California Insurance in the United States refers to the market for risk in the United States, the world's largest insurance market by premium volume. Of the $4.640 trillion of gross premiums written worldwide in 2013, $1.274 trillion (27%) were written in the United States.
Insurance, generally, is a contract in which the insurer (stock insurance company, mutual insurance company, reciprocal, or Lloyd's syndicate,
for example), agrees to compensate or indemnify another party (the
insured, the policyholder or a beneficiary) for specified loss or damage
to a specified thing (e.g., an item, property or life) from certain
perils or risks in exchange for a fee (the insurance premium).
For example, a property insurance company may agree to bear the risk
that a particular piece of property (e.g., a car or a house) may suffer a
specific type or types of damage or loss during a certain period of
time in exchange for a fee from the policyholder who would otherwise be
responsible for that damage or loss. That agreement takes the form of an
insurance policy.
Insurance groups
Only the smallest insurers exist as a single corporation.
Most major insurance companies actually exist as insurance groups. That
is, they consist of holding companies which own several admitted and
surplus insurers (and sometimes a few excess insurers and reinsurers as
well). There are dramatic variations from one insurance group to the
next in terms of how its various business functions are divided up among
its subsidiaries or outsourced to third party corporations altogether.
All major insurance groups in the U.S. that transact insurance in
California maintain a publicly accessible list on their Web sites of the
actual insurer entities within the group, as required by California
Insurance Code Section 702.
An example of how insurance groups work is that when people call GEICO
and ask for a rate quote, they are actually speaking to GEICO Insurance
Agency, which may then write a policy from any one of GEICO's seven
insurance companies. When the customer writes their check for the
premium to "GEICO", the premium is actually deposited with one of
those seven insurance companies (the one that actually wrote their
policy). Similarly, any claims against the policy are charged to the
issuing company. But as far as most layperson customers know, they are
simply dealing with GEICO.
Obviously, it is more difficult to operate an insurance group than a
single insurance company, since employees must be painstakingly trained
to observe corporate formalities so that courts will not treat the
entities in the group as alter egos of each other. For example, all
insurance policies and all claim-related documents must consistently
reference the relevant company within the group, and the flows of
premiums and claim payments must be carefully recorded against the books
of the correct company.
The advantage of the insurance group system is that a group has
increased survivability over the long run than a single insurance
company. If any one company in the group is hit with too many claims and
fails, the company can be quietly placed into "runoff" (in which it
continues to exist only to process remaining claims and no longer writes
new coverage) but the rest of the group continues to operate.
By way of contrast, when small insurers fail, they tend to do so in a
rather wild and spectacular fashion, as was often the case during the
economic cycles of the 1970s and 1980s. Sometimes the result may be a
state-supervised takeover by which a state agency may have to assume
part of their residual liabilities.
Institutions
Various associations, government agencies, and companies serve the insurance industry in the United States. The National Association of Insurance Commissioners
provides models for standard state insurance law, and provides services
for its members, which are the state insurance divisions. Many
insurance providers use the Insurance Services Office,
which produces standard policy forms and rating loss costs and then
submits these documents on the behalf of member insurers to the state
insurance divisions.
