Federal versus State Regulation of Insurance Industry in United States

The United States governance system is known as Federalism, which means that the national government and State governments share power in governing the country. The United States is composed of 52 States, which are partly autonomous and partly linked to the national government. Each State has got its own government which is composed of the judiciary, legislature and executive branches.

The national government, also known as the Federal government is headed by the President of the United States and is composed of the Congress (Senate and House of Representatives), the Executive and the Judiciary. All these three arms are independent of each other, meaning there is a clear separation of powers between them.

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Each State has got its own constitution and a government, which is responsible for the running of the State. Due to variations in size, complexity and populations of various States, the States have other local governments which are charged with the responsibility of undertaking certain duties and responsibilities as well as providing various services to the citizens. A typical State has got five local governments namely the county, township, municipal, school district and special district governments.

The insurance industry in the United States is one of the industries in which both the State and Federal governments try to outwit each other in its control and regulation. The battle for the control of the insurance industry in United States is not a new one but stretches back to mid-1940s, when the Supreme Court made a controversial ruling that the industry was supposed to be regulated by the Federal government as stipulated by the commerce clause of the U.S constitution.

Before the ruling by the Supreme Court, the insurance industry was regulated by State governments. The call for the regulation of the industry by the Federal government was triggered by increased cases of insolvencies by insurance companies, which were believed to cost the customers a great deal in insurance costs.

After the Supreme Court’s ruling, the congress immediately embarked on a damage control exercise and responded by enacting the famous McCarran-Ferguson Act which barred the Federal government from interfering with any State laws for regulating the insurance industry.

In order to reinforce the McCarran-Ferguson Act of 1945, the National Association of Insurance Commissioners (NAIC) embarked on a mission to strengthen the State laws and regulations governing the insurance industry so as to make them friendlier to consumers and less prone to financial risks (Surhone 54).

However, the battle for supremacy in the control of the crucial industry seemed far much from over when the congress adopted the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, which requires that the Federal government, through the Federal Insurance Office and the Financial Stability Oversight Council should keep on monitoring all the State based insurance regulation systems with a view of identifying any missing links or any potential financial risks and making the necessary recommendations (Anand 29).

As of today therefore, the industry is partly controlled by State governments as well as the Federal government. The State regulation system is however arguably the most acceptable by many U.S insurance companies due to the uniqueness of all the States.

However, many citizens prefer the Federal regulation system because the State systems may sometimes be insensitive to the plight of the poor, thus making insurance, especially for healthcare beyond the reach of many poor people. But all said than done, the debate and struggle for the control of the insurance industry between the Federal and State governments ranges on.

Works Cited

Anand, Sanjay.Essentials of the Dodd-Frank Act; Volume 63 of Essentials Series.Haryana: John Wiley and Sons, 2011: 29. Print.

Surhone, Surhone. National Association of Insurance Commissioners. Delhi 110003: Betascript Publishing, 2011: 54. Print.