Regulation of Insurance in South Carolina

There are four main sources of insurance regulation in South Carolina: (1) legislation; (2) agencies; (3) the Insurance Director; and (4) the judiciary.  The main source of regulation comes from State Legislatures as insurance law is primarily statutory.  The purpose of legislative regulation is threefold.  First, the legislation is tasked with controlling rates.  Here, the concern is whether the rates are inadequate, excessive, and/or discriminatory.  Insurance rates need to be sufficiently high to cover proceed payments, the costs of administration, and appropriate profits for insurers.  At the same time, rates should not be excessive as to discourage potential insureds.  The most difficult task of rate regulation is to ensure that rates are not discriminatory among individual insureds presenting similar risks.   Second, legislative regulation is meant to prevent unfair practices on the part of insurers against both the competition and the insureds.  Third, legislative regulation is meant to prevent insolvency on the part of the insurer in order to protect the insured.  Legislative regulation is a balancing act between protecting the interests of the insurers in regards to profits and fair competition, and those interests of the insureds in regards to fair rates and coverage.  In order to effectuate these goals, legislature creates statutes regulating licensing, standard form requirements, annual statements, bankruptcy, penalties, and provisions for receivership and distribution of insolvent insurers. 

Agencies are also created through legislation and exercise powers delegated to them through that legislation.  For example, § 38-3-10 of the South Carolina Code creates the Department of Insurance.  “The mission of the State of South Carolina Department of Insurance is to protect the insurance consumers, the public interest, and the insurance marketplace by ensuring the solvency of insurers; by enforcing and implementing the insurance laws of this State; and by regulating the insurance industry in an efficient, courteous, responsive, fair, and equitable manner.” (South Carolina Department of Insurance,  Agencies are used to enforce the insurance laws codified by legislation.  Agencies are also used to gather information and devise rate schedules, which are then submitted for approval and enforced by the Department of Insurance.  Whereas legislation creates the agencies and codifies laws generally, the agencies are tasked with discovering the specific information on which to base those laws as well as exercising powers to enforce the laws.

The Director of Insurance heads the South Carolina Department of Insurance.  He or she is appointed by the Governor directly upon the advice and consent of the SC Senate.  “The director or his designee must follow the general policies and broad objectives enacted by the General Assembly regarding the operation of the insurance industry in this State.”  S.C. Code Ann. § 38-3-60.  Specifically, the Director’s duties include supervising the industry, ensuring the execution of laws, creating and disseminating standard forms, reporting criminal violations, and instituting civil actions.  Rate schedules devised by rating bureaus are also submitted the Director for approval and enforcement. 

Finally, after the legislatures write the laws and create the agencies, and the agencies advise on and enforce the laws enacted, the judiciary reviews and interprets the laws and there application when disputes arise between the insurers and the insurers and the insured.  Courts are not well suited to articulate broad policy, however, when litigation arises, it is the judiciary that interprets the laws as well as the specific contract in place and applies them to the specific situation.  It is this final step of judicial interpretation and application that aids in the regulation of the insurance industry as insurers and carriers will ordinarily adjust their conduct to comply with the decision of the Court.  Therefore, though indirectly, the court system also aids in the regulation of insurance.  Even though the judges do not write the laws, their decisions help refine the final product and enforce what has been put in place.

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