The first of two broad categories of insurance regulatory goals relate to the internal workings of the insurance business. These internal goals can be further subdivided into two groups: (1) reliability and (2) reasonableness, equity and fairness.

Among its several economic and social functions, insurance provides a mechanism to solve problems relating to uncertainty by converting an unpredictable risk to predictable costs. By doing so, insurance affords the policyholder a sense of security. Both the need for security and the sense of security seem nearly universal. Thus a prime function of the insurance mechanism is to provide security. In order to do so, it must be reliable.

The cornerstone of assuring the reliability of insurance has been and continues to be regulation to preserve and enhance insurer solvency. This objective is sometimes referred to as assuring the "solidity" of the insurance enterprise. That is, the goal of insurance regulation is not only to assure that an insurer is technically solvent but that it is sufficiently "solid" to be able to properly perform its function in the community. Regulation for solidity pervades the insurance law (for example, controls over the form of organization, capital and surplus requirements, reserve requirements, financial disclosure and examinations, and investment limitations).

Effective regulation can significantly reduce the number and/or size of insurer insolvencies and enhance the solidity of the insurance industry as a whole. However, neither a government agency nor a private institution has yet developed a means to totally immunize an insurer from the potential of failure. Consequently, from the 1960s on, there has emerged an additional insurance regulatory goal, that is, protecting policyholders and third-party claimants against loss due to an insolvency. To achieve this goal, on a nationwide basis, states have enacted guaranty fund legislation both for property and liability insurance companies and life and health insurance companies.

The second category of internal goals embraces a wide range of insurance regulatory objectives including the following.

The insurer should treat its whole body of policyholders in a reasonable manner. For example, the premium charged should not unfairly exceed the worth of the coverage. Unfair policy provisions should be excluded. Some believe regulation should seek efficiency in the insurance market. In short, the regulatory goal of reasonableness can arise in a variety of contexts with reasonableness of price and product quality being the most visible objectives.

The goal of equity refers to fair treatment as between policyholders. For example, premiums shall not be unfairly discriminatory. Such a requirement demands fair classifications of policyholders for the purpose of rates, classifications, and the like. Each policyholder should bear only the cost of his or her own insurance as far as that can practicably be determined.

Whereas the regulation of reasonableness seeks to bar mistreatment of the whole body of policyholders and the goal of equity seeks to avoid unfair discrimination between individual policyholders, the goal of fairness attempts to prevent mistreatment of policyholders as individuals in such areas as claims practices, agent misrepresentations and service.