A New Institutional Theory of Insurance
Insurance law scholars often analyze the forms and functions of insurance and discuss the various ways that insurance institutions (i.e., insurance companies, brokers, and agents) impact society. Within these frameworks, scholars often draw from law and economics principles to understand insurance company and insured behavior. Analyses of insurance law view law as “top-down” and exogenous to the insurance institutions that draft, market, and sell insurance. In other words, law is treated as formed and defined outside of insurance institutions by courts, legislatures, and administrative agencies, and the role of the insurance industry is limited to reacting to law by either complying or not complying with law often due to rational, strategic considerations. By exploring how and why insurance impacts society, and why insurance companies wield considerable influence in society, insurance law scholars lay an excellent foundation for thinking about insurance and insurance institutions. While existing approaches are helpful, there is not an insurance theory anchored in organizational behavior, culture, and decision making that explains how insurance companies respond to law. This Article suggests that the relationship between legal regulation and insurance institutions is more “bottom-up” than we think. The interaction between insurance companies and legal regulation is best illustrated not by examining the forms or functions of insurance or the insurance industry’s broad impact on society, but rather through a processual model in which insurance organizations influence not just private law but public law. I show how insurance institutions construct the meaning of compliance with antidiscrimination laws through drafting, marketing, and selling Employment Practice Liability Insurance; use the National Association of Insurance Commissioners to influence legislation and regulation; and shape the nature of property insurance regulatory frameworks. This Article, therefore, offers a theory that explains insurance industry behavior and, in particular, how insurance companies respond to laws in ways that end up influencing the meaning of law, not just in insurance companies’ own legal environment, but also among public legal institutions such as courts, legislatures, and administrative agencies.