Federalization of Insurance Industry

Modernization of Insurance Regulations and

The Road to Insurance Federalization

Lalaine F. De Leon

PPA 601: Foundations of Public Administration

Marshall Crawford

July 18, 2011

Modernization of Insurance Regulations and the Road to

Insurance Federalization

Introduction

Insurance Industry is considered one of the largest financial service industries in our nation. Insurance product examples include those that protect risks such as life insurance or large amounts of risks such as marines that covers commercial ships. Since 1868, insurance has been a solid industry that has managed to operate its business primarily under state regulations. Every state has its own department or commissions that regulate the business of insurance within its states. Over the years, the growth of the insurance industry has been evident. This growth had undeniably affected the entire financial service industry as well as consumers. Thus, the industry at large had eventually become a political issue rather than economical issue. Interest groups and advocates have also grown in numbers in support of the insurance industry and some were developed against the conduct of big insurance companies. Large insurance companies that have been able to expand their insurance product lines tend to support the idea of modernization, while small insurance companies had consistently argued against federalization. Small insurance companies tend to believe that the states are better in handling their local issues pertaining to insurance related transactions. In addition, small insurance companies agree that States tend to be more accountable than the federal government. Thus, the industry had polarized a split or a division between small and large insurance companies. The split between the two had continuously debated in regard to whether or not there is a need to change the insurance regulations. Furthermore, the need to properly regulate some insurance product lines...