Final answer:
State and federal laws restrict the insurer's underwriting criteria for group policies. The industry faces strict regulation from both state insurance regulators and federal guidelines, with state-level actions profoundly impacting insurance market outcomes.
Step-by-step explanation:
The entities that restrict the insurer's underwriting criteria for group policies are state and federal laws (D). The insurance industry in the United States is mainly regulated at the state level, with guidance from the National Association of Insurance Commissioners (NAIC). The state regulators work to keep insurance prices down and to ensure widespread coverage, but such regulations can sometimes lead to conflict with insurance providers and have political implications. For instance, if state laws set premiums too low, insurers may choose not to insure high-risk parties or could decide to exit the market altogether, as exemplified by several insurance companies leaving New Jersey's auto insurance market and State Farm's withdrawal from the Florida property insurance market.