Though insurance policies are known to exist since the 17th and the 18th centuries yet regulation of the insurance sector by law did not start before 1940. As early as in 1940 in the case of Paul versus Virginia the Supreme Court had ruled that insurance policy contracts were not in the nature of commercial contracts.
However, in 1944 there was a shift from this position when the Supreme Court held in the case of United States versus South Eastern Underwriters Association that insurance policies are commercial in nature and therefore, subject to regulation as similar contracts.
At present different states or jurisdictions of the United States regulate the insurance business through independent commissions or regulatory bodies.
There are laws and regulations in place to ensure transparency and accountability in the insurance sector. These statutes are designed to protect the insured and ensure that contracts conform to prescribed minimum standard norms. These laws also provide for redress of grievances resulting from bad faith actions of the insurer.
Such high handed acts on the part of the insurer include:-
• Denial of a valid claim of the policy holder
• Failure of the insurer to pay out benefits within reasonable time
• Insurer calling for exacting burden of proof on the insured even where it is uncalled for
• Charging of unreasonably high premium by the insurer
• Collusively inflated policy price or premium hike by insurers in an anti competitive manner to exploit consumers
Where any insurer is guilty of fraud or deception, he may be fined by the concerned regulatory authority or the Court as a deterrent. In more severe offences or in the wake of series of rulings of misconduct against the insurer, his license is liable to be revoked or terminated.
Where any insurer goes bankrupt, the National Association of Insurance Commissioners takes care of the interest of the policy holders to minimize their hardship in such eventuality.
