INSURANCE 
OVERVIEW

The insurance industry safeguards the assets of its policyholders by transferring risk from an individual or business onto an insurance company. Insurance companies act as financial intermediaries in that they invest the premiums they collect for providing this service. Insurance company size is usually measured by net premiums written, that is, premium revenues less amounts paid for reinsurance.

The insurance industry is divided into two groups, life/health and property/casualty. Many large insurers offer both property/casualty and life/health insurance and a number are expanding into other financial services sectors, including banking and mutual funds. Due to the massive involvement of the federal government in health care financing, pure health insurance data are hard to isolate and generally not compatible with other insurance data.
REGULATION

All types of insurance are regulated by the states, with each state having its own set of statutes and rules. The McCarran-Ferguson Act, passed by Congress in 1945, speaks of continued state regulation of the insurance industry as being in the public interest, but there have been, and continue to be, challenges to state regulation, including proposals for a federal role in creating a more uniform system and allowing insurers the choice of a federal or state charter similar to banks.
State insurance departments oversee insurer solvency, market conduct and, to a greater or lesser degree, review and rule on requests for rate increases for coverage, among other things. The National Association of Insurance Commissioners develops model rules and regulations for the industry, many of which must be approved by state legislatures before they can be implemented.
ACCOUNTING

Insurers are required to use statutory accounting principles (SAP) when filing annual financial reports with state regulators and the Internal Revenue Service. The SAP system is more conservative than generally accepted accounting principles (GAAP), as defined by the Financial Accounting Standards Board. GAAP standards are widely used by most industries in the United States. (See Appendix, page ____ for a comparison of the two systems.)