Insurance companies are part of a large industry — one of the largest and most profitable in the United States. It’s important for these companies to be tightly regulated; auto insurance companies must provide robust plans, fair pricing, and prove that they are financially sound enough to pay claims for their large and diverse customer base.
Because of the size, scope, and importance of this industry, there are several ways these companies are regulated and overseen.
In addition to seeing who regulates auto insurance companies, you can also find reliable auto insurance rates through an online comparison. Use our FREE auto insurance comparison tool by entering your ZIP code.
No Federal Government Regulation of Insurance Companies
It might come as a surprise to many people, but there is actually no federal agency in charge of regulating insurance companies — be they medical, automobile, life, or other insurance agencies.
That’s one of the most hands-off approaches in the entire federal government, as federal agencies do regulate things like banks, food processors, and even corporate office environments.
The government’s position is that insurance regulations should be maintained on a state-by-state basis, rather than at a federal level. This is largely due to language in the Constitution which makes it difficult — if not impossible — for the federal government to both mandate and regulate insurance coverage at all. Instead, the Constitution essentially requires states to perform these duties, and the federal government has been careful to side-step an issue which could land them defending a Constitutional lawsuit in federal court.
State Regulation of Insurance Companies Varies
In the United States, insurance companies are regulated on a state-by-state basis. These agencies are typically referred to as the “Department of Insurance” or the “Insurance Bureau” or something similar. Officials in these agencies are typically appointed by the governors of each state at the beginning of their term, much like cabinet secretaries at the federal level are appointed by the president. It is now possible to answer who governs Florida auto insurance companies.
Once these officials have been appointed, their job is to ensure that the insurance companies which operate in a state are providing fair prices to consumers, and offering them coverage that matches their needs. They are also constantly focused on the financial solubility of the insurance companies which operate in their state, as these companies must prove that they are able to pay out large claim amounts to their entire customer base that resides within state boundaries.
State insurance regulation officials are also responsible for licensing companies to operate within the state’s borders. This means examining and accepting new insurance companies, as well as assuring that existing companies still qualify for state licenses to offer their products to local consumers.
State Insurance Licenses are Crucial Regulation Tools
While the state’s department of insurance regulation is one of the best ways to ensure that insurance companies are living up to their promise of fair coverage and financial strength, there is one tool that is more powerful even than these people who run this department: insurance licenses.
In order to offer insurance in any given state, insurance providers must obtain a license from the state’s department of insurance. This ensures that you can get reliable cheap local auto insurance. This license can only be obtained after a thorough and very specific investigation of the company’s policies, finances, and operations. If a state deems a company does not meet their specific requirements, they can deny this license.
Furthermore, this license is often subject to periodic renewal by state authorities. At that time, the state’s department of insurance will examine the company’s prior reputation in the state, as well as any disputes or problems filed with state officials by consumers. They’ll again examine policies, prices, and procedures, as well as financial solubility. After this process is complete, a license is either renewed or revoked. If revoked, an insurance company must stop offering its products in the state.
The National Association of Insurance Commissioners
While there is no federal agency in charge of regulating insurance companies, there is a federal association that brings together the heads of each state insurance regulation department. This association meets periodically — typically on a semi-annual basis — and insurance regulators discuss what has worked for them, what has not worked, and which companies should be rewarded or punished.
It’s a great way for states to bring their insurance regulations and stipulations in line with each other and offer a somewhat unified approach to regulation without federal oversight. Commissioners then go back to their home state and employ what they’ve learned from their peers throughout the country, helping customers to expect trustworthy online auto insurance from companies on their policies no matter where they live, or relocate to.
Insurance Companies are Regulated by Consumers
While states devote a vast department of regulators and investigators to keeping insurance companies fair and honest, there is perhaps no bigger test of an insurance company’s polices and viability than the free market.
Consumers are increasingly informed and discerning, and they’re using a new set of tools to double-check insurance company offers, policies, and practices.
These tools often come in the form of an online insurance comparison tool, which sends a customer’s information to multiple insurance companies are returns a set of policies offered by all of the insurance companies that operate in their state.
In an online auto insurance comparison, customers are then able to examine, in a side-by-side fashion, which policies are the most robust, which are the most affordable, and which policies are loaded with fine print that may endanger their coverage or peace of mind.
Get peace of mind concerning your auto insurance rates by using our FREE car insurance comparison tool by entering your ZIP code!
As word gets around, and customers decide which companies are the most fair, those which offer poor policies or harsh terms are often left behind. Their profit suffer, their customer base shrinks, and they reconsider their commitment to doing business in a state. So, even though insurance regulators are constantly overseeing insurance companies, the true test of policies and coverage levels is the free market — which company gets the majority of consumer preference and profits.