Insurance Regulation
The state-based system
Insurance regulation in the United States is primarily a state function, preserved by the McCarran-Ferguson Act (1945). In Michigan the regulator is the Department of Insurance and Financial Services (DIFS), headed by a commissioner appointed by the governor. The commissioner licenses insurers, producers, agencies and adjusters; reviews forms and rates; examines market conduct and financial condition; and can issue cease-and-desist orders, levy fines, or place an insurer into rehabilitation or liquidation.
What producers must not do
Producers hold a fiduciary duty toward premiums collected from insureds - the money belongs in a trust or premium account, never in the producer's operating account. Prohibited practices include rebating any part of the commission (even if the client asks), twisting (misrepresenting a policy to induce replacement), misrepresentation, false advertising, commingling, and unfair claim settlement practices. Michigan generally uses file-and-use rate filing for property and casualty lines, so a filed rate may be used immediately but remains subject to later disapproval.
Safety nets
When an admitted insurer fails, the Michigan Property and Casualty Guaranty Association responds to covered claims within statutory caps; it never pays more than the policy would have paid. Residual markets - the Michigan Automobile Insurance Placement Facility, the Michigan Basic Property Insurance Association, and the workers compensation placement facility - make coverage available for hard-to-place risks but do not compete with the voluntary market.
Rule of thumb
If a producer personally benefits at the insured's expense - splitting commission, charging an undisclosed fee, holding premiums outside a trust account - assume it is a licensing violation.