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Intact Insurance - The Structure of the Business of Insurance

Intact Insurance

The business of insurance differs from most other businesses. Because insurers sells an intangible product - a promise to pay in the event of contingent loses - because these promises potentially affect so many, the business of insurance is regulated more heavily than most other businesses.

The business of insurance is regulated by the states, not by the federal government (with the exception of certain antitrust laws). As a result, while them is necessarily much uniformity of regulation in the business of insurance from state to state, there are also differences.

The laws regulating the business of insurance in some states differ so greatly from other states that many insurers establish separate companies solely for the purposes of writing policies in a given state. Texas and Illinois are two states where this often occurs because of the difficulties irnposed by complying with the laws of those particular states.

Twelve states mandate some form of no-fault auto insurance. As a result of these differences, certain types of policies, particularly auto policies, must be written so that people can travel from state to state
in their vehicles, yet not run the risk of uninsured losses due to variations in mandatory insurance requirements by state.

Because of state regulations and other business concerns, a given insurance organization typically comprises multiple insurers. State Farm advertises nationally on television and through other media, but the organization operating under the State Farm moniker is actually comprised of twelve different insurance companies, each separately organized. Indeed, many of the separate insurance companies operating under a single trademark or service mark, such as State Farm, Farmers, Kemper, or Nationwide, have officers and a board of directors, but no actual employees.

There are a number of practical reasons why many insurance organizations do business in this manner, which vary from organization to organization. Some states' insurance codes and regulations are such that a given insurance organization will establish an insurance company solely for the purposes of writing all of its policies for insurance within a particular state. Another reason an insurance organization might establish multiple insurance companies to operate within a given state is to help the insurance organization track and assess business results.

These business factors (and more), even before looking at the actual loss experience of an individual insured, can affect whether an insurer will categorize the insured as a preferred risk, a standard risk, or a substandard risk, Depending on how an insurance organization decides it wants to compartmentalize its ability to track its results, it may choose to do so based on a preferred, standard, or substandard risk basis, regardless of the line of business.
It may establish separate companies in which to write policies issued to each of these categories of its business.


The most common form of organization for domestic insurers is the capital stock company (corporation) organized and existing pursuant to the laws of whichever of the fifty states is its corporate domicile. The stock of individual capital stock insurance companies is not always publicly traded. Often, insu
ers are wholly-owned subsidiaries of one or more other insurance companies comprising a given insurance organization. For example, the group of companies known as American International Group, Inc. (AIG) owns, directly or through subsidiary companies, such well-known commercial insurers as National Union Fire Insurance Company, American Home Assurance Company, Lexington Insurance Company, Insurance Company of the State of Pennsylvania, and Birmingham Fire Insurance Company. 

The parent company of this group is the corporation known as American International Group, Inc. This corporation is not an insurer itself. Rather, it is what is commonly referred to as a holding company. If a person wished to invest in the insurance business of the AIG companies, one would buy stock in American International Group, Inc. One could not purchase stock directly in any of the member companies that comprise AIG.

The corporate domicile of a particular insurer may or may not be the same state where that particular insurer has its principal place of business. Just because an insurer is organized and exists as a legal entity under the laws of a particular state, and may even have its principal place of business in that state, does not mean that the insurer operates as an admitted insurer in that state.

Insurers can be organized and exist pursuant to the laws of a particular state, and yet operate within that state on a nonadmitted (excess or surplus lines) basis.

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