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.