Insurance like all other financial matters need to be regulated in order to harmonize formation, licensing, contents and administration. Insurance is regulated by insurance laws and common practices which vary from state-to-state. The insurance regulatory system administers how insurance companies are formed and licensed, how they carry the insurance business and the pricing of policies and premiums, investment of insurance funds as well as reinsurance. Most insurance regulation is carried out by individual states and each state has its own insurance laws and regulations which may be different from other states. Although regulations are not uniform there is a general pattern of requirements.
The state government is the main regulator of the insurance industry. The states impose government controls and standards which have to be adhered to when forming and licensing insurance companies and in carrying out the business of insurance. They require compliance to the insurance laws and regulations when insurers, agents and brokers are issuing insurance policies and in the payment of claims. A claim payment cannot be delayed unreasonably unless there are investigations being done and time limits are set.
Insurance regulations vary from one state to another at state level. The Department of Insurance or State Insurance Division is the main regulator headed by the Insurance Commissioner. The State Insurance Regulator handles insurance complains, information and advice. This agency is responsible for setting regulations which are used to govern the insurance companies in that state. They deal with formation and licensing of insurance companies, the capital requirements and consumer protection. They ensure that the policies meet the set standards and that premiums charged to policyholders are not unreasonably high. The National Association of Insurance Commissioners regulates bankruptcy cases. Health Care Insurance which includes Medicare and Medicaid etc. is regulated by the federal government. The Health Care Reform which is to be implemented in 4 years will ensure health care to all.
Insurance is complex and many people may not understand the coverage and the prices set by insurance companies. There is need to regulate the insurance in order to protect the insurance consumer. The regulators protect the insured by ensuring fair prices and that claims are paid for the risks covered in the policy. If an insurance company practices any kind of fraud the insurer can be fined by the regulator. When there are multiple complains and lawsuits the license can be suspended or revoked.
The National Association of Insurance Commissioners NAIC is a regulator which ensures solvency of insurance companies. They set standards to be followed by insurance companies protecting consumers. Both the NAIC and the National Conference of Insurance Legislators NCOIL harmonize the different laws and regulations set by different states in order to have a pattern of statutory and regulation systems in regard to-:
- formation and licensing of insurance companies
- uniform standards when underwriting risks, pricing policies and premium rates
- insurance funds investments
- insolvency laws
- risk plans
- regulation of brokers and agents