Insurance Regulation
Who regulates insurance
Insurance is regulated mainly by the states. The state insurance department, headed by a commissioner or director, licenses insurers and producers, reviews policy forms and rates, conducts market-conduct examinations, and enforces unfair trade practice laws. The NAIC drafts model laws and supports state regulators, but it does not enact or enforce law. The McCarran-Ferguson Act leaves insurance supervision to the states, although federal statutes still apply in specific areas.
Producer obligations
A producer must hold a license in the state where the solicitation or sale occurs, be appointed by the insurer, and meet continuing-education requirements. Premiums collected are fiduciary funds and must not be commingled with personal funds. Prohibited practices include rebating, twisting, misrepresentation, false advertising, and unfair claim settlement. Rate regulation may use prior approval, file-and-use, or use-and-file systems.
Common traps
Questions often treat the NAIC as a regulator or claim that a federal guaranty fund protects policyholders. State guaranty associations provide limited protection when an insurer fails. A nonresident license is not automatic; reciprocity through the NIPR simplifies filing but a license is still required.
Worked example
A producer licensed only in State A solicits a policy while the client is temporarily in State B. If State B requires a license to solicit there, the producer needs a nonresident license before the sale. Rule of thumb: states license, examine, and guarantee; the NAIC only models.