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Who regulates disability insurance companies?

Daniel Walker
Licensed Insurance Agent for 15 Years

UPDATED: Mar 19, 2020

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Who Regulates Disability Insurance CompaniesBuying disability insurance has the same risk as buying any other insurance policy. The insurance policy is only as good as the company providing it.

If you buy a disability insurance policy from an insurance company who is not reputable or has a very poor history of paying claims then your disability policy may leave you with few, if any, benefits.

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There are many disability insurance companies that are trustworthy and financially capable of paying out their claims. In fact, most insurance companies are valid companies because every state regulates disability insurance companies to reduce consumer fraud.

State Regulation of Disability Insurance Companies

Every state has its own insurance division with a state insurance commissioner who oversees all insurance companies. From auto insurance and health insurance to disability insurance, the state insurance commissioner regulates all insurance companies and ensures that insurance laws are followed. As part of their role they aid in consumer protection.

Most state insurance commissioners have a website that will list all of the insurance companies that are licensed to do business in that state.

There are very strict guidelines that disability insurance companies must follow in order to sell products in specific states and just because they are licensed in one state does not automatically allow them to sell the same insurance products and services in another state.

The Effect of Credit Ratings on Disability Insurance Companies

Although the state regulates disability insurance companies to make sure it passes and adheres to the criteria set by the state law, it does not monitor the financial strength of the company. An insurance company may be completely legitimate and legal to sell disability insurance products in a certain state but that does not mean it can maintain the financial backing to pay out claims.

regulates disability insurance companiesIf an insurance company gets hit with a massive amount of claims all at one time it can become an extreme financial burden. Some companies may be able to pay out all of their claims in a timely manner but they may make some poor investment decisions that cause their profit to shrink and make it difficult to continue their insurance operations, including claim payout.

To help monitor the financial strength of disability insurance, insurance rating companies such as:

These companies are trusted to accurately determine an insurance company’s rating. Using various methods of computations and analyses, these insurance credit rating companies determine the financial strength of a company and rate them on scales such as A+ for excellent or B for average.

By reviewing the credit ratings on different disability insurance companies you can get an idea of how strong that insurance company is even though the credit ratings are not regulated by any government office.

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Problems with Disability Insurance Companies

If you have a problem with a disability insurance company, then you may need to consult with the office of the state insurance commissioner. First, work your way up through the insurance company’s chain of command to try to get resolution on the corporate level. If you are unable to get satisfactory responses then you can seek guidance from the state department of insurance.

If you have a personal problem with your disability insurance company, then that is something that will not fall under state regulation and you will have to resolve it on your own.

For example, if you get injured and your disability runs out before you are ready to go back to work then you will need to deal with that on a personal level with your insurance company and your employer. If the insurance company paid out benefits as to the policy then they most likely are not breaking any laws and you have simply run out of benefits.

disability insurance companiesHowever, if you have documented evidence that your disability insurance is not paying out benefits as specified in the policy and you are unable to resolve it on the local level, then you can seek assistance from the state insurance commissioner’s office.

For example, if your short term disability runs out and you have long term disability, but they refuse to pay it despite the doctor’s diagnosis and any other documentation you submitted per policy, then you may have a case for the state department of insurance to review.

The federal government has nothing to do with regulating disability insurance companies. The only time the federal government gets involved with insurance is if the insurance affects federal programs, such as the National Flood Insurance program. Each state is responsible for regulating its own disability insurance companies and the credit rating companies help the consumer determine the financial strength of the various companies. When you choose an insurance provider, make sure it is reputable and has a good rating.

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