Insurance Regulation: Who Regulates, and How Producers Stay Licensed
The state is the primary regulator
Insurance is regulated chiefly by the states under the McCarran-Ferguson Act (1945), which returned primary regulatory authority to the states and exempts insurance from most federal antitrust law to the extent it is state-regulated. Each state's insurance department is headed by a commissioner or superintendent who issues certificates of authority to insurers, licenses producers, conducts financial and market-conduct examinations, and enforces unfair trade and unfair claim practices laws. The NAIC is an association of regulators that drafts model laws and runs an accreditation program; it has no legislative power, so a model law only binds once a state adopts it.
A producer must hold a license for each line solicited, be appointed by every insurer represented, and complete continuing education. A license confers express authority (written in the agency contract), implied authority (customary acts necessary to carry out the express powers), and apparent authority (what a reasonable third party believes based on the insurer's own conduct). Premium collected belongs to the insurer or the applicant, never to the producer personally; depositing it in a personal account is commingling, and spending it is misappropriation.
Practices that get producers disciplined
Rebating (offering any part of the commission, or anything not stated in the contract, to induce a purchase), twisting (misrepresentation to induce replacement), misrepresentation, defamation of an insurer's financial condition, boycott or coercion, and unfair discrimination are all prohibited. Replacing existing life insurance requires a signed replacement notice and disclosure.
Trap: Questions often offer the NAIC as the enforcer. It does not enforce; the state insurance department does. Another favorite is confusing the insurer's apparent authority with the producer's actual authority.
Rule of thumb: Premiums always go into a fiduciary (trust) account, never a personal one.