Insurance Regulation and Licensing
Who Regulates What
Insurance is regulated chiefly at the state level through a department of insurance headed by a commissioner or superintendent. The McCarran-Ferguson Act (1945) confirms that states regulate the business of insurance unless Congress specifically says otherwise, so federal law does not preempt state insurance rules merely because the activity involves interstate commerce.
A candidate must know the producer licensing framework: licensing by residence state with reciprocal nonresident licensing, the difference between a producer (agent) and a broker (who legally represents the buyer), and the requirement to be appointed by an insurer before soliciting its products. Know the grounds for discipline-misrepresentation, rebating, twisting, commingling of premium funds, and transacting without a license-and the standard remedies: cease-and-desist orders, license suspension or revocation, fines, and restitution.
Traps in Questions
- Rebating vs. twisting. Rebating is offering part of the commission or anything of value not in the policy to induce a sale; twisting is misrepresenting an existing policy to induce replacement. Both are prohibited, but they are different violations.
- Commingling. Premiums held in trust must be kept separate; mixing them with personal funds is a violation even if no money is missing.
- Fiduciary duty timing. Premiums are generally due to the insurer promptly; the producer holds them in a fiduciary capacity.
- State vs. federal. Medicare and ERISA plans involve federal rules, but licensing and market conduct remain state matters.
Rule of Thumb
If a question asks who enforces producer conduct and licensing, the answer is the state insurance department; if it asks whether federal law displaces state insurance regulation, the answer is generally no, absent a specific federal statute.