Insurance Regulation: Who Governs the Policy You Sell
The regulatory framework
Insurance is regulated primarily by the states, a division of authority confirmed by the McCarran-Ferguson Act of 1945. Congress declared that continued state supervision serves the public interest, so federal antitrust law yields to state insurance codes. In Arizona the regulator is the Department of Insurance and Financial Institutions (DIFI), headed by a director appointed by the governor. NAIC model laws are templates only; a model provision is not enforceable in Arizona until it is adopted as a statute or rule.
Licensing, appointment, and conduct
A producer license is issued to an individual, or to a business entity that must name a licensed responsible producer. Holding a license does not authorize business for a particular carrier - the insurer must appoint the producer and notify the regulator. Licenses are renewed with continuing education, and appointments may be terminated; terminations for cause trigger reporting obligations. Premium a producer collects belongs to the insurer or the insured, not to the producer, so commingling premium with personal funds is prohibited.
Prohibited practices
Market-conduct questions love these: misrepresentation of policy terms, twisting (inducing replacement through false comparisons), churning, false advertising, unfair claim settlement practices, and rebating - offering any inducement not stated in the policy. Sharing commissions with an unlicensed person is equally illegal, and paying commission to a producer whose license has lapsed is the same violation.
Trap: answer choices such as “rebating is allowed if disclosed to the insurer” or “a producer may split commission with an unlicensed marketer” are always wrong.
Rule of thumb: no license plus no appointment equals no commission. A producer who deposits a $2,000 premium into a personal account has commingled funds and breached a fiduciary duty, even if the intent was to remit it later.