Insurance companies are regulated by federal and state entitites through laws, guidelines and independent commissions and regulatory bodies. These laws and statutes ensure that the policy holder is protected against bad faith claims on the insurers part, that premiums are not unduly high (or fixed), and that contracts and policies issued meet a minimum standard.
Insurers that deny claims unjustly or for a protracted amount of time are said to be operating “in bad faith”. A bad faith action may constitute several possibilities; the insurer denies a claim which is seemingly valid in the contract or policy, the insurer refuses to pay out for an unreasonable amount of time, the insurer lays the burden of proof on the insured – often in the case where the claim is unprovable. Other issues of insurance law may arise when price fixing occurs between insurers, creating an unfair competitive environment for consumers. If an insurer is found to be guilty of fraud or deception, they can be fined either by regulatory bodies, or in a lawsuit by the insured or surrounding party. In more severe cases, or if the party has had a series of complaints or rulings, the insurers license may be revoked or suspended.