Insurance regulation in a nutshell

Section IV.4.Unfair Claims Practices

Like the NAIC Unfair Trade Practices Act, the NAIC Unfair Claims Settlement Practices Act provides that:
It is an improper claims practice for a domestic, foreign or alien insurer transacting business in this state to commit an act defined in Section 4 of this Act if:
A. It is committed flagrantly and in conscious disregard of this Act or any rules promulgated hereunder; or
B. It has been committed with such frequency to indicate a general business practice to engage in that type of conduct.⁶⁷
Among the kinds of practices defined in Section 4 of the Model Act are these: (i) compelling insureds or beneficiaries to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them, (ii) refusing to pay claims without conducting a reasonable investigation, and (iii) failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed and communicated to the insurer.⁶⁸
Violation of the law may result in an order by the state insurance regulator for the insurer to cease and desist from engaging in the prohibited acts and monetary penalties.⁶⁹ Additional detailed standards for claims settlement practices are set out in the NAIC Unfair Life, Accident and Health Claims Settlement Practices Model Regulation⁷⁰ and the NAIC Unfair Property/Casualty Claims Settlement Practices Model Regulation.⁷¹

Section IV.5.Market Conduct Examination

In order to determine whether licensed insurers are complying with the various market conduct laws and regulations applicable to them, many states conduct periodic market conduct examinations of licensed insurers. These examinations may be done in conjunction with a required financial examination (see Section III.8.) or as a stand-alone market conduct examination.
Life insurance market conduct examinations often focus on sales practices (advertising, policy illustrations and replacements) and claims while property/casualty market conduct examinations often focus on policy form and rate regulation compliance and claims. Insurers are frequently fined for regulatory violations.