Insurance Regulatory Law: Defined

Insurance regulatory law is the body of statutory law, administrative regulations and jurisprudence that governs and regulates the insurance industry and those engaged in the business of insurance.
Insurance regulatory law is the body of statutory law, administrative regulations and jurisprudence that governs and regulates the insurance industry and those engaged in the business of insurance. Insurance regulatory law is primarily enforced through regulations, rules and directives by state insurance departments as authorized and directed by statutory law enacted by the state legislatures. However, federal law, court decisions and administrative adjudications also play an important role.

The business of insurance, although primarily a matter of private contract, is nevertheless of such concern to the public as a whole that it is subject to governmental regulation to protect the public’s interests.
Insurance is characterized as a business vested or affected with the public interest – meaning that the business of insurance, although primarily a matter of private contract, is nevertheless of such concern to the public as a whole that it is subject to governmental regulation to protect the public’s interests.

Thus, the fundamental purpose of insurance regulatory law is to protect the public in the form of insurance consumers and policyholders. Functionally, this involves:
  • Licensing and regulating insurance companies and others involved in the insurance industry;
  • Monitoring and preserving the financial solvency of insurance companies;
  • Regulating and standardizing insurance policies and products;
  • Controlling market conduct and preventing unfair trade practices; and
  • Regulating other aspects of the insurance industry.
Historically, the insurance industry was regulated exclusively by the individual state governments. In fact, the United States Supreme Court ruled in Paul v. Virginia, 75 U.S. 168 (1869) that the issuance of a policy of insurance was not the transaction of commerce, and therefore beyond the scope of federal legislation. However, the Supreme Court overturned that decision in United States v. South-Eastern Underwriters Association, 322 U.S. 533 (1944), holding that insurance was subject to certain federal legislation such as the federal antitrust statute.

The business of insurance remains substantially regulated by state statutory and administrative laws, although federal regulation is increasingly encroaching on the state regulatory scheme. Additionally, efforts such as the accreditation standards of the National Association of Insurance Commissioners, and other cooperative endeavors, have increased the uniformity of insurance regulation across the various states.

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