Insurance Regulation
Who regulates what
Insurance in the United States is regulated primarily by the states, not the federal government. The McCarran-Ferguson Act (1945) confirmed that state regulation continues unless Congress specifically says otherwise, and it grants insurers a limited antitrust exemption for activities regulated by state law. Each state's insurance department, headed by a commissioner or superintendent, licenses insurers and producers, approves policy forms and rates, conducts market-conduct and financial examinations, and enforces unfair trade practice laws. The NAIC is a voluntary association of regulators that drafts model laws and shares data; it has no authority to enact or enforce anything. A model law matters only when a state adopts it.
Producer obligations
Producers must be licensed for the line of business, appointed by each insurer they represent, and must complete continuing education. Fiduciary duties apply to money collected from clients: premiums must never be commingled with personal funds. Prohibited practices include rebating (offering anything of value not stated in the policy to induce a sale), twisting (misrepresenting a policy to induce replacement), misrepresentation, defamation, boycott and coercion, and unlicensed activity. Replacement of existing life insurance triggers disclosure requirements.
Traps
Questions often hint that the federal government or the NAIC regulates insurance. Neither does. Another trap: the state guaranty association protects policyholders of an insolvent insurer up to statutory limits, but it is not a regulator and does not cover every dollar of value.
Rule of thumb
Ask whether the state insurance code prohibits the act. If it does, it is an unfair trade practice regardless of the producer's intent.