Insurance regulation in a nutshell

ARTICLE II

Purposes of State Regulation of Insurance

The major purposes of state insurance regulation are described briefly in this Article and in further detail in the following Articles.

Section II.1.Solvency of Insurers

Insurers promise to make certain payments to insureds, beneficiaries and claimants upon the happening of certain fortuitous events. These promises are of little value if the insurer has no funds with which to pay claims. Thus, the principal focus of state regulation of insurance is to assure the solvency of U.S. insurers so that they have funds available to pay policy claims when claims are due. This is of special importance for long term liabilities like life insurance where the promise is made currently but the payment obligation may not be due for 60 or more years.

Section II.2.Market Conduct of Insurers and Their Producers

Market conduct regulation seeks to assure that insurers and their producers act in a fair manner. Thus, state insurance regulation regulates the actual insurance policies sold by insurers, may regulate the premiums to be paid for insurance (e.g. rates), prohibits misrepresentation, unfair discrimination, discrimination based on protected classes (e.g. race, color, creed, national origin, sex or marital status) and rebating and prohibits unfair practices in adjusting and settling claims.

Section II.3.Regulation of Intermediaries and Other Service Persons

Most insurance is sold or bought through insurance agents or brokers. Under state insurance regulation, these intermediaries must generally be licensed to sell, solicit or negotiate insurance in each state in which they do business. If a licensed individual fails to comply with regulatory requirements imposed on her, the state insurance regulator may suspend or revoke her license.
In addition, many state insurance laws also regulate other insurance intermediaries and service persons, including consultants, surplus lines brokers, reinsurance intermediaries, managing general agents, third party administrators and adjusters.