Insurance & the Economy
Property/casualty insurance is a cornerstone of worldwide commerce. Much of the American economy would grind to a halt without insurance, as factories, stores, and offices could not face the risk of operating without it. Most individuals would be unable to finance their homes, and many would have difficulty arranging credit for other big-ticket items. Those who could would still face the possibility of financial ruin if they were sued or involved in serious accidents. Thus, a healthy property/casualty insurance industry is essential to the vitality of the economy and necessary for the security of individuals.
Insurance is a system by which exposure to risk is contractually transferred by a person, business, or organization to an insurance company. In exchange for payment of a premium, the insurer agrees to reimburse the insured (policyholder) for the cost of covered losses and, in the case of liability insurance, provide a legal defense and pay for damages. The insurance mechanism provides for sharing the costs of losses that would be unsustainable for any individual insured among a large group of insureds.
Insurers collect relatively low annual premiums from insureds, but they have to be prepared to pay large amounts to pay any insured that suffers covered losses. In order to do so, they build up capital. The amount of capital that an insurer has to pay policyholder claims determines its financial strength, and it also determines how much business it can write and at what price.
Insurers are highly regulated by state governments. Each state and the District of Columbia has an insurance department headed by an insurance commissioner. Insurance regulators belong to the National Association of Insurance Commissioners, which coordinates insurance regulation among the states. Still, each insurance department acts in response to the unique laws and authority granted by that state's legislature. Therefore, insurance regulation varies state to state.
NAMIC recognizes the value of a healthy insurance system and works to ensure that laws and regulations affecting the system do not hinder its proper functioning.