Lesson 1.0 - Insurance Regulation

Churning

(related to twisting) using misrepresentation to replace a competitor's policy with one from a company represented by the producer to get the larger first-year commission, even if it is not in the best interests of the consumer.

Business Entity Producer

A legal business entity, such as a corporation, partnership, limited liability company or the like, may also be a producer and conduct insurance business in this state. A business entity must get a producer's license in the business's name. The business must first have a licensed individual producer with a license for the same lines of insurance before applying for a producer's license for the business. Business entities have several other pieces of documentation required to accompany their application to the state.

Appointments

An insurer must appoint a producer to sell their products before the producer can start selling them. The insurer files a notice with the Commissioner within 15 days of the contract made with the producer. The Commissioner lets the insurer know the appointment is approved within 30 days of the notice if the Department finds the producer fit for appointment. If the producer is not eligible for appointment, the Department sends a notice to the insurer in 15 days.

Individual Producer

An individual producer is a person licensed to quote insurance policies, market and sell insurance products, and consult others with regard to insurance. Most people in Louisiana are accustomed to calling these persons insurance agents, but the term referring to them is officially insurance producers.

Misrepresentation

Distributing misleading or false information and orally deceiving the public with regard to a policy's terms and benefits is illegal.

Producer's License

In the Louisiana Insurance Code, all persons or business entities referred to as an agent, broker, solicitor, or surplus lines broker that sell, solicit, or negotiate insurance are required to be licensed as an insurance producer.

Consumer Reports

Equifax, Experian, Dun & Bradstreet, and agencies like these provide information regarding credit, character, and habits of a consumer.

Unfair claims settlement practices

If performed frequently enough to be considered a policy or practice of the company, not just an isolated act of an employee, the following may be considered unfair claims settlement practices: i) Issuing policies with misrepresented facts or coverage provisions ii) Not acting promptly when presented with claims iii) Denying claim payments without a practical investigation of the facts given iv) Denying claims after proof of loss was submitted v) Not settling claims fairly when liability is obvious vi) Convincing the insured to sue to recover more from an insurance policy by offering less with an unfair settlement vii) Settling for less than a prudent person expected from marketing material when purchasing a policy viii) Settling claims based upon information from altered applications without the knowledge of the insured ix) Sending claim payments without statements documenting the coverage for that claim x) Telling insured to appeal arbitrations to make them accept less than they would get awarded in an arbitration xi) Making claimants submit preliminary claims reports and subsequent claims reports that have essentially similar information pertinent to settling the claim xii) Not settling the claim under one coverage in a policy to persuade the claimant to settle under another coverage portion xiii) Not providing explanations based on policy terms or law for the denial of a claim xiv) Not providing forms needed to file the claim to the claimant within 15 days of the claimant request for the appropriate forms.

Unfair Trade Practices

Misrepresentation False advertising Twisting Churning Defamation Boycott, coercion, and intimidation False financial statements Unfair discrimination Rebating

Shared Commissions

NO license, NO commission! Paying and accepting a commission when you have no insurance license is illegal. Persons found breaking this law are fined between $1,000 and $5,000 and/or receive a maximum of 2 years in jail.

Renewal of Appointment

Renewal of company appointments is due on or before March 1 of every year. Each Company is sent an invoice. Renewal fee is $20.00 per appointment. Renewal lists received after March 1 will be charged a late fee of $10.00.

Violations

The Department of Insurance and the Commissioner can revoke, non-renew, suspend, or refuse to issue any producer's license, as well as charge fines up to $500 per violation or $10,000 for all violations per calendar year per person for these violations: i) Failure to comply with state or federal laws for licensees ii) Giving false information on any license or renewal application iii) Not accounting for or sending in premium money or commingling funds iv) Committing fraud or practicing dishonesty with regard to insurance v) Being careless or lacking ability to perform insurance related business operations vi) Falsifying a contract, binders, rider, plan benefits, or insurance applications vii) Unfair trade practices with regard to insurance viii) Pleading nolo contendere (no contest) or being convicted of a felony, being involved in a felony pretrial diversion or being convicted of misdemeanors with moral turpitude issues or public corruption ix) Cheating on an insurance exam or getting a license fraudulently x) Going insolvent because of not submitting premiums or excessive debts due to premiums or other funds to insurers or insureds xi) Forgery on any insurance document xii) Accepting insurance business from an unlicensed person knowingly xiii) Getting a licensed solely to do controlled business xiv) Having a license revoked from Louisiana or any other state xv) Violating federal insurance laws xvi) Not submitting evidence in a felony case xvii) Failing to pay court imposed child support xviii) Failing to pay state income taxes xix) Associating with people in the business of insurance who were convicted of a felony

Term and Renewal

To maintain your license, every licensee must complete a certain number of hours in continuing education, maintain satisfactory conduct, and of course, send in the renewal application and pay renewal fees every renewal term. Your license is only issued once and you must renew it every term to keep it active. The final approval to renew your license rests with the Commissioner, as he decides to renew or not to renew. The renewal fee for a Louisiana producer is $50.00.

Boycott, coercion, and intimidation

illegal acts intended to stop fair trade or monopolize insurance business are prohibited.

McCarran-Ferguson Act of 1945

said the federal government had the right to regulate insurance only to the extent it is not regulated by state law. In effect, the insurance industry is exempt from most federal anti-trust laws.

The Violent Crime Control and Law Enforcement Act of 199

states that anyone working in insurance that affects interstate commerce must receive written authority to work in insurance from a regulatory official - Commissioner, Deputy Commissioner, etc. called a 1033 waiver. This act makes it illegal for anyone convicted of crimes involving dishonesty or breach of trust to work in the business of insurance without fulfilling this requirement first. A felon violating this Act can be imprisoned up to five years.

Fair Credit Reporting Act (FCRA)

This federal law was enacted in 1971 and is administered by the Federal Trade Commission. It makes clear that consumers have the right to know what information is being circulated about them and that the information is accurate and relevant for purposes that it is being accessed. Reports under this act are divided into two categories: Consumer Reports and Investigative Consumer Reports

Cease and desist

This is the legal term for the order to STOP. It is an official legal document that will require an individual to stop doing something. If the Commissioner has evidence someone is committing an unfair trade practice, he must hold a hearing. If he determines they did commit an unfair or deceptive practice, he MUST give them a written copy of the findings and issue a cease and desist order. He also MAY charge them a fine of up to $25,000. per violation, not to exceed $250,000. and/or suspension or revocation of their license if they should have known it was a violation. If a cease and desist order is violated, it is also a fine of up to $25,000 per violation, not to exceed $250,000 and/or suspension or revocation of their license or certificate of authority.

Privacy of Consumer Financial Information

In this business, we become privy to lots of personal financial information on our clients. This Privacy regulation states that no information can be accessed by insurers without the person's consent and prevents insurers releasing this information to anyone without consent from the insured. Clients have the right to review a record of any disclosure made of their personal information.

Termination of Appointment

An insurer can terminate an appointment and has 30 days from the termination date to notify the Department. That time reduces to 15 days if the producer is being terminated due to fraud. The insurer sends notice to the producer of the termination within 15 days of sending notice to the Department. A producer has the right to send comments to the Department about the termination within 30 days of receiving the termination from the insurer.

Certificate of Authority

An insurer must first get a certificate of authority from the Commissioner to sell insurance products in this state. The certificate of authority makes the insurer an admitted company and proves that the Department of Insurance finds the company financially sound and structured well enough to meet the requirements of the state insurance code to conduct insurance business in Louisiana.

False advertising

Any advertising, print, multimedia, internet or otherwise, cannot deceive the public in anyway and misrepresenting terms, benefits, advantages, dividends, financial strength, or misrepresenting the intent of a policy, loans or assignments, or saying an insurance policy is the same as a share of stock are all prohibited acts.

Fraud and false statements

Any person intentionally making fraudulent or false statements in insurance transactions involving interstate commerce are subject to federal level fines and/or imprisonment for breaking this very specific federal law.

Payment to unlicensed entities

Any unlicensed business entity paying or accepting illegal commissions will be fined between $2,000 and $50,000 and/or receive a maximum of 3 years in jail. Any violator involved with a license will have it suspended or revoked.

Change of Address

If a producer changes their mailing, work, or home address, the Department must be notified within 10 days of the change on an official "Change of Address" form available on the Louisiana Department of Insurance website or face a $50 fine.

Controlled business

If a producer only gets into the insurance business in Louisiana to sell only to themselves, their family and employer, they are writing controlled business and that is illegal. The Commissioner determines controlled business by looking at a producer's book of business for a 12 month period. If during a year, a producer's commissions earned from policies sold to themselves, their family and employer is more than 25% of the total commissions for that year, it is considered controlled business.

Assumed Names

If a producer uses a name other than their legal name, they must notify the Department in writing BEFORE using that name while doing business in this state. If it is a trade name for a business, you must register the name with the Secretary of State If the producer is found using a name that has not been approved by the Commissioner prior to its use, they will be fined $250. The Commissioner will notify this producer to stop using this unapproved name, but if they continue to break this rule, they can be fined up to $5,000.

Reapplication

If a producer's license is revoked, it may be possible to reapply. If a producer accepted the revocation without asking for a review or appeal of the decision, he may apply to the Commissioner for permission to reapply for a license after one year. If the producer appealed the decision, but the revocation was upheld, he may apply to the Commissioner for permission to reapply for a license after five years. If a license is reissued after revocation, if the producer is found guilty of another violation, he will be revoked without the right to apply for permission to reapply up to five years.

Insolvency

If an insurer finds themselves insolvent or in financial difficulty, the Department of Insurance will take control of company financial management. If they believe the company can be put back in sound financial shape, they will try rehabilitation. If not, they will begin liquidation proceedings.

Reporting of Actions

If any court, judge, or jurisdiction or governmental agency in Louisiana or anywhere takes any administrative action against a producer, that producer must report this final disposition or ruling to the Commissioner within 30 days of the disposition. District court convictions usually come with a bill of information on the case or an indictment sheet. All producers that undergo this process with any court must provide a copy of this document to Commissioner within 30 days from the date on the document.

Non-Resident

Individuals not living in Louisiana and those without an office in Louisiana may get a Non-Resident license to sell insurance in this state. States that have reciprocal laws and privileges, meaning that the laws in both states are similar, will grant a non-resident license to an applicant as long as that individual's resident license is in good standing with their home state. To apply for a Non-Resident license, an individual completes a Uniform Application approved by the National Association of Insurance Commissioners (NAIC), the organization in charge of insurance laws for all states, and pay their fees. A producer moving from one state to another has 90 days after establishing legal residence to become a resident licensee. They will generally be exempt from having to take a new course or exam if they were in good standing in their home state with an insurance license for the same line(s) of authority they are applying for and the application is received within 90 days of the cancellation of their previous license.

Investigative Consumer Reports

Information from these reports may come directly from interviews with friends and neighbors and affiliates of the consumers and cannot be made without consent within 3 days of the request. When a consumer wants information in this report, it must be sent to them in 5 days by the insurer or reporting agency. There is a criminal penalty of $50,000 that may be imposed for not complying with the FCRA and those accessing information from these reports under false pretenses may face fines and/or jail time. If insurance is declined because of information in any report under this act, the consumer must get a copy of the report and their rights must be described to them. Each consumer has the right to know the name and address of the agency, what was in the report and they have the right to know who received a copy of this report during the past year. If information is inaccurate or obsolete, the consumer can have that information deleted and the agency must send the corrected report to anyone that had the inaccurate copy within the previous two years.

Rebating

Offering and accepting any incentives for buying a policy, including money, unauthorized discounts or money back, special favors or personal services, are all illegal acts.

Renewal

Producers can renew their license by sending their renewal application along with their renewal fees to the Louisiana Department of Insurance by the last day of their own birth month. The Louisiana Department of Insurance (LDI) now offers electronic online renewal. Any continuing education you have completed and was reported should be listed online at the time of your renewal. Any continuing education hours lacking or not yet reported, you should send a copy of the certificates to the Louisiana Department of Insurance (fax or mail). If they do not have a record of your continuing education prior to the expiration date, your license will expire and not yet be renewed.

Continuing Education Requirements

Producers must submit the correct amount of Continuing Education required hours to the Department every renewal period according the licenses they hold. *i) If you have a Life, Health & Accident license, you must submit 24 hours every renewal period of 2 years (even years). Three of the hours must be on ethics.* ii) If you have a Property & Casualty license, you must submit 24 hours every renewal period of 2 years (odd years). Three hours must be in flood insurance, and as of 2011, three hours must be on ethics. (a) PLEASE NOTE: You are allowed to rollover excess hours to the next applicable renewal period. (i) Up to 10 hours of excess P&C topics (ii) Up to 10 hours of excess LHA topics The CE requirement does not apply to specialty or limited licenses such as industrial fire, credit life, credit health, credit property, or accidental death and dismemberment, etc. The Insurance Department may give CE credit to someone completing a graduate level designation such as a Chartered Life Underwriter (CLU), Chartered Property and Casualty Underwriter (CPCU), or Certified Insurance Counselor (CIC). The Commissioner may also decide, at his discretion, to grant 4 CE credits to any producer that is an active member of a state or national insurance association, such as Independent Insurance Agents & Brokers of LA-IIABL, and many other valid organizations, and actively participates.

Temporary

Temporary licenses are valid only for 180 days and may be granted the following three circumstances: i) Death - If a residential licensee dies, their representative may be granted a temporary license to wrap up their business. ii) Disability - If a residential licensee becomes disabled, their legally appointed representative, usually through power of attorney, is granted a temporary license to handle their business. iii) Active Military Service - A residential licensee may designate a person to handle their insurance business operations while they are actively serving

Examination of records

The Commissioner can examine anyone in the business of insurance in the state at anytime. The Department will review insurance companies for financial stability at least once every 5 years. An investigation may be prompted on an individual producer if 3 complaints are received on them within a 30-day period.

Insurance Fraud

The Department can conduct background checks on all applying to sell insurance in the state and may deny licenses or certificates of authority for felony convictions. If any violations are found, that information may be forwarded to the Department of Justice or any other law enforcement agency for further investigation or prosecution. Fraud is the intent to deceive by providing materially false information to someone in a business transaction. Insurance fraud is committed when: a) Preparing false information in insurance applications, rating a policy, claim payment or benefit information requests, applications for certificates of authority b) Knowingly selling policies and products for a bankrupt insurance company c) Hiding assets of an insurer to keep it away from the Commissioner d) Diverting insurer funds in any way e) Putting false information in any document or statement required by the Department of Insurance. A person can, in good faith, anonymously provide information to the Department concerning suspected fraudulent activities and the person providing the information will not be required to go to court.

Duties and powers of the Commissioner

The Louisiana Department of Insurance Commissioner is James Donelon and he is responsible for enforcing the law as it pertains to the insurance business in this state. His primary goal is to protect the public and he is elected and holds office for a term of four years. In protecting the public, his duties will include: a) Issuing or revoking licenses and certificates of authority b) Hire employees and examiners and examine the records of any insurer or producer c) Subpoena witnesses and conduct hearings for alleged violations of the Insurance Code d) Giving out cease and desist orders and impose penalties for violations of the Insurance Code

Exceptions to licensing requirements

The Producer Licensing Model Act has a standard set of exemptions that most states follow. Generally, if someone is not paid a commission for selling insurance, they do not need a license.

Transferring between states

There are 7 possible situations where agents move from one state to another state. The Louisiana Department of Insurance provided the following 7 examples on their website of the 7 situations as follows: (a) A person moving to Louisiana who does not hold a license in another state - must take pre-licensing education and required examination. (b) A producer who is licensed as a nonresident in Louisiana moving from one state to another state (i.e.: Arizona to Texas) must submit a state-to-state transfer form, letter of certification dated within 30 days if information is not current on PDB (Producer Database), $15.00, and return old license card. If these requirements are not met within 30 days, the producer will be required to submit a first-time application and $75 per line of authority applying for. If the license is expired then a reinstatement application and appropriate fees are required. (c) A producer who is licensed as a resident of LA and moves to another state must provide LDI with a state-to-state transfer form, letter of certification if information is not current on PDB, $15.00 and return old license card within 30 days. (This will make them a nonresident in Louisiana.) If these requirements are not met within 30 days, the producer will be required to submit a first-time application and $75 per line of authority applying for. If the license is expired then a reinstatement application and appropriate fees are required. (d) A producer that is not licensed in Louisiana that moves to Louisiana from a state where they held a license shall provide a first-time application, letter of clearance dated within 90 days of the date they established legal residency and $75.00 per line of authority applying for. (They are exempt from exam and pre-licensing). If the requirement is not met within the allotted time frame, the producer will be required to take pre-licensing and exam when needed for the line of authority applying for. (e) A producer that is licensed as a nonresident of Louisiana who changes to a resident Producer of Louisiana must submit a first-time application, letter of clearance dated within 90 days of the date they established legal residency and $75.00 per line of authority applying for. (They are exempt from exam and pre-licensing) If the requirement is not met within the allotted time-frame, the producer will be required to take pre-licensing and pass the insurance licensing exam. It does not matter if the license is current or expired. (f) A producer who previously held a license in Louisiana but never became a licensed non-resident of Louisiana and is within the 5-year reinstatement period must submit a reinstatement form and $100. (g) A Producer that was licensed as a resident of Louisiana and changes to a non-resident of Louisiana and moves back to become a resident of Louisiana and the license is current will need a State to State Transfer Form, Letter of Clearance, return license card and $15.00. If the license is expired then a reinstatement application, Letter of Clearance and $115.00 fee is required

Disciplinary Actions:

There are certain disciplinary actions the Commissioner has the authority to take against anyone in the insurance business if they are found in violation of the Louisiana Insurance Code.

Hearings

When someone accuses a producer of violating the Insurance Code and demands a hearing, that hearing must be held within 30 days of the demand. It can be postponed if both parties agree to postpone it, but once the demand is on record, the hearing must happen in no more than 60 days of the original demand. All parties will receive 10 days notice of the time and place of the hearing. The Commissioner or his designee can administer subpoenas, oaths, examine all relevant records, review conduct and relationships and even investigate and interview individuals they deem necessary. The Commissioner has 30 days to finalize a decision and determine his orders for the producer and all parties involved from the hearing. Anyone wanting to appeal his decision has 30 days from then to demand a review hearing.

Unfair discrimination

changing rates based on marital status, race, color, national origin, creed or ancestry within the same mortality class is illegal.

Insurance Producer requirements

i) Be at least 18 years of age ii) Reside in or work mainly from an office located in Louisiana iii) Complete pre-licensing education required to prepare for state required exam* iv) Paid their fees and submitted an application (Form 1546A) v) Successfully pass their required exam with 70% or higher* *An exam is required for licenses to sell most lines of insurance, and the exams are specific to the lines of authority requested (e.g. life, health, property, casualty, etc.)

False financial statements

intentionally deceiving the public or a regulator as to the financial standing of an insurer is prohibited.

Gramm-Leach-Bliley Act (GLBA)

officially titled the Financial Services Modernization Act of 1999, removed the barriers between commercial banking, investment banking, and insurance. Financial holding companies can combine any financial related activities. They still have to answer to regulators for each activity they participate in. The law set standards for financial privacy. First, the company's policies regarding customer information have to be disclosed at the beginning of the relationship. Second, any customer records to be shared with related companies or others must be disclosed to the consumer prior to releasing the information and allowing them to "opt-out". Health information rules are stricter, requiring the consumer to actually "opt-in" before health information can be shared.

Defamation

oral or written statements trying to injure a person or entity is prohibited, especially when it is critical of the financial status of a person or insurer.

Advertising

the state regulates the marketing and advertising of insurance policies. The insurer is held responsible for the content of advertisements. Ads cannot be misleading and cannot have illustrations that are considered deceptive. All ads used must be kept on file until the next time the state examines the insurer.

Twisting

when a producer influences a consumer to replace a present policy with a different one. This is only acceptable if the producer gave the consumer better coverage or a better deal.