Updated: November 15, 2024
While there could be alien insurance companies with extra-terrestrial agents in a galaxy far, far away, that unfortunately is not what the term “alien insurance company” means to us here on Earth.
An alien insurance company is defined by the US Insurance Information Institute as: “an insurance company incorporated under the laws of a foreign country, as opposed to a ‘foreign’ insurance company which does business in states outside its own.”
So, an alien insurance company offers or sells coverage in a country or countries other than its country of domicile. For example, if a company’s home office is in Toronto, Canada, but its insurance business is conducted in California, USA, that company would be referred to as an alien insurer in California.
A company based in the UK would be considered a domestic insurer of a policy if someone from London purchases a policy. However, if someone in New York bought a policy from the same UK-domiciled company, it would then be considered an alien insurer.
But what does this all mean for insurance professionals? There are certain benefits to having an alien insurance company in the USA, and Insurance Business America will get into that. We’ll also shed light on several other pertinent questions that may come up regarding alien insurance companies.
The simple definition of an alien insurance company is that it’s an insurance company that sells insurance in a country other than the one it’s domiciled. The relationship between the insurer’s home country and the country where it offers coverage determines whether the insurer is considered an alien insurer.
So, when the insurance policy is sold in a country that is not where the insurer permanently resides in, then that insurer is deemed as an alien insurer.
When it comes to determining what rules, laws, and regulations govern its actions, an alien insurance company must follow those of the location or state where it offers and sells insurance policies. Its domicile is irrelevant. For example, if this was New York and an alien insurance company based in Switzerland wished to sell auto insurance, they would have to conform with the $50,000 Personal Injury Protection (PIP) required by the laws of this state.
However, different US states have specific requirements for alien insurers who conduct business in their jurisdictions. Insurance regulators from every US state and territory who collectively govern the National Association of Insurance Commissioners (NAIC) establish regulatory standards, including the activities of alien insurers.
The NAIC plays a vital role in regulating alien insurance companies, since they also publish an alien insurance company list that is released quarterly. This quarterly listing does not merely serve as a who’s who of alien insurers; it’s a record of those that have provided the Commission with information indicating they fulfill the standards for operating in foreign countries.
An alien insurer is one that was incorporated or organized under the laws of any other foreign country, province, or territory but offers insurance policies in the US. Here’s a simple example: let’s assume that an insurance company’s home office is in another country but maintains offices in California. In that state, the company would be considered as an alien insurance company.
One of the prime real-life examples of an alien insurer operating in the US is Lloyd’s of London. This insurer comes to mind when US insurers think of an internationally domiciled insurance company. The 335-year-old specialty insurance market is based in London, UK. Lloyd’s has a huge amount of business in the US. So, technically speaking, Lloyd’s syndicated underwriters are “alien insurers”.
Approximately 40% of its global premiums are currently held by US customers. The company has yet to release updated figures on its total current earnings for 2024 in the US alone, but Lloyd’s has seen a steady increase in profit overall.
At first glance, most people may think that in terms of their home location, there are only alien and domestic insurers. This is a misconception since there are also foreign insurers – but aren’t foreign and alien insurers exactly the same? Here are their definitions for you to know and appreciate their differences.
A domestic insurer is one that is licensed to operate only in a specific state. This type of insurance company is formed by the laws and administered by the laws of that state. For an insurance company to be a domestic insurer, they must comply with the statutory laws of that state and have their home office there.
This insurer is one that is in one country although it also provides policies for clients in other countries. It can safely be said that an alien insurance company is a domestic insurer that may also conduct business outside of the country in which it is domiciled.
A foreign insurance company is one that is headquartered in one state but also sells insurance policies to clients in other states. Technically, a foreign insurer is a domestic insurer that also does business outside of the state where it is domiciled. You could say that it is a “foreign domestic” insurer.
Here’s a short video that provides helpful information and discusses their differences:
Alien insurers and even foreign insurers that operate in the United States can be important for individuals and businesses. Here are some of the benefits that alien companies bring to the table:
Alien companies can have insurance products that are simply not offered by the local insurance companies in a state. One example is Paid Family Medical Leave (PFML), which can be purchased from a large alien insurer. An alien insurance company may also make it easier for clients to avail themselves of coverage if they are in high-risk locations or specialized markets.
The presence of alien insurance companies can significantly expand the range of available insurance options in a particular market. They may be able to meet the unique needs of a market better than domestic carriers. One example is Lloyd’s of London, which specializes in insurance for unusual risks that domestic insurers may be unwilling or simply unable to cover.
An alien insurance company or two can make the local insurance market more competitive, resulting in better pricing and service options for customers. The presence of alien insurers can be particularly beneficial for markets that have insurers with monopolistic tendencies.
Alien insurers can enhance economic activity in local markets, adding jobs and contributing more tax revenue to the state’s coffers. Their tailored insurance solutions can also support local businesses and encourage more people to set up more businesses.
While an alien insurance company can present some benefits to consumers in some markets, they are not completely free of drawbacks. Here are some disadvantages that an alien insurance company may pose to some markets.
In some instances, alien insurers must navigate complex regulatory frameworks in the countries that they operate, which can vary. Issues of regulatory compliance and legal disputes can arise, affecting the alien insurer’s capacity to offer consistent coverage and effectively settle claims.
The coverage that an alien insurance company offers may not have the same protections as those from domestic insurance providers. Domestic insurers are typically required to participate in state guaranty funds, but alien insurance companies might not have the same safety net for their clients in case of insolvency.
Those who choose to buy coverage from an alien insurance company may have to pay higher premiums compared to a domestic insurer. This may be especially true if the alien insurer covers specialized or high-risk areas where local insurance companies offer inadequate coverage. Operational costs, regulatory burdens, or market dynamics specific to the alien insurer may also cause them to charge higher premiums.
An alien insurance company may not have their customer service department operating locally, so customers with complaints may have to deal with more complicated claims processing procedures. They may also find it difficult to get ahold of customer service representatives and have their issues promptly addressed, resulting in lower service satisfaction.
If insurance is issued in a currency other than the customer’s local currency, the alien insurance company exposes their customers to exchange rate fluctuations. Unexpected increases in costs may result, especially if the alien company’s home country has a volatile currency or economic environment.
An alien insurance company could find it difficult to market themselves and their products due to a lack of local knowledge. Not being familiar with the local regulations, markets and their risks could be an obstacle for the alien insurer to gain a foothold in the US. Such a lack of understanding can also limit their capacity to tailor their products to meet the needs of their customers; a gap in coverage or misunderstandings in policy terms are among the potential problems.
Legally speaking, there can be little to worry about when it comes to alien insurance companies, since they would have to go through stringent rules and regulations just to secure a license and operate wherever they set up shop.
If you or your client wants to deal with an alien insurance company because they have better coverage, insurance policies, competitive pricing and overall better service, it would be wise to pick one that has a long history of stability and doing good business. For instance, industry giants like Lloyd’s of London are proof that alien insurance companies can be very good for the economies of wherever they operate.
You can do your due diligence and refer to the NAIC list of reputable and compliant alien insurers or consult with a savvy insurance brokerage – you can find them in our section of the Best Brokerages in the US.
Did you find this piece on alien insurance companies helpful? Are there any alien insurers in your area and will you or your clients do business with them? Let us know your experience with them in the comments.
