Insurance ranks among the top 10 most highly regulated industries in the United States. These regulations don’t only apply to insurance companies, agencies and other organizations offering insurance. Many kinds of businesses also need to conform to insurance regulations or the terms of agreements with business partners. Find out what insurance compliance means for your business and the importance of keeping track of requirements.
What does insurance compliance mean?
Many businesses use insurance to manage risks. These companies must also invest in ensuring insurance compliance. Sometimes, this topic confuses people because insurance compliance means various things to people working in disparate industries. The differences among business sectors are highlighted below.
The insurance industry
According to an insurance risk management group, state insurance departments regulate most aspects of the insurance business. Some federal agencies also set insurance rules. For example, agencies of the Department of Health and Human Services control facets of certain kinds of health insurance such as COBRA, Medicare and Obamacare. Also, agents sell flood insurance, but the National Flood Insurance Program administers these policies.
Businesses outside of the insurance industry may also interpret insurance compliance in more than one way.
Insurance regulatory compliance for other businesses
Insurance regulatory compliance means conforming to state and federal insurance laws. For example, businesses can face stiff fines for failing to send timely COBRA notices or for lacking required workers’ compensation policies. In addition, some states require other coverage such as professional liability or commercial car insurance.
Sometimes, the government performs audits to uncover compliance lapses. Failure to pass an audit can result in substantial fines. In the worst cases, the government only discovers a lack of compliance after an event the business should have covered generates liability claims. The courts or government agencies may impose penalties and hold these businesses liable for any uncovered losses suffered in these cases.
Business compliance with contractual obligations
Organizations use insurance to manage risks. They may also require businesses that they work with to purchase policies. For instance, a lender may stipulate the minimum necessary property and liability insurance coverage. Banks, mortgage companies or other investors will want to ensure that the borrower manages risks well enough to repay the loan.
As with regulatory requirements, the lack of required insurance could generate even worse losses if a covered event occurs. Failure to comply would mean a breach of contract, which could sever the business relationship and even cause a lawsuit. Sometimes, uncovered losses and damage to reputations can put companies out of business.
Why is insurance compliance important?
Primarily, businesses use insurance policies to manage risks and protect themselves. Companies want to invest money in supplies, inventory and activities that generate returns or offer greater security. Organizations would rather avoid unexpected losses, especially when they could have protected themselves and others with the right insurance policy.
Business stakeholders may require insurance to protect themselves. In addition, state and federal governments generally make insurance regulations to protect consumers, employees and other businesses. Companies also want to avoid paying additional penalties or losing partnerships because they failed to obtain the necessary coverage. Very often, these kinds of losses can ruin otherwise-solid enterprises.
This post is a guest contribution.