Insurance Regulation and Compliance
Who regulates what
Insurance is regulated primarily by the states, coordinated through the NAIC, which develops model laws, the annual statement blanks, and the risk-based capital formula. The McCarran-Ferguson Act preserves state primacy, though federal antitrust and other laws apply where states do not regulate. Federal roles include flood (NFIP), terrorism backstop (TRIA), and some solvency and market-conduct oversight. A classic trap is assuming the NAIC has direct regulatory authority-it does not; it drafts models that states may adopt.
Solvency and market regulation
Solvency regulation covers capital standards (RBC), reserve adequacy, investment limits, reinsurance credit, and holding company oversight. Market regulation covers rate and form filing (prior approval, file-and-use, use-and-file), producer licensing, and unfair trade and claims practices. Guaranty associations protect policyholders of insolvent insurers, funded by assessments on surviving insurers, subject to caps.
Compliance program essentials
A compliance program includes written policies, a designated compliance officer, training, monitoring, and corrective action. Key statutes include privacy rules, anti-fraud reporting, anti-money-laundering programs, and producer compensation disclosure. Continuing education, appointment, and termination reporting are routine compliance obligations.
Worked example
A producer sells a policy without a license in a state where the insurer is admitted. The insurer faces market-conduct findings even though the producer erred. Rule of thumb: the insurer owns the conduct of its appointed producers; verify licensing and appointment before submission, and document the check.