W H Y I S T H E I N S U R A N C E I N D U S T R Y R E G U L A T E D ?

Nancy Germond

23 June 2023

When we're starting our insurance career, we're regularly warned about “insurance regulation." What is industry regulation and how did insurance regulation come about? Let's review the history of insurance regulation and the main reasons for the regulation of the insurance industry.

Maintaining and Managing Competition

The U.S. business model thrives with competition. One of the main reasons for insurance regulation is to maintain competition. In the U.S., our nation wants to prevent monopolies – one entity – an insurer – covering more than its fair share of homeowners and businesses. How much competition is there and how badly could harm occur to your insured or your agency financially by poor insurer performance?

If insurers deliberately set rates to write a lot of new business, will they remain solvent to pay all the claims that may arise as a result of that new business? This is just one of the concerns of insurance regulatory bodies.

Regulation also protects the consumer from improper treatment. Certain regulations exist to prevent the insurer from being treated unfairly. These include bad faith claims-handling statutes and policy cancellation provisions in state law.