Insurance Regulation
The state-based system
Insurance is regulated chiefly by the states. The McCarran-Ferguson Act (1945) declared that continued state regulation of the business of insurance is in the public interest and gave insurance a limited exemption from federal antitrust law. The NAIC is a voluntary association of state officials that drafts model laws and runs producer-licensing databases (such as NIPR); it does not enforce anything. Enforcement belongs to the state insurance department and its commissioner, who examines insurers, licenses producers, reviews rates and forms, and issues cease-and-desist orders and fines.
What producers must and must not do
An insurer must hold a certificate of authority to be an admitted insurer; a nonadmitted insurer may write only through surplus lines. A producer is licensed, then appointed by an insurer, and acts as the insurer's agent. Premiums are held in a fiduciary capacity, and commingling premium money with personal funds is prohibited. Prohibited practices include rebating (any inducement not stated in the policy), twisting (misrepresentation that induces a policyholder to lapse or replace), misrepresentation, false advertising, and unfair claim settlement practices. A guaranty association backstops insolvent admitted insurers, but it pays covered claims subject to limits and never covers nonadmitted insurers.
Typical traps
The most common trap is the federal-versus-state question: the SEC, DOL, and FTC have narrow roles (variable products as securities, ERISA for employer plans), but solvency, licensing, and market conduct are state matters. Also know that a producer's license is separate from an appointment, and that continuing education and license renewal are state requirements.
Rule of thumb
Anything of value offered to close a sale that is not written into the policy is rebating - illegal in nearly every state even if the client asks for it.