The Legal 500 Country Comparative Guides
UNITED STATES INSURANCE & REINSURANCE
1. How is the writing of insurance contracts regulated in your jurisdiction?
In the US, insurance is regulated almost exclusively at the state or territory (rather than the federal) level. The McCarran-Ferguson Act, passed by the US Congress in 1945, explicitly provides for state regulation of insurance. Each US state and territory (referred to hereafter only as “state”) has its own insurance laws and regulations as well as an insurance or financial services regulator that implements and administers such laws and regulations, which cover every aspect of the insurance business including the sale, solicitation, negotiation, issuance, and delivery of insurance contracts, the collection of premiums, the payment of claims, and all other aspects of the post-issue administration of insurance contracts. Such laws and regulations also cover the licensing and regulation of insurers and insurance producers (e.g., insurance agents, brokers, managing general agents, surplus lines brokers, reinsurance intermediaries, third party administrators, and claims adjusters), including with respect to solvency and financial reporting of insurers, market conduct, premium rates and policy forms, and reinsurance, as well as the activities of unlicensed parties. US insurers are primarily regulated by the insurance department of the state in which they are domiciled but must also comply with all applicable laws and regulations of the other states in which they undertake insurance business.
While the insurance laws and regulations and general principles underpinning them tend to be similar across the states, there can be important differences on various issues among them. However, the 50 US states, the District of Columbia, and five US territories are members of the National Association of Insurance Commissioners (“NAIC”), which helps harmonize insurance laws, regulations and regulatory efforts across the US on key aspects of insurance regulation. Through the NAIC, the insurance regulators of the US states work to establish standards and best practices for insurance regulation, conduct peer review, and coordinate regulatory oversight.
Notwithstanding the foregoing and the McCarranFerguson Act, there are indeed various aspects of insurance business, such as health insurance, that are subject to regulation at the federal level. For example, certain life and annuity products which constitute “securities” under the federal US Securities Act of 1933 are subject to regulation by the US Securities and Exchange Commission.
2. Are types of insurers regulated differently (i.e. life companies, reinsurers?)
The US states' insurance laws and regulations contain many provisions that apply to all insurers across different types of business. For example, requirements for licensing, regulation of transactions with affiliates of the insurer, and provisions regarding market conduct generally apply similarly across different types of insurers.
However, the insurance laws and regulations of the US states also include chapters, sections and provisions that only apply to particular lines of insurance business or types of coverages. For example, life insurance is subject to a range of requirements that apply to the life business only. Similarly, lines such as mortgage insurance and financial guaranty insurance tend to be subject to specific sets of laws and requirements.
Reinsurance tends to be subject to lighter regulation compared to direct insurance as are certain lines of business such as ocean marine.
3. Are insurance brokers and other types of market intermediary subject to regulation?
Insurance intermediaries of all types—including insurance agents, brokers, managing general agents, surplus lines brokers, reinsurance intermediaries, third party administrators, claims adjusters and other intermediaries (usually referred to collectively as insurance “producers”)—are subject to regulation under the insurance laws and regulations of the US states.
Insurance producers must be licensed in their states of domicile as well as in all other states where they may wish to undertake insurance business activities, including the sale, solicitation, marketing, negotiation, placement, and administration of insurance contracts. Licensing requirements for individual insurance producers include pre-licensing educational course work, successful completion of written examinations, and continuing education after licensing. Licenses are issued for specific lines of insurance products and for the types of insurance producer activities that the applicant wishes to undertake (e.g., insurance agent for property and casualty).
Beyond licensing, insurance producers are subject to additional regulatory requirements, such as the requirement that insurance agents appointed to act for an insurer do so subject to a written agreement and that the insurer notify the states in which the insurance agent will be acting on behalf of the insurer.
In addition, insurance producers must comply with all applicable laws for insurance contracts and insurance business.
4. Is authorisation or a licence required and if so how long does it take on average to obtain such permission? What are the key criteria for authorisation?
An insurer must hold a license in every state in which it wishes to engage in the transaction of insurance business. (See question 6 for certain exceptions.)
An entity wishing to be licensed as an insurer must first apply for a license in its domiciliary state. It can take between three to six months, and often longer, to obtain a license in the domiciliary state. After obtaining a license in the domiciliary state, the insurer can apply to become licensed in other states (referred to as “expansion” licenses). Although the process for applying for expansion licenses in other states can be relatively straightforward, many states apply “seasoning” requirements; that is, states often require that an insurer wishing to expand its license into their states have a minimum number of years of experience in writing the types of insurance business for which it wishes to obtain licenses in their states.
All states (other than certain territories) have adopted the Uniform Certificate of Authority Applications (“UCAA”)—a system established by the NAIC which streamlines the application process by creating standardized application forms. However, some states have additional filing requirements, and each state performs an independent review of all applications. The UCAA Primary Application, which a newly formed company uses to seek a certificate of authority to do business in its domiciliary state, calls for the disclosure of information related to minimum capital and surplus requirements, statutory deposit requirements, name approval, a plan of operation (which includes financial statements and projections), any holding company financial information, biographical information regarding officers and directors, and other similar matters.
5. Are there restrictions or controls over who owns or controls insurers (including restrictions on foreign ownership)?
Control of an insurer is heavily regulated. The requirements of the state where the company is or will be domiciled govern. Under the insurance laws and regulations of the US states, any party owning more than 10% of an insurer, directly or indirectly, or having other indicia of control such as through management agreements, is usually subject to regulation as a controlling person of that insurer, although it can be possible to submit a disclaimer of control which request must be approved by the insurer's domiciliary state. However, even if such a disclaimer is approved, the party disclaiming control remains subject to certain applicable insurance laws and regulations.
Controlling persons are subject to various filing and disclosure requirements upon the establishment of a new insurer and acquisition of control of an insurer (including indirectly through the acquisition of the holding company or an intermediate parent company of the insurer). For example, any party wishing to acquire control of an insurer or an insurance holding company must file an application for approval of the acquisition of control (a “Form A” application) with the domiciliary state of the insurer along with the required information regarding the applicant and its affiliates, including all individuals who are directors, officers, and greater than 10% owners of the applicant.
After the acquisition of control is approved, controlling persons become subject to a full range of “insurance holding company” laws, which govern ongoing filing and disclosure requirements regarding the controlling persons, affiliated transactions between the controlled insurer and its affiliates within the controlling group, and other matters.
There are generally no restrictions on foreign ownership, other than direct or indirect control by foreign governments.
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