From the Land Mines in Accident Cases section of How You Can Avoid Legal Land Mines by Joseph S. Lyles (2003).

To understand the role insurance commissions play you need to understand that insurance is legislated and regulated at the state level. There is a movement afoot to preempt state regulation of automobile insurance by enacting federal laws that deal with all such insurance policies. However, at the time of this writing no such federal legislation had passed.

Because insurance is regulated at the state level, every state has created a regulatory body to oversee the enforcement of the insurance laws. These are usually called insurance commissions or agencies. These agencies typically oversee the way insurance companies do business, including such things as how policies are written, how premiums are charged, what risks are covered by what policies, how much capital (money) the insurance companies must set aside for the purpose of paying claims and how claims are handled.

Although insurance commissions have the authority to fine insurance companies for breaking the rules and for using unfair claims practices, this authority is exercised infrequently. As is the case in many government agencies, insurance commission employees often have close ties to the industry. Why, you may ask? The executives of the largest insurance companies, and the larger companies that own them, make millions of dollars a year in salaries and benefits. So the average government employee who works for an insurance commission makes very little income in comparison to the executives of the companies he or she is trying to regulate. If insurance commission employees hope to move from government work, with its modest compensation, into the insurance industry, with its generous compensation, they can’t afford to anger their potential employers.

Additionally, as creatures of government, insurance commissions tend to be heavily influenced by politics. When you consider how much money is made, spent and invested by insurance companies, and how strong a role money plays in our politics, then their political power is obvious. The insurance industry has an army of lobbyists protecting its interests in every state capitol, as well as in Washington, DC.

Federal legislation is still a concern of the insurance industry because tax laws have a big impact on insurance companies. Tax laws affect the attractiveness of insurance products like life insurance and annuities. Also, federal tax laws and other laws affect the investments of life insurance companies, the corporate structure of insurance companies, their marketing programs and taxation of executive salaries and perks.

In spite of the powerful ability of insurance companies to influence insurance commissions, those agencies can be helpful to individual consumers. Some insurance commissions have a separate department to deal with consumer complaints. Also, some states have passed laws that establish the right to appeal an insurance company decision you don’t agree with to the insurance commission. Further, if an insurance commission receives enough complaints from consumers about certain actions by a particular company it will investigate the matter and sometimes issue sanctions against the company. Likewise, if an insurance commission receives complaints about a particular insurance agent or broker it may investigate and sanction that person. In severe cases the agent or broker can have his license revoked or can even be prosecuted for a crime and imprisoned.

The Lesson: Contact your insurance commission any time you have a problem with an insurance company that you cannot work out with the insurance company. However, be aware that insurance commissions do not always help the consumer and you may need to hire an attorney to solve your particular problem.