Unlike securities and banking, the insurance industry does not have strong federal oversight. The complexity of insurance products and marketing rules comes from state regulation. Through the 1945 McCarran-Ferguson Act, the domestic industry must deal with regulators from the 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, and American Samoa. With so many different fingers in the pie, it's no surprise that insurance policies are not as standardized as stocks or bank accounts.
State Insurance Departments review carriers' capital and surplus adequacy, investment types and quality, and the types of business written. The higher risk a company's investment policy or lines of business, the more money the company is required to have invested in the business.
State auditors monitor insurance carrier cash flow and liabilities at least every three years, but insurance companies must file quarterly and annual statements following the Legal Reserve System's conservative accounting principles.
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