Assignment 2

State Insurance Dept. Activities

-Licensing insurers -Licensing producers, claims reps and other insurance workers -Approving policy forms -Holding rate hearings and reviewing rate filings -Evaluating solvency info -Performing market conduct examinations -Investigating policy holder complaints -Rehabbing or liquidating insolvent insurers -Issuing cease and desist orders -Fining insurers for violations fo state law -Publishing shoppers guides and other consumer info (some states) Preventing fraud

Primary reasons for insurance regulation

1. Protect consumers 2. Maintain Insurer Solvency 3. Prevent destructive competition

No filing laws

AKA information filing or open competition No requirement that insurers file rates with the state insurance department

Ensuring consumer protection

All regulatory activities protect and support consumers but some are designed to do so specifically. State Ins. Depts. often assist with complaints about rates, policy cancelations or consumers difficulty in finding coverage. Some states publish shoppers guides or other consumer info to make consumers more knowledgeable about the cost of insurance etc.

File and use laws

Allow the insurer to use the new rates immediately after filing with the state insurance department

Non-admitted insurers

An admitted insurers is licensed to do business in the insured's home state A nonadmitted insurer is not licensed in the insured's home state. It can be an admitted insurer in other states and it may be an alien insurer. A non-admitted insurer is typically a surplus lines insurer.

Trade Assoc. and influence

Associations at the national, state and local levels influence NAIC, state and federal regulators and state insurance regulators. Trade Assoc. can provide accurate info to legislators and regulators about critical issues in time to influence the development of legislation, regulations and rules. Trade Assoc. can sometimes persuade legislators and regulators that the industry can solve a problem without legislation

Insurance Advisory Organizations #2

By developing rate information and standard insurance forms, advisory orgs. provide uniformity that benefits their clients and consumers and regulators. Other services include: Developing Rating Systems Collecting stats Researching insurance topics Providing a forum for discussion Educating members, regulators, industry and the public about relevant issues Monitoring regulatory issues of concern

Market Conduct-Claim Practices

Claim practice regulations are intended to maintain public confidence in the ability of insurers to pay promptly and fairly Failure to practice good faith claim handling can lead to claims for damages that allege bad faith on the insurers part. This is in addition to regulatory penalties. Unfair claim practices law prohibit unethical and illegal claim practices. Laws are generally patterned after NAIC Model Unfair Claims Settlement Practices Act. Courts have ruled that an insurers improper claim handling constitutes the tort of bad faith. An insurer that violates good faith standards can be required to honor the policy's intent and pay extra-contractual charges (emotional distress, attorney fees, etc).

Insurance Advisory Organizations #1

Companies that work with and on behalf of insurers Develop standard policy forms and provide data about rates and possible loss costs May also file loss costs and policy forms with the state on behalf of their clients/ subscribers (insurers) Well Known Orgs include: Insurance Services Office (ISO) American Association fo Insurance Services (AAIS) National Council on Compensation Insurance (NCCI)

Other groups involved in regulation

Financial Rating Organizations Insurance Advisory Organizations Insurance Industry Professional and Trade Organizations Consumer Groups

Financial Rating Organizations #1

Financial rating agencies that provide insurer financial ratings: A.M. Best Company Duff and Phelps Moody's Standard and Poor's Weiss Ratings, Inc.

Reasons for insolvency

Increased competition leading to lower premiums during soft phases in the underwriting cycle often contributes to insolvencies. Insolvency can also occur when an insurers is overexposed to catastrophe losses, especially if the losses occur during a period of intense competition. Inadequate insurance rates and lax underwriting standards that are not quickly corrected. Causing a decay in the quality of business. Rapid premium growth precedes nearly all major insolvencies because it reduces the margin of error. Inadequate rates and understated losses can cause net losses and capital deterioration to rise more quickly than management can respond.

Regulations, solvency and insolvency

Individual consumers and most businesses do not have the skills or resources to analyze claim-paying ability when selecting an insurer Because insurers hold large sums of money paid by consumers for long periods, their financial strength must be monitored to ensure their continued ability to pay present and future claims. The US regulatory framework helps maintain solvency and protect consumers.

Not Excessive Rates

Insurers should not earn excessive or unreasonable profits Regulators have considerable discretion in determining whether rates are excessive for a given type of coverage Regulators sometimes use a "fair rate of return" approach to determine if rates are adequate or excessive

Domestic Mutual Insurer

Minimum financial requirements apply only to surplus because mutuals don't issue stock for capital Most states require mutuals to have an initial surplus equal to the minimum capital and paid in surplus requirements of stock insurers providing the same type of coverage. Some states allow a lower minimum surplus requirement for mutuals. Many state require a minimum number of applications with deposit premiums for a minimum number of separate loss exposures and aggregate premium exceeding a certain amount.

Licensing Producers

Must be licensed in each state where they do business Must pas a written exam to get a license to sell a particular type of insurance Parts of the Gramm-Leach-Bliley (GLB) Act have led to greater licensing reciprocity among states.

Factors in determining whether rates are excessive

Number of insurers selling a specific coverage in a territory Relative market share of competing insurers Degree of rate variation among competing companies Past and prospective loss experience Possibility of catastrophic losses Margin for U/W profit Marketing expenses for a given type of coverage Other factors specific to the coverage

Insurance Rate Regulation Goals

Primary goal of rate regulation in insurer financial stability and the resulting consumer protection. Rates should be: 1. Adequate 2. Not Excessive 3. Not unfairly discriminatory

Adequate Rates

Rates for a specific insurance type should be high enough to pay all claims and expenses for that type of coverage. Failure from inadequate rates results in inability to pay claims Complicating Factors: 1. Premiums are paid in advance and may be insufficient if there is an increase in frequency or severity. Losses may be higher than anticipated when the rates were set. 2. Pressure to charge inadequate rates due to competition 3. Differing assumptions about trends and socioeconomic components of rate change

Not unfairly discriminatory rates

Rates that are adequate and not excessive must also not be unfairly discriminatory Discrimination must be fair and consistent-Insured with similar loss exposures and expenses should be charged similar rates. If loss exposures are substantially different in terms of expected losses and expenses than different rates can be charged. Computer modeling for catastrophes, credit based insurance scores and other innovative risk classification practices have made evaluation of wether rates are unfairly discriminatory more complicated.

Protect Consumers-Primary Goal

Regulators review insurance policy forms to ensure they benefit consumers and comply with state consumer protection laws State Legislatures can set coverage standards and specify policy language State regulators can disapprove policy forms and endorsements that are not consistent with state laws Regulators provide info about insurance to consumers to help them make informed decisions

Flex rating laws

Require prior approval only if the new rates exceed a certain percentage above (and sometimes below) the rates filed previously.

Domestic Stock Insurer

Required to satisfy minimum capital and surplus requirements before a license is granted. Specifics can vary widely.

Prior Approval Laws

Requires rates and supporting rules to be approved by the state insurance department before they can be used.

The McCarran Act

Reverses the usual State-Federal allocation of regulatory powers for the business of insurance. This does not apply across the board: 1. As employers, insurers are subject to federal employment laws. 2. As businesses that sell their stock to the public to raise capital, stock insurers are subject to regulations like any other business.

Maintain Insurer Solvency-Primary Goal

Solvency protections protects insureds against the risk that the insurance company will be unable to meet their financial obligations. Solvency is important because: Insurance provides future protections-insolvency causes future protection already purchased to become worthless Insolvency adversely affects large numbers of the public Regulation is necessary to guard against the misuse of large amounts of insureds funds held by insurers The goal is not to eliminate all insolvencies but rather to minimize the number of insolvencies

Risk Retention Groups

Special type of assessable mutual enabled by the 1986 Liability Risk Retention Act. Can only write commercial GL for its members and can't write any other lines of business. Often formed under state captive laws- lower capital and surplus requirements. Once licensed in one state the RRG can write in other states without a license. Must file notice and registration with the non-chartering state. The RRG might be subject to some of the state laws (premium taxes, claims practice laws etc). Might also be required to become a member of the Joint Underwriting Association (JUA).

Licensing Insurance Personnel

States license many of the people who sell insurance, give insurance advice or represent insurers. Producers Claim Reps Insurance Consultants

U.S. regulatory framework and maintaining solvency

The U.S. regulatory framework is a national system of state based regulation where the regulatory responsibility rests with the state insurance regulator. Uses a risk-focused approach built on solvency requirements for insurers. State regulators are assisted by NAIC which is active in all 50 states, D.C. and 5 U.S. territories. The purpose is to protect the interests of the insured while also facilitating an effective insurance marketplace. Relies on a system of peer review, communication and collaboration to provide the necessary checks and balances Uniformity of approach has been to financial regulation has been facilitated by the NAIC accreditation program.

Foreign insurers

To be licensed in a new state, the insurers must first show that it has satisfied the requirements of its home state. Foreign insurers must generally satisfy the same requirements (capital, surplus etc) imposed on the states domestic insurers

Use and File laws

Variation of file and use laws Allow insurers to use the new rates and later submit filing info that is subject to regulatory review

Market Analysis

Allows regulators to identify general market disruption. Promotes uniform analysis by applying consist measurements between insurers Facilitates communication and collaboration among regulators from different states

Licensing Insurance Consultants

Insurance consultants give advice, counsel, or opinions about insurance policies Some states require insurance consultants to be licensed. Requirements for licensing vary by state.

State Insurance Departments

Insurance is primarily regulated by state insurance depts. and state regulators are members of NAIC. State insurance depts. fall within the executive branch of state government (implement laws). They enforce insurance laws enacted by the legislature. Each dept. is headed by a state insurance commissioner, superintendent or director. Either appointed by the governor or elected by the general public. There is disagreement over whether election or appointment is better State depts. are mostly funded by premium taxes, also by audit fees, filing fees and licensing fees

Regulation of insurance policies

Insurance policies are complex documents Regulation help protect consumers, who may not understand their policies. Protects insureds from policies that are too narrow, restrictive or deceptive or that do not comply with sate laws and regulations. Policies are often drafted by insurers and sold on a take it or leave it basis to the public Regulation takes place in 3 major areas: 1. Legislative (State legislatures) 2. Policy rules and regulations (State insurance departments) 3. Courts

Factors that contribute to insolvency

1. Rapid premium growth 2. Inadequate rates 3. Inadequate reserves 4. Excessive expenses 5. Lax controls over MGA's 6. Uncollectible reinsurance 7. Fraud

NAIC Framework-Financial Solvency Core Principals

1. Regulatory Reporting, disclosure, transparency 2. Off-site monitoring analysis 3. On-site, risk focused examinations 4. Reserves, capital adequacy and solvency 5.Regulatory control of significant, broad based, risk related transactions/ activities 6. Preventative/ corrective measures-including enforcement 7. Exiting the market and receivership

Licensing of insurers

A license from the state indicates the insurer has met the minimum standards for financial strength, competence and integrity. Indicates they have complied with state insurance laws and are authorized to write certain types of insurance within the state. once licensed the insurers is subject to all applicable state laws and regulations Complaints about the time delay in licensing a nw insurer resulted in the Uniform Certificate of Authority Application (UCAA) to streamline the process.

Types of rating laws

A states rating laws influence how it achieves its three major rate regulation goals and the rates P/C insurers can charge. Major types: Prior approval laws File and use laws Use and File laws No filing laws Flex rating laws

State Guaranty Funds

All states have P/C insurance guaranty funds that pay some part of the unpaid claims for insolvent insurers licensed in that state. The funds don't prevent insolvency but can help mitigate its effects. Insurers recoup all or part of the assessments through rate increases, premium tax credits, and refunds from the State Guaranty Fund. Self insured groups are not protected by the Guaranty Fund RRG's are prohibited by Federal law from participating in the state guaranty fund system

Consumer Groups

Consumers, through consumer groups, have had a major influence on state insurance depts, state and federal legislators, NAIC and other consumers Some consumer groups focus only on insurance issues- other deal with multiple public interest issues Consumer complaints to state Ins. Depts. can trigger market conduct examinations which may lead to warnings, fines or license revocation for the insurer in question. Consumers and Consumer groups often influence state insurance commissioners to hold hearings on specific issues, which can lead insurers to take corrective action or can lead to development of new legislation.

Regulation-The courts

Courts do not directly regulate insurers They do have influence because they determine if insurance laws are constitutional and whether administrative rulings and regulations are consistent with state law. Also interpret ambiguous and confusing policy provisions, determine whether certain losses are covered by a policy and resolve other disputes between insurers and insureds. Court decisions often lead insurers to change their policy language and provisions

U.S. Regulatory framework-Solvency Requirements

Examples: 1. Insurers must submit annual and quarterly financial statements to the domestic regulator and NAIC using the "annual statement" AKA "the blank" format. 2. Insurers must use the NAIC Accounting Practices manual, Annual statement blank and instructions for consistency in their accounting practices 3. An insurer using a state approved accounting practice outside the codified NAIC practices must notify NAIC. 4. Insurers (except very small ones) must submit their financial statement to a CPA for audit 5. Most insurers have their reserves evaluated and certified by a actuary.

Market Conduct Annual Statement (MCAS)

Fundamental component of market analysis is the collection of regulatory info form insurers MCAS is a work in progress designed to facilitate this: Ongoing work in the following areas: -Determining the scope of the market analysis program -Determining minimum required skills and education for market analysis professionals -Developing, coordinating and prioritizing data collection and analysis -Developing analysis techniques to ensure focus on general market problems (vs. company specific issues)

State Guaranty Funds-Common Characteristics

Funds vary by state but some common characteristics are: 1. Assessments are made only when an insurer fails (except in NY) and "failure" varies by state. 2. Policies usually terminate within 30 days of the failure date-unpaid claims before termination are still valid and are paid from the guaranty fund. 3. Claim coverage varies by state-No states cover reinsurance or surplus lines (except NJ). 4. Claims are subject to maximum limits-usually the lesser of $300k or the policy limit. 5. Most states provide a refund for unearned premiums 6. Most states apply a $100 deductible to unpaid claims (WC claims are usually exempted) 7. Most states divide their guaranty funds into separate categories, usually auto-WC and "other". Auto and WC assessments can be limited to insurers writing only those lines. 8. Assessment recovery varies by state-Most states permit insurers to recover assessments by raising rates.

Financial Rating Organizations #2

Generally provide summary info about insurer financial strength in the form of a rating, usually a letter grade. Consumers (corporate and otherwise) use the rating when choosing an insurance carrier Band and lending institutions typically require mortgagors to provide evidence of insurance form a company with a specified minimum rating. Insurers pay attention to ratings and try to avoid bad ones and get better ones by improving their financial condition A "poor" rating doesn't mean an insurer will become insolvent and a "good" rating does not guarantee the insurer will never become insolvent.

Alien Insurers

I.E. domiciled outside the US. Must satisfy the same requirements as the domestic insurers of the state in which they want to be licensed. Must usually establish a branch office in the state and have funds on deposit in the US equal to the minimum capital and surplus required

Domestic insurer #1

I.e. an insurer licensed in its home state. If the company obtains a license in another state it is a foreign insurer in that state. Domestic insurers licenses typically have no expiration date. Foreign and alien licenses are typically renewed annually. Applicants for a licsence must apply for a charter and provide the following: -Names and addresses of the incorporators -Name fo the proposed corp. -Territories and types of insurance they plan to market -Total authorized capital stock and surplus Application is reviewed by the state insurance commissioner to see if the applicant meets state licensing requirements.

Liquidation of Insolvent Insurers

If a insurers becomes insolvent the insurance comissioner places it in receivership (appoints someone to run the company to try to resolve its difficulties). With proper management a successful rehab may be possible. If not, the company is liquidated based on the state insurance code. Many states use the Uniform Insurers Liquidation Act by NAIC when liquidating insolvent insurers. Under the act: 1. All creditors are treated equally 2. In some states, priority is given to claimants who are entitled to the failed insurers assets.

Domestic insurer #2

In addition to financial requirements, state can impose additional requirements. For EX. 1. Mutual insurers must use the word mutual in their name 2. The proposed name fo the new company cannot be so similar to existing companies that it could be misleading. Some states will permit the commissioner to deny a license solely on the grounds that no additional insurers are needed in the state.

Legislation and forms approval

Legislation may mandate that policies be filed and/ or approved by the state in order to protect consumers If a specified period elapses and the policy has not been disapproved, then the policy is considered approved. This is an incentive to encourage prompt review. Some states permit the insurance department to extend the review period NAIC has implemented various operational efficiencies, including the System for Electronic Rate and Form filings (SERFF). which dramatically improve time time service

NAIC Accreditation Program Reviews

Look at the following for the state: 1. Adequacy of solvency laws and regulations 2. Ability of the regulator to meet standards on effective and efficient financial analysis and examination processes based on priority status of insurers. 3. Ability and willingness of the regulatory to share info with other state, federal and foreign regulatory bodies. 4. Ability to take timely and effective action when an insurer is identified as financially troubled or potentially troubled. 5. Quality of organizational and personnel practices 6. Effectiveness of the states processes for company licensing and review of proposed changes in control.

National Association of Insurance Commissioners (NAIC)

Meets 3 times per year to discuss important problems and issues in insurance regulation Developed uniform financial statement forms that all states require insurers to file Collects and compiles financial information from insurers and warehouses the data for use by regulators Creates model laws and regulations to encourage uniformity in state regulation Runs the NAIC accreditation program Maintains an "International Insurers Department" that helps regulators asses the financial state of alien insurers Disseminates a quarterly listing (Non-Admitted insurers quarterly listing) of alien non-admitted insurers to assist regulators, surplus lines brokers etc. in deciding to do business with them or not.

Rating Laws and Consumer groups

Most consumer advocacy groups and regulatory agencies support prior approval systems. Prior approval systems requires insurers to justify requests for rate increases with supporting actuarial data They help maintain insurer solvency through regulatory review of data to analyze the adequacy of rates for reported losses.

Rating Laws and Insurers

Most insurers and economists support competitive rating systems where the market determines rates. Prior approval systems may cause rates to be inadequate for writing profitable business because of the time needed for regulatory review and approval. Competitive rating systems are less expensive to administer. Allow regulators to focus their resources on other areas.

"Acceptable" non-admitted insurer

Must generally complete the following tasks: 1. File a financial statement that the insurance commissioner finds satisfactory 2. Supply documentation of transactions to state regulators 3. Obtain a cert. of compliance from it's home state or country 4. Maintain a trust fund in the US (if an alien insurer)

Market Conduct-Producer Practices

Producers can be penalized for practices that violate the states unfair trade practices act such as: Dishonesty or Fraud- Embezzling premium $ or misappropriating claim Misrepresentation- Ex. Misrepresenting covered losses in a policy to induce a client to purchase it unecessarily Twisting- Inducing an insured to replace one policy with another to their detriment Unfair Descrimination Rebating Giving a portion of the producers commission or some other financial advantage to an individual as an inducement to purchase a policy

Common complaints received by Insurance Depts.

Producers have sold unecessary insurance Producers have misrepresented the nature of coverage to make a sale Producers have stolen or misused insured or insurer funds Claims reps have refused to pay legitimate claims or unfairly reduced claims payments Insurance managers have contributed to insurer insolvency through mismanagement

Common complaints recieved by Insurance Depts.

Producers have sold unecessary insurance Producers have misrepresented the nature of coverage to make a sale Producers have stolen or misused insured or insurer funds Claims reps have refused to pay legitimate claims or unfairly reduced claims payments Insurance managers have contributed to insurer insolvency through mismanagment

Insurance Industry Professional and Trade Organizations

Professional Org. members are individuals who share a common profession. P/C industry Professional Orgs provide education, leadership and ethical development for members and their employers Members have timely access to legislative developments on a national level and can use association personnel to help lobby on behalf of the industry group Trade Assoc. members are companies that share a common industry Trade Assoc. members can also participate on trade association committees to help draft or influence legislation. Trade Assoc. operate at national state and local levels The goal of both is to advance the success of the members while upholding ethical standards

The Insurance Fraud Protection Act

Prohibits anyone with a felony conviction involving trustworthiness from workin in insurance without the written consent of an insurance regulator. Identifies the following crimes involving insurance: 1. Making false statements or reports to insurance regulators to influence regulatory decisions (Includes overvaluing assets). 2. Making false entries in books, reports or statements regarding an insurers financial condition or solvency 3. Embezzling from anyone in the insurance business 4. Using threats of force or "any threatening letter or communication to corruptly influence, obstruct or impede" insurance regulatory proceedings.

NAIC Model Unfair Trade Practices Act

Prohibits insurers from any activity that would restrain trade or competition. Also prohibits an insurer from misrepresenting its own or another's financial status.

Regulation of Market Conduct

Regulation of the insurance industry's market conduct is focused on consumer protection. It also promotes competition in the marketplace. State Ins. Depts. Oversee producers, sales and advertising, underwriting, ratemaking and claim settlement procedures etc. In order to.. Protect consumers from unfair discrimination, insurer fraud, excessive rates, etc.

Regulation-Legislation

Regulation starts when the state legislature passes laws that control structure and content of policies sold in that state. Could be based on a NAIC model bill 1. Standard forms-standard polices that all insurers in the state must use for a particular kind of coverage. 2. Mandatory provisions 3. Prohibited provisions 4. Forms approval 5. Readability standards-Style, size of print, etc

Prevent Destructive Competition-Primary Goal

Regulators are responsible for determining if rates are high enough to prevent destructive competition Some insurers underprice their products to gain market share from higher priced competitors. This drives down prices in the whole market. If the prices become too low some insurers will become insolvent and others may withdraw from the market or stop writing new business. An insurance shortage can develop, caused in individuals and firms to be unable to obtain the coverage they need. Some insurance may also be unavailable at any price.

Risk Retention Groups financial condition

Some state regulators have expressed concern about the finanical security of RRGs. Esp. when the RRG is licensed in another state. Congress has addressed this by allowing the licensing state to request and mandate an examination of the RRGs financial condition

Licensing Claim Reps

Some states require claim reps to be licensed so that they are aware of prohibited claim practices, have a minimum level of skill and know how to deal with claims fairly. Licensing of claim reps in most states includes and exam Public adjusters, who represent insureds for a fee, are generally required to be licensed to ensure technical competence and to protect the public

NAIC accreditation program

State Insurance Depts. must meet three criteria to satisfy NAIC financial regulation standards and be accredited. 1. State's insurance laws and regulations must meet basic standards of of NAIC models 2. State regulatory methods must be acceptable 3. State insurance Dept. practices must be adequate according to NAIC

Regulation-Rules Regulations and Guidelines

State insurance depts. can implement specific directives at the direction of the legislature, or exercise the general authority they have to regulate policies Admin rules, regulations and guidelines can be stated in: 1. Regulations communicated by the Ins. Dept. to insurers 2. Informal Ins. Dept. circulars or bulletins 3. Precedents set during the approval process

National Insuracne Producer Registry (NIPR)

Supports the states and NAIC in making the producer licensing process more cost effective, streamlined and uniform. Developed the following: 1. Producer Database (PDB) Electronic database of info relating to insurance producers that links participating state regulatory licensing systems into one common repository of producer info 2. NIPR Gateway A communication network that links state regulators with the entities they regulate to facilitate electronic exchange of producer info

Federal Regulation

The McCarran Act Reverses the usual State-Federal allocation of regulatory powers for the business of insurance. The Insurance Fraud Protection Act Protects consumers and insurers against insolvencies resulting from insurance fraud

Surplus lines

The Surplus lines mechanism allows consumers to buy P&C insurance from non-admitted insurers when consumers are unable to get the coverage they need from admitted insurers. Suplus lines generally include distressed risks, unique risks, and high capacity risks Coverage commonly include products liability, professional liability, employment practices liability, special events, excess and umbrella policies. A non-sdmitted insurer writing surplus lines does not face regulatory constraints on on rates and forms. Surplus lines coverage is not typically protected by the states guaranty fund. The requirements for capital and trust accounts provide some assurance that non-admitted insurers will be able to pay claims

NAIC Accreditation Program

To become accredited, the state must submit to a full on site review. The remain accredited the review must be performed at least once every 5 years with interim annual reviews. At present, all 50 states and D.C. are accredited.

State insurance commissioner activities

Typically delegated: Overseeing the state insurance depts. operations Promote and enact orders, rules and regulations necessary to administer insurance laws Determine wether to issues licenses to new insurers, producers to other entities Reviewing insurance pricing and coverage Conducting financial and market examinations of insurers Holding hearings on insurance issues Taking action when laws are violated Issuing an annual report on the status of the states insurance market and department Maintaining records of dept. activities

Non-admitted insurers and surplus lines brokers

Under surplus lines coverage laws, a non-admitted insurer might be permitted to transact business through a specially licensed surplus lines broker if the following are true 1. The insurance is not readily available from admitted insurers 2. The non-admitted insurer is "acceptable" 3. The producer has a special license authorizing them to place such coverage

Monitoring Market Conduct

Unfair trade practices and abusive practices are prohibited If an insurer is found to be in violation of the unfair trade practices act they are subject to one or both of the following: 1. Fine per violation Fines are often increased significantly is the violation is deemed flagrant and with conscious disregard for the law. 2. Suspension or revocation of license Can occur is the violation happened frequently and the management knew or should have known about it.