Insurance Regulation: Who Regulates and How
The state-based system
Insurance in the United States is regulated primarily by the states. The McCarran-Ferguson Act (1945) returned regulatory authority to the states and gave them a limited antitrust exemption. Each state has an insurance department headed by a commissioner, superintendent, or director - appointed in some states, elected in others. The NAIC is a voluntary association of regulators that drafts model laws; a model is not law until a state adopts it, so never describe the NAIC as the regulator.
Powers of the commissioner
Know the tools: issuing certificates of authority to insurers, approving policy forms and rates (prior approval, file-and-use, use-and-file), financial examinations and market conduct exams, hearings, cease-and-desist orders, fines, license suspension or revocation, and rehabilitation or liquidation of insolvent insurers. Solvency is monitored through risk-based capital, IRIS ratios, and annual statement blanks. State guaranty associations pay claims of insolvent insurers up to statutory limits; they are a backstop, not a license to ignore solvency.
Unfair trade practices
State unfair trade practice acts prohibit misrepresentation, twisting, rebating, defamation, boycotts and coercion, false advertising, and unfair discrimination. Rebating - offering anything of value not stated in the policy as an inducement to buy - is illegal in nearly every state, even if the client asks for it.
Traps and rule of thumb
Questions test whether a producer must follow NAIC rules (no), whether the federal government regulates insurance generally (no, though ERISA and the ACA reach it in specific ways), and whether commissions may be shared (only with a properly licensed person).Rule of thumb: when in doubt, the state insurance department answers to it.