Insurance Regulation and Licensing
Who regulates insurance
Insurance in the U.S. is regulated chiefly by the states, a framework reinforced by the McCarran-Ferguson Act, which left supervision of the business of insurance to the states and gave insurers a limited antitrust exemption. Each state department of insurance licenses insurers and producers, reviews rates and forms, and conducts market conduct examinations. The NAIC drafts model laws and the National Insurance Producer Registry (NIPR) supports licensing and appointment filings, but no model law binds a state until adopted.
Licensing mechanics
A producer needs a license for each line and each state. Residents qualify by exam, background check, and application; nonresidents typically qualify through reciprocity. A license alone does not let a producer write business for an insurer: the insurer must appoint the producer, usually filed within 30 days of the producer's first application. The producer is the agent of the insurer, not the insured, and owes a fiduciary duty on premiums - premium funds are held in trust and must not be commingled with business or personal funds. Commissions may be shared only with properly licensed persons, with narrow exceptions. Continuing education, address changes, and reporting of administrative actions or convictions are ongoing obligations.
Market conduct traps
Unfair trade practices include rebating, misrepresentation, twisting, churning, false advertising, boycott, coercion, and unfair claim settlement. Rebating is illegal in most states even when disclosed. Surplus lines placement requires an eligible nonadmitted insurer, a licensed surplus lines broker, and a diligent search of the admitted market; surplus lines policies generally get no guaranty fund protection.
Rule of thumb: license first, appointment second, solicit third - and premium money is never the producer's money.