Insurance regulators across the U.S. are responsible for protecting policyholders and consumers. It is therefore understandable that they are focused on the insurance industry’s business practices and how such practices may adversely impact consumers. Common areas of insurance department regulatory market conduct and investigatory interest include distribution, sales and marketing, policy administration and customer service, claims management, third party administration and delegated authority, data, technology and cybersecurity, and the use of data and AI in underwriting, pricing and claims. The upshot is that insurers, MGAs, TPAs, producers, and other insurance-related entities frequently face investigations and enforcement activity. Effectively dealing with insurance department enforcement actions requires highly specialized insurance knowledge and expertise as discussed in this publication.

Administrative Nature of Insurance Department Enforcement Actions. An enforcement action by a state insurance department is, fundamentally, an administrative proceeding — not a civil lawsuit in court and not a criminal prosecution. It is conducted by an administrative agency (the insurance department or commissioner) exercising statutory regulatory authority. When the insurance department issues a notice of violation, initiates an investigation, or brings an “order to show cause,” it is acting in its capacity as an administrative regulator enforcing those statutes and regulations. If violations are established, the insurance department may, among other things, issue a statement of charges or notice of hearing; suspend or revoke a license; issue orders to cease and desist certain practices; or propose administrative penalties (fines, restitution, corrective actions, license restrictions) or issue a consent order. When an enforcement notice or investigatory notice arrives, it is critical to move quickly, but in a deliberate and organized way.

Take the Notice Seriously and Respond Promptly. The first step is to read the notice carefully and understand who is asking what, and on what authority. Identifying the issuing regulator, the statutes or regulations cited, the specific issues under review, and all stated deadlines will shape an effective response strategy from the outset. Deadlines should be promptly calendared, and, where appropriate, a brief acknowledgement to the regulator can help establish a constructive tone.

Assemble a Response Team. Internally, it is important to centralize control of the response and identify a response team with a point person as leader — often from legal, compliance, or risk management — to help ensure that communications with the regulator are accurate and consistent. Engaging experienced outside regulatory counsel early helps the organization to frame the issues carefully, manage privilege, avoid unnecessary admissions, and, where needed, seek clarification or narrowing of overly broad requests. Additionally, outside regulatory counsel typically has key relationships with the regulators and may have addressed the regulatory issues with other similarly situated clients greatly benefiting the response strategy. Depending on the strategy, outside counsel may not directly interface with the insurance regulators unless and until it may prove beneficial, for example, to assert a more aggressive response to the regulators. Depending on the subject matter, input from compliance, claims, underwriting, operations, IT/cybersecurity, internal audit, and key vendors may be necessary. In developing the strategy for responding to the regulators, the response team should consider the potential impact to other regulatory relationships where the organization is doing business, including any potential negative impact to the organization’s ability to maintain and obtain licenses, registrations and other regulatory approvals. The response team should understand the quality of the organization’s relationship with the insurance regulator and whether there are any current or historical issues that might influence, positively or negatively, the investigation or enforcement action.

Preserve Documents and Data. At the same time, the response team should take steps to preserve all potentially relevant documents and data. Implementing a litigation or regulatory hold, suspending routine deletion policies, and coordinating with third-party administrators, MGAs, and technology vendors are essential to avoid spoliation concerns. Once the information is preserved, the organization can focus on collecting responsive materials and validating them before any document production or response. Accuracy, completeness, and internal consistency are critical; providing incomplete or inaccurate responses can create regulatory exposure independent of the underlying conduct. Privileged communications and attorney work product should be carefully identified and withheld as appropriate, with the use of privilege logs where required. Additionally, the response team should take appropriate steps to protect the responses under applicable laws, including requesting appropriate confidentiality and reservations of rights.

Address Root Causes and Remediation. A well-managed response also looks beyond the immediate inquiry to underlying causes and broader enterprise risk. An internal assessment should determine whether the conduct at issue is isolated or systemic, and whether policies, training, systems, or oversight gaps played a role. Developing and documenting remediation or a corrective action plan — such as revising procedures, enhancing training, implementing system changes, or providing restitution or remediation to affected customers — and communicating those efforts to the regulators can significantly influence how regulators view the matter and the remedies they pursue.

Manage Multistate and Enterprise Risk. Where an issue touches multiple lines of business or states, coordinated, enterprise-wide adjustments and consistent messaging across jurisdictions are particularly important.

Engage Constructively with the Regulator. At least at the onset of the enforcement action, taking a less adversarial tone with the regulators than in a litigation matter will, in most instances, result in a smoother and more efficient process.Throughout this process, maintaining a professional, cooperative posture with the regulator is essential. Meetings and calls can be used strategically to clarify expectations, narrow areas of concern, and explore pathways to resolution. In many cases, a negotiated resolution, such as a consent order that incorporates reasonable remedial measures, may be preferable to a contested enforcement action, especially when the organization can help shape the terms and remediation.

Prepare for Follow‑On Consequences. At the same time, companies should anticipate and plan for potential follow-on effects, including disclosure obligations to boards, rating agencies, or counterparties, as well as possible inquiries from the NAIC, other state departments of insurance or even private litigants.

Troutman Pepper Locke’s insurance regulatory team regularly assists insurers and intermediaries in managing regulatory inquiries and enforcement actions from initial notice through resolution, including developing remediation strategies and addressing multistate implications. Early, coordinated action can materially reduce regulatory, financial, and reputational risk.