Insurance Regulation and Ethics
Regulatory framework
Insurance is regulated primarily by states through insurance departments, commissioners, and the NAIC model laws. Key areas: licensing, market conduct, solvency, rate regulation, and consumer protection.
Agent duties
Agents must be licensed in the state where they sell, complete continuing education, and act with fiduciary and ethical responsibility. Prohibited practices include misrepresentation, twisting, rebating, coercion, unfair discrimination, and commingling of funds.
Consumer protections
Free look, grace period, replacement notices, privacy rules, fraud reporting, and guaranty association coverage for insolvent insurers.
Traps
- Twisting (misrepresentation to induce replacement) vs. rebating (giving part of commission or premium).
- Assuming federal regulation governs all insurance - states do, with federal oversight in some areas.
- Forgetting that replacement requires disclosure.
Rule of thumb
If a stem describes an agent giving a client something of value to induce a sale, the answer is rebating. If it describes inducing a client to drop a policy through misrepresentation, the answer is twisting.