Sunday March 26 , 2017

Insurance Law

Insurance law is the name given to practices of law surrounding insurance, including insurance policies and claims. it can be broadly broken into two categories - regulation of the business of insurance and regulation of claim handling.

REGULATION OF THE BUSINESS OF INSURANCE

Insurance regulation that governs the business of insurance is usually aimed at assuring the solvency of insurance companies. Thus, this type of regulation governs capitalization, reserve policies, rates and various other "back office" processes.

In the United States each state typically has a statute creating an organizational agency. These state agencies are normally called the Department of Insurance, or some similar name, and the head official is the Insurance Commissioner, or a similar titled officer. The agency then creates a group of administrative regulations to govern insurance companies which are domiciled in, or do business in the state.

The origins of insurance policies in general differs through various countries. Limited policies (particularly against damage to homes) can be traced to the 17th and 18th centuries, though establishment of newer policies (such as health insurance and car insurance) did not come until the 20th century.

In the United States regulation of insurance companies is almost completely conducted by the several states and their insurance departments. Various states have different names for their regulatory agencies and regulators. In many states the department is called the Department of Insurance, and the regulator is called the Insurance Commissioner - although there are numerous variations. The federal government has explicitly exempted insurance from federal regulation in most cases.

However, regulation of the insurance industry began in the 1940s in the United States, through several United States Supreme Court rulings. The first ruling on insurance had taken place in 1868 (in the Paul v. Virginia ruling), with the supreme court ruling that insurance policy contracts were not in themselves commercial contracts. This stance did not change until 1944 (in the United States v. South-Eastern Underwriters Association ruling), when the Supreme court upheld a ruling stating that policies were commercial, and thus were regulatable as other similar contracts were.

Nowadays, many countries - and states in the United States - regulate insurance companies through laws, guidelines and independent commissions and regulatory bodies. These laws and statutes ensure that the policy holder is protected against bad faith claims on the insurer's part, that premiums are not unduly high (or fixed), and that contracts and policies issued meet a minimum standard.

A bad faith action may constitute several possibilities; the insurer denies a claim which is seemingly suitable in the contract or policy, the insurer refuses to pay out for an unreasonable amount of time, the insurer lays the burden of proof on the insured - often in the case where the claim is unprovable. Other issues of insurance law may arise when price fixing occurs between insurers, creating an unjust competitive environment for consumers. A notable example of this is where Zurich Financial Services - along with several other insurers - inflated policy prices in an anti-competitive fashion. If an insurer is found to be guilty of fraud or deception, they can be fined either by regulatory bodies or in a lawsuit by the insured or nearby party. In more severe cases, or if the party has had a series of complaints or rulings, the insurers license may be revoked or suspended.

In the case that an insurer declares bankruptcy, many countries operate independent services and regulation to ensure as little financial hardship is incurred as likely (National Association of Insurance Commissioners operates such a service in the United States).

UK INSURANCE LAW

PARTICULARLY LONG-TERM INSURANCE, IS DIVIDED INTO DISSIMILAR CATEGORIES. THE CATEGORISATION IS CURRENTLY SET OUT IN SECTIONS 333B, AND 431B TO 431F OF THE INCOME AND CORPORATION TAXES ACT 1988 (ICTA) WITH EACH TYPE OF BUSINESS GIVEN A DIFFERENT TAX TREATMENT.

LIFE AND NON-LIFE

The first essential categorisation of long-term insurance is among life and non-life business. Life insurance business is insurance that is dependent on human life. Examples would contain a policy that pays out £100,000 if the policy owner dies within a particular time; a policy that pays out £100,000 in 10 years time, but will pay out £101,000 if the policy holder dies before the policy matures; a pension in payment, which will end once the pensioner dies.

The main example of non-life long-term insurance business is lasting health insurance, but the category includes pension’s management. Capital redemption business, which is business written for a premium in exchange for a payment of an annuity over a period of, say, 99 years, is also long-term non-life business. However, for taxation uses, only capital redemption business written before 1 January 1938 is treated as non-life assurance business.

BASIC LIFE ASSURANCE AND GENERAL ANNUITY BUSINESS


Basic life assurance and general annuity business is defined as being life assurance business not fitting within any other category of business under section 431F ICTA. It is often abbreviated to BLAGAB. BLAGAB is taxed on the so called "I minus E basis" (i.e. the company is taxed on its investment return minus its expenses of management). The I minus E basis raises the UK Exchequer more revenue than it would get if it were taxed on a trading basis. This is because a trading computation would tax Premiums plus Investment return minus Expenses minus Claims, and the expectation is that policy holder claims will be greater than the premiums they pay, as policy holders tend to hold life assurance policies as an investment that they hope will grow. To ensure the Exchequer does not lose out in a year where a trading basis would yield greater tax revenues, E (expenses of management) is limited so the I minus E cannot be lower than the measure of trading profits, with any restricted E being carried forward and deemed to be E of the subsequent period.

Before 1 January 1992, there were separate tax computations for basic life assurance business and for general annuity business, since then the two categories have been united into BLAGAB.

Capital redemption business written since 31 December 1937 has been treated as though it were BLAGAB from the first accounting period of a company ending on or after 1 July 1999. Before then, it was treated as a separate business taxed on an I minus E basis.

PENSION BUSINESS

The concept of pension business, in section 431B ICTA, was introduced in the Finance Act 1956, which was introduced as a tax-advantaged way of saving for retirement. The tax advantage comes through taxing it on a trading profit basis rather than on an I minus E basis. The precise definition of what it constitutes is closely defined by statute so that only schemes approved by the Government qualify for the tax advantages. Pension business includes business relating both to the accrual of pension benefits whilst the policy holder is working and pensions in payment. Pension business includes reinsurance of pension business.

reference - wikipedia.org

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