Insurance Regulation
Who regulates what
Insurance is regulated primarily by the states. The McCarran-Ferguson Act (1945) confirmed state primacy over the business of insurance and gave a limited antitrust exemption. Each state insurance department administers the insurance code, licenses insurers and producers, approves forms and rates, monitors solvency, conducts market-conduct examinations, and handles consumer complaints. The NAIC is an association of regulators that drafts model laws and statistical data; it has no legal authority of its own - a favorite trap.
Producer duties
A producer must hold a state license and be appointed by the insurer, and acts as the insurer's agent when soliciting and binding coverage. Premiums collected are held in a fiduciary capacity; commingling premium funds with personal or business money, or failing to remit, is prohibited. Prohibited practices include rebating (returning part of the commission as an inducement), twisting (misrepresentation to induce replacement), misrepresentation, coercion, and unfair claim settlement practices.
Rates and markets
Rate regulation takes several forms: prior approval, file-and-use, use-and-file, and open competition. Rates must be adequate for solvency, not excessive, and not unfairly discriminatory. Residual markets - FAIR plans, auto assigned risk plans, state pools - provide coverage the voluntary market will not. Guaranty associations pay claims of insolvent insurers, funded by assessments on insurers, subject to statutory caps.
Rule of thumb
When a question asks who can revoke a license, levy a fine, or approve a policy form, the answer is the state insurance commissioner - never the NAIC, a trade association, or the insurer.