2 New Appleman on Insurance Law Library Edition § 8.01
Summary
State regulation of the business of insurance began as early as 1810. Regulation was necessary because of the contingent nature of insurance benefits. Under the typical insurance policy an insurer agrees to pay policy benefits if certain events occur. If those events do not occur, then the insurer owes nothing to the insured. Because of this contingent nature of the insurance promise, insurers have an incentive to promise more than they might be able to deliver. Selling too much insurance, or at prices that are too low, can increase current premium revenue while the consequences of those commitments are postponed to some future date. When insurers become overcommitted, there is a risk that insureds may be unable to collect when the events occur. Regulation seeks to address this incentive problem and to protect the ability of insureds to collect on the insurance promises. Early insurance regulation was applied to transactions occurring across state lines, but Congress did not step in to ...