Although the vast majority of insurers are run by reasonably competent and ethical managements, the root cause of most if not all insolvencies and in most if not all questionable insurer conduct in the marketplace is management. Management quality, experience and integrity, or lack thereof, determine the nature of an individual insurer, the insurance industry as a whole and most of the regulatory problems arising therefrom.

Regulators possess specific legal authority to consider management quality when, for example, an insurer is being formed, seeks a license or license renewal or engages in activities within a holding company system. In addition to taking direct action against individual members of management by either causing their removal or instituting civil penalty or criminal actions for adverse and illegal behavior, the commissioner possesses the ultimate authority to suspend or revoke an insurer’s license to do business or even place it in rehabilitation or liquidation. Although the power of the regulators over the quality of management is quite broad, it is not without significant practical limitations. For example, in the absence of strong indications in a person’s background, such as a criminal record or a pattern of involvement with financially troubled insurers, competency and integrity are difficult to assess in advance of performance. Thorough background investigations of the thousands upon thousands of ever-changing senior management persons may be beyond the physical capability of insurance departments. Furthermore, courts are reluctant to deprive a person of his or her career or a company of its ability to do business. Thus, often it is difficult to build a sufficient case to overcome judicial reluctance when a regulator seeks to move against a questionable "actor." Consequently, such regulatory effort may be unsuccessful or may not even be brought at all.

For reasons such as these, despite the broad array of regulatory authority granted by legislation, the fact that insolvencies do occur and that abuses do exist in insurance markets suggests that new creative approaches are needed to supplement current regulatory methods to even better foster sound and ethical insurance management.