Insurance Regulation and Licensing
Who regulates insurance
Insurance in the United States is regulated almost entirely at the state level. The McCarran-Ferguson Act (1945) confirmed that states regulate the business of insurance, and each state's insurance department - headed by a commissioner, superintendent, or director - enforces the state insurance code. NAIC model laws and regulations are persuasive only; they bind a producer once the state adopts them. Federal statutes (HIPAA, ACA, ERISA) overlay the state system but do not replace the commissioner's licensing authority.
Licensing and appointment
A producer must hold a current license in the state where the solicitation occurs, for the line of authority being sold (life, accident and health, etc.). Licensing requires prelicensing education where mandated, a passing exam, a background check, and continuing education to renew. A license is a privilege, not a right; the commissioner may fine, suspend, or revoke it. A license alone does not authorize sales - most states also require the insurer to appoint the producer. Nonresident licensing runs through reciprocity, typically filed through the NIPR.
Fiduciary duties and prohibited practices
Premiums collected belong to the insurer or the client, never to the producer: commingling premiums with personal funds and failing to remit promptly are separate violations. Prohibited conduct includes misrepresentation, twisting (inducing a lapse or replacement through misrepresentation), churning, defamation, coercion, unfair discrimination, and rebating - offering any inducement not stated in the policy, including paying premium out of commission.
Trap: "The client asked for it" is no defense to rebating. Rule of thumb: anything of value not promised in the contract is an illegal inducement.
Worked example: A producer hands a client a $50 gift card from her own commission to close a sale. That is rebating and an illegal inducement regardless of who suggested it, and the commissioner may fine or revoke the license.