tion in the international arena. NAIC has provided lead-
and attested to by company officers. Company financial ership in the International Association of Insurance
policies are reviewed on actuarial and accounting stan- Supervisors and in the International Accounting Stan-
dards. dards Board. NAIC hosted an international symposium
on the topic “State Insurance Regulators: Meeting Tomor-
Each state determines the company and licensing
row’s Global Challenges Today,” in February 2006. The
requirements, product filing rules, market conduct exams,
symposium addressed financial services markets and key
and laws and regulations to ensure solvency and protec-
tion of consumers. regulatory developments in Europe, Latin America,
China, and India. Leading regulators from several coun-
State insurance departments work with the National
Association of Insurance Commissioners (NAIC) to tries participated in the program, which aimed to advance
develop and promote laws and regulations that serve as the setting of global standards and to reduce differences in
model laws, and with the state legislatures, which pass the insurance supervision.
laws and set the budgets. NAIC is the organization of
insurance regulators—from the fifty U.S. states, the Dis- SOURCES FOR INFORMATION
trict of Columbia, and the four U.S. territories—that has A number of insurance-related organizations provide
as its mission the protection of public interest, the promo- information for persons interested in learning more about
tion of competitive markets, the facilitation of fair and insurance. These organizations include, in addition to the
equitable treatment of insurance consumers, and the NAIC, some of the following:
improvement of state regulation of insurance. American Council of Life Insurers: The American
State insurance departments also work with the Council of Life Insurers is a Washington, D.C., trade
courts, which interpret insurance regulations and policy association that has as members companies that offer life
wording; the U.S. Congress and the U.S. Government insurance, long-term care insurance, disability income
Accountability Office, which periodically evaluate state insurance, reinsurance, annuities, pensions, and other
insurance regulation; and professional, trade, and con- retirement and financial protection products. Its annual
sumer groups. Life Insurers Fact Book is an especially useful reference.
America’s Health Insurance Plans: America’s Health
COMPETITION Insurance Plans is a national association representing
Because the insurance market has many sellers and buyers, approximately 1,300 members, who provide health bene-
little product differentiation, and freedom of entry and fits to more than 200 million Americans. The primary
exit, it is highly competitive. This is especially true in the purpose of this association is to represent the interests of
property and casualty segment. While demand for insur- its members on legislative and regulatory issues at both
ance grows steadily over time, with the increase in expo- federal and state levels.
sures and legal requirements, the supply of insurance, AIA: The AIA is an advocate group for the companies
because it is financial and flexible, can be easily shifted in that sell property/casualty insurance. As noted earlier, its
and out of the market. This attracts capital during periods free information is limited, but some current insurance
of high interest and stock market strength because of high issues receive particular attention from the association’s
profit expectations from investing underwriting cash flows. leadership and committees.

396 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION