How Car Insurance Companies Are Regulated?

When choosing a policy people are naturally worried about the security provided behind it. This security comes from financial stability of the firm issuing the policy and industry regulations. Auto insurance companies are regulated heavily for two main reasons. They are financial institutions as well as insurers.

What Sort of Regulations Auto Insurers Must Follow?

For being a financial business, they need to follow regulations similar to banks and investment firms. They need to declare where they invest the funds and there are restrictions as to where they can invest. An insurer must keep funds pretty liquid and stay away from speculations. They cannot collect the premium from you and invest it in the stock market the next day.

Key regulations are imposed because they are an insurance business. First of all, they keep policyholders’ money. Premiums are usually collected in advance before even policy coverage start. This makes the companies owe to customers and this money must be protected. Generally, the premiums must be kept from their running capital. They must be deposited into a different account and their daily business activities carried out from different funds. The same rules apply to brokers and agents. They must account for the moneys until the premiums are paid to the insurers.

Who Regulates Insurers and Insurance Intermediaries?

Every state in the USA has own insurance laws and rules. They have an insurance department to license, regulate and inspect the businesses operating in the state. This department is headed by usually elected insurance commissioner. Insurance companies and intermediaries must have a license to handle selling of policies within state borders.

State insurance department has to make sure that all the laws are followed. They check the capital requirements, solvency, accounting and banking practices of these firms. Insurance commissioner must approve the car insurance rates structure of each firm as well. This does not mean that they set the rates for these companies. They make sure that it is fair and uniform.

Financial Scrutiny and Solvency Tests

As well as the rules of each state companies must follow usual financial scrutiny similar firms are subject to. Their accounts must be audited and certified. They must prove solvency and account for the investments they make. There are limitations as to how the premiums are used and how the company can invest. There is a degree of separation between their financial and insurance activities to protect premiums collected.

How Information Collected by State Insurance Departments Are Shared?

While they are carrying out their usual checks, inspections and dealing with complaints insurance departments collects awful amount of information about each insurer. Many of them publish this valuable insight on their website or policyholder can request them separately. Many states publish policies sold, complaints made and the outcome. They can be a valuable source for a keen policyholder to check and determine which company they like to go with.

Data provided by regulatory bodies and independent firms offer further insight into a company. In addition consumers can check the forums, websites and blogs for customer satisfaction information about companies. They can also compare prices on vehicle insurance comparison websites. Overall, car insurers are not black boxes. They are operating under regular scrutiny from regulators, investors, policyholders and prospective customers.

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