Insurance Company Regulation

Insurance companies in the United States are highly regulated.

State departments of insurance are primarily responsible for insurance company regulation.  This means that regulation operates on a state level rather than a federal level.  This approach differs from many other financial services businesses that are overseen by federal regulators such as the Securities and Exchange Commission (SEC).

State level regulation means that insurance companies must be licensed to operate and have a legal presence in each state in which they do business.  Departments of insurance in each state are responsible for monitoring insurance company solvency and for fielding consumer complaints that may arise.

Departments of insurance also carefully review the contracts and pricing that insurance companies propose to offer to customers in the state. 

In contrast to other financial services entities such as commercial and investment banks, insurance companies have relatively conservative restrictions on the amount of leverage they can use.   Highly leverage financial entities were a key ingredient in the recent financial crisis.

You may ask how a certain insurance company created so much trouble during the financial crisis if the insurance industry is so highly regulated.  The reality is that: the insurance company operated as a holding company with many non-insurance businesses; the non-insurance businesses were not overseen by insurance regulators, and; it was the non-insurance businesses that created all of the problems for this company.