Federal laws/regulations; Court Cases;

OLR Research Report

December 21, 2011




By: Nicole Dube, Associate Analyst

You asked for information on state regulation of insurance. Specifically, you asked for a brief history and if there have been any efforts towards increased federal regulation of the insurance industry.


In 1869, the U.S. Supreme Court held that the issuance of an insurance policy is not a transaction of commerce and Congress had no authority under the U.S. Constitution's Commerce Clause to regulate insurance (Paul v. Virginia, 75 U.S. (8 Wall.) 168, 19 L.Ed. 357). The authority to regulate insurance remained at the state level for the next 75 years and over half of states established insurance departments with varying powers.

In 1944, the U.S. Supreme Court overruled Paul v. Virginia finding that insurance transactions are subject to regulation under the Commerce Clause (United States v. South-Eastern Underwriters Association, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944)). But, nothing in this ruling either compelled Congress to exercise its power to regulate insurance or precluded it from allowing states to exercise regulatory jurisdiction. The court simply held that Congress could exercise its power. The National Association of Insurance Commissioners subsequently prepared legislation that would return regulatory authority back to the states.

In 1945, Congress enacted the McCarran-Fergusson Act (15 U.S.C. 1011-1015), which lets states regulate the business of insurance. As a result, each state has adopted laws to comply with the act including provisions requiring its regulatory body (usually the state insurance department) to assure (1) insurer solvency; (2) insurance rates are not excessive, inadequate, or unfairly discriminatory; and (3) risk classifications insurers use do not result in unfair discrimination.


There have been legislative attempts in recent years to move toward increased federal regulation of the insurance industry. For example, federal legislation proposed in 2009 (H.R. 1880) would establish an optional federal insurance charter and new regulatory system. In addition, the federal Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) created a Federal Insurance Office to monitor insurance issues and report to Congress and the U.S. Treasury on how to improve and modernize the insurance regulatory system. The office does not have regulatory authority, but does have fairly broad information gathering authority.