The term insurance company is no longer an alien one there are hundreds and thousands of insurance companies around, working in different fields and offering different covers and policies. They could be covering our health, home, property, business, vehicle, etc. Broadly speaking these companies may be classified into two categories Life insurance companies and Non-life insurance companies. Life insurance companies deal with life insurance, annuities and pension products while the non-life work related to the property or casualty insurance and sell other kinds of insurance. General insurance companies can be further grouped into different kinds.
If we look at different countries, we will find that life and non-life insurers work under different regimes as well as different tax and accounting rules. The main reason is that life, annuity, and pension are very long-term in nature and this is what makes the Life insurance companies distinct from others. These insurance policies are supposed to cover risk for over many decades. On the other hand, the non-life insurance cover work for a shorter period of time.
In countries like US, standard line insurance companies receive a license or authorization from a state, in order to issue a specific kind of insurance in that state, for example homeowners’ or automobile insurance . These are typically referred to as the “admitted” insurers. The state’s insurance regulator first has to authorize the rates and policy forms submitted by the insurance company and give approval. These insurers also need to contribute to state guarantee funds.
Excess line insurance companies insure those risks that are not covered by the standard lines insurance company. They are also known as unlicensed insurers as they are not authorized in the states where they operate. However, they need to have license in the state of their domicile. These companies react faster and offer higher level of flexibility as compared to the other insurance companies. Still, that doesn’t mean that they do not have any substantial regulatory requirements to follow. These insurance companies generally charge lower premiums may sell directly to the insured. Most states regulate the excess line insurers and ask them to submit financial information.
President Barack Obama recently signed into law NRRA, or the Nonadmitted and Reinsurance Reform Act of 2010 that got effective in 2011. The Act has changed the regulatory model for excess line insurance company and now, only the home state can regulate excess line transaction for the insured.