Insurance Regulation
Who regulates insurance
Insurance is regulated primarily at the state level. The McCarran-Ferguson Act (1945) confirmed state oversight and gave insurance a limited antitrust exemption. The NAIC is a voluntary association of state regulators that drafts model laws and coordinates examinations; its models are not law until a state adopts them, and the NAIC has no enforcement power. A state insurance department, headed by a commissioner, licenses producers, examines insurers, reviews rates and forms, and may fine, suspend, or revoke licenses and issue cease-and-desist orders.
Producer duties
A producer must hold a license for each line sold and, for most lines, an appointment from the insurer before soliciting business. Producers owe a fiduciary duty: premiums belong to the insurer or client and may not be commingled with personal funds.
Prohibited practices
- Rebating: offering any inducement not stated in the contract, including commission splits, gifts, or paying a client's premium.
- Twisting: misrepresenting a policy to induce a client to lapse or replace it.
- Misrepresentation, false advertising, defamation of an insurer, boycott, coercion, and unfair discrimination.
- Unfair claim settlement practices. Replacement is legal but must be disclosed so the client can compare contracts.
Traps
Questions routinely swap license and appointment, or confuse an NAIC model with an adopted state law. Rebating stays illegal even when the client requests it, and policy dividends are not rebates.
Rule of thumb
Ask: does the commissioner have authority here, or is this only a model? A model that has not been adopted is unenforceable.