Insurance Regulation
The regulatory framework
Insurance is regulated principally by the states; the McCarran-Ferguson Act gives state law priority, with federal antitrust rules filling gaps. Michigan's regulator is the Department of Insurance and Financial Services (DIFS). The Commissioner is appointed by the Governor and may examine insurers, approve or disapprove policy forms and rates, issue licenses, investigate complaints, impose fines, suspend or revoke licenses, and issue cease-and-desist orders. Rates must be adequate, not excessive, and not unfairly discriminatory.
Producers
A producer must hold a license before soliciting, negotiating, or selling insurance; the insurer then appoints the producer. Only licensed producers may be paid commissions, and premium money held for an insurer must be kept in a fiduciary capacity, never commingled with personal funds. Producers must complete state-mandated continuing education each license term and report administrative actions against them.
Unfair trade practices
Expect questions on misrepresentation, twisting (inducing a replacement through misrepresentation), rebating (offering any inducement not stated in the policy), unfair discrimination among similar risks, defamation of an insurer, boycott/coercion, and unfair claim settlement practices. Replacement of an existing life policy triggers disclosure requirements and a fresh free-look period. Michigan also bars stranger-originated life insurance (STOLI).
Solvency backstop
If an admitted insurer fails, the state life and health guaranty association protects policyowners - typically up to $300,000 in death benefit, $100,000 in cash surrender value, and $250,000 in annuity present value. It is not a regulator and pays nothing above the cap.
Worked rule: follow the money. If a person is not licensed and appointed, that person cannot be paid a commission on the sale. Splitting a commission with an unlicensed friend is a classic wrong answer.