Exploring the role of the insurance department

Each state has an insurance department, but what does it do?

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The world is full of a variety of businesses, from small yoga studios and herbal stores to large corporations selling products worldwide. Some industries have standards organizations that oversee the behavior of professionals such as the American Medical Association or American Bar Association. Other industries may be regulated by other organizations, be regulated by states, or may be unregulated. The little herbal shop must obey tax, employment, and safety laws, but likely has no overarching standards organization.

The insurance industry is regulated by each state individually. States may have similar laws and requirements, but they are often a little different. Each state has an insurance department that works with legislators to create or modify insurance laws and regulations. These laws deal with everything from what an insurer has to do to be able to write policies in that state to fielding complaints from consumers. The major goals of insurance departments are to ensure fairness in rates and access to coverage, fairness and timeliness in claims handling, solvency of carriers, education of professionals, and to educate consumers.

The insurance department must authorize an insurer before it can issue policies in any given state. In order to receive such authority, the insurance department will review the company’s assets and surplus, debt to equity ratio, financial statements, plans of operation, lines of business the company will write and is writing elsewhere, articles of incorporation and bylaws, an independent CPA audit, biographical information of the officers and directors, and other information. Once the state determines that the insurer meets all the requirements and has sufficient capacity to handle and settle claims, authorization may be given.

Once an insurer has been approved to write in a state, it then must file the policy forms it uses and its proposed rates. Any changes to forms or rates must be approved by the state on an ongoing basis. It is not unusual for an insurance department to deny an insurer a rate increase if they feel the increase is more than needed. They may deny the increase totally or may require the carrier to limit the increase. With any rate change, the insurer must provide its background information and data that justifies the need for a rate increase. Seeing that insureds are treated fairly and are not overcharged for insurance is paramount to an insurance department.

The department not only oversees insurers, but adjusters, agents, brokers, and others operating within the industry. The insurance department determines what education is needed for an individual to become a licensed agent, broker or adjuster, and what type of continuing education classes are necessary for that person to maintain his license. The department also monitors the behavior of licensed parties, particularly agents and brokers. Any agent found in violation of the state regulations or who commits theft or fraud in conducting his business may be fined by the department or lose her license to practice. Insurers may also be fined for discriminatory actions against insureds or other activity that is not in the best interest of the insured.

How claims are handled is another area that the departments deal with. Most states have requirements that dictate the length of time allowed for an insurer to respond to a claim or questions from an insured or claimant, time to inform an insured or claimant of a denial or acceptance of the claim, and to make payments to the insured or claimant.

Insureds have the right to complain to the department directly if they feel they have not been treated fairly. An insured may disagree with being charged for driving violations or accidents, or may feel that their policy has been nonrenewed or cancelled unfairly. The insurance department will contact the insurer and require it to explain its position and reasoning for the action taken. The department will review the information and make a final determination. If the action of the company resulted in a premium increase for the insured, the department may make the company remove that increase until it has completed its investigation.

Departments tend to be very consumer friendly, and work hard to ensure that insureds are treated fairly. In the event of a catastrophe such as a flood or wildfire, the department may receive many coverage complaints. Depending on the nature of the complaints, the department may require insurers to highlight certain wording on a policy or add specific wording, or may instruct insurers to lessen requirements placed on insureds due to the hardships related to the loss. For example, after Hurricane Irma destroyed much of the Virgin Islands the department issued a bulletin requiring insurers to provide notice to insureds when their coverage limits are not sufficient to restore them to their pre-loss condition. Because of the wildfires in California, insurers were instructed to advance payments for additional living expenses, advance payments of at least 25% for contents coverage, accept reduced itemization of household inventories, and accept non-insurer inventory forms and other measures. Most homeowners policies now have wording on the front that clearly states that flood is not a covered loss.

Departments take fraud seriously as well, and have requirements for insurers to report fraud to them. They also have fraud units and investigate fraud against companies on a large scale. The department will investigate cases of insurance fraud by insureds, agents, or insurers.

Education of insureds is another very important task of insurance departments. They will advise insureds before a season known for disasters how to prepare for such events, they will instruct consumers on health insurance accessibility and answer basic insurance questions, and many state departments have sections on their websites to instruct consumers on insurance basics.

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Original 2019

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