Terms and Concepts

Agent Responsibilities:

A)License types B)License requirements C)maintaining a license D)unfair trade practices

D) Unfair Trade Practices: In addition to licensing, the state is responsible for the way agents conduct business within the state.

Misrepresentation - Cannot misrepresent or falsely advertise terms or benefits of a policy; must be accurate and honest. Rebating or Prohibited Inducements - Giving or offering some benefit other than those specific in the policy - gifts, cash, etc. - to get the customer to buy. Twisting - Convincing the customer to cancel already existing insurance and buy another policy from the agent, to the detriment of the insured. Unfair Discrimination - Giving a lower or higher rate than another insured in identical circumstance or accepting a bribe from a customer to provide insurance or a lower premium. Sliding - Sliding is when an agent slides in a coverage or product without the insured's consent or implies that the additional product is required by law when it's not. Example: Sally really improved her cross sell numbers when she included the premium for an umbrella policy in with the homeowner premium so customers thought it was just one policy. After all, she knew they needed the umbrella coverage. Fraud - A fraudulent insurance act is any illegal act that is committed while engaged in the business of insurance and intended to defraud. Example: Ben wrote a new policy for a customer and collected the insurance premium. However, he never turned in the insurance application to the company and kept the premium. Claims Settlement - Claims adjusters are also held to high ethical standards and are subject to disciplinary action if found engaging in unfair claims settlement practices. Some examples of unfair claims settlement practices: Misrepresenting material facts of the claim to claimants, denying claims without conducting reasonable investigations, or failing to implement standards for proper investigation of claims. False Advertising - It is illegal to create or circulate any advertisement about an insurance business or agent that is untrue, deceptive or misleading. Unfair Comparison - Agents and companies are not permitted to make unfair comparisons of policies, benefits, rates or compare non-comparable policies. Boycott, Coercion, Intimidation - It is illegal to boycott, coerce or intimidate anyone to result in an unreasonable restraint of or monopoly in the insurance business. Example: An agent decided to run a local independent agency out of town by organizing all of the groups he was affiliated with in town to spread the word that the agency principles were involved in the drug cartel. The accusation was false but resulted in the agency losing many customers. This is an example of the unfair trade practice of boycott. Defamation - Oral or written statement that is false and intended to defame the character of any insurer or agent. Controlled Business - Licensees may not become licensed solely to insure property in which they have an interest. The interest may be directly or through family or employment relationships. Example: Bob's family is in the real estate business. Their firm includes residential development, real estate sales and mortgage brokerage. Bob would like to get his insurance license so that he can write the homeowner insurance on the properties they sell. This is considered controlled business and Bob may not get a license solely for that purpose.

2.Approve policy forms, rules, and rates

The state's Insurance Commissioner and the Department of Insurance have the responsibility to approve or ratify policy forms, rules, and rates. Who is responsible for writing the policy forms, determining rates, and establishing the underwriting rules? It's the Insurance company. The Commissioner and DOI don't make any of these, they just approve them.

Commissioner (is the state's Department of Insurance's chief executive and administrative officer) and the duties of his:

1.Transacting insurance and company approval 2.Approve policy forms, rules, and rates 3.License approval 4.Examination of records 5.Investigate unethical conduct 6.Investigation 7.Penalties

A) License types

Agent License (Producer) - The agent license has two types in some states - general lines agent and a personal lines only agent. The General Lines Agent is authorized to transact both personal and commercial insurance while the Personal Lines Agent is only authorized to transact non-commercial lines used in the personal insurance market such as auto, homeowners and personal liability, for example. Captive - These producers are employees of the insurance company and their compensation comes in the form of commission and/or salary from their employer. Independent - Independent agents/producers work for an agency and may represent multiple insurance companies. They receive commission directly from the companies they write insurance policies for and may have some ownership of the business they write. Customer/Insurance Service Rep - Persons who perform assigned duties related to property and casualty insurance are required to hold a customer or insurance representative license. The license authorizes them to explain insurance coverage, describe insurance products, quote premiums, and service policies. They may also issue binders with the approval of their managing agent. Limited License - Agents can be issued a license to sell only one type of insurance such as personal auto insurance only. Limited licenses are also issued for selling other single lines such as travel insurance, prearranged funeral insurance, title insurance or self-storage insurance. In some cases the agent may sell the limited line if he has a producer license for that type of insurance. For example someone with a life insurance producer may sell prearrange funeral insurance since it is a form of life insurance. A producer may also qualify to sell the product with a limited line license only. Non-Resident - Agents may also apply for non-resident licenses once they have a licensing in their home state. Non-resident licensed agents have the same rights and privileges as a resident license holder. States often have reciprocal licensing agreements with other states which expedites the processing. Adjuster - States require employees who investigate and adjust losses on behalf of the insurer to be licensed. Adjusting a loss involves determining how policy coverage applies and making the appropriate claims payments. Agency/Managing General Agent - Managers of agencies or agents are also licensed professionals. Other Licenses - Some states also offer other licenses. Surplus Lines Agents sell more specialized insurance such as Lloyd's of London or other surplus lines that provide coverage for the unusual or high risk scenarios. Surplus Lines Agents must be licensed in their state to sell the lines of business they represent. Risk Managers are licensed but may not receive commission from the sale of insurance. Emergency or temporary licenses are issued only for a short period time and are used when insurance business has to transition to a family member because of death or disability of the agent. Insurance Consultants provide insurance guidance for a fee with respect to the benefits, advantages or disadvantages of insurance policies. Consultants charge for their expertise and advice.

B) License requirements (It is illegal for someone to sell insurance without first obtaining a license from the state to do so)

Application Process- The application process for an insurance license includes a background check. The DOI has the right to refuse a license if the applicant has committed a felony, misdemeanor or been involved in dishonest activity that relates to the responsibilities of the license. Some states also require licensees to renew their licenses and pay a fee every renewal period. Examination- Each state requires applicants to pass a license examination for the license type desired. Exam content outlines are made available for review. Review the exam requirements for your state including the number of test attempts permitted. Pre-Licensing Education - Applicants for a license must learn the concepts, laws and practices of the profession and prepare for the license examination. Some states set requirements for the pre-licensing study. Agent's Records - Agents must maintain records of policy transactions either electronically or paper files including applications, endorsements and documents signed by the insured. Agents must also make their records available to the insurance commissioner or office of insurance regulation upon request.

DP-1

DP-1 Basic Form Perils Perils The only perils included on a DP-1 Basic form are: Fire & Lightning; and Internal explosion Vandalism & Malicious Mischief and the other Extended Coverage Perils may be added by endorsement. Loss Settlement The loss settlement method for the DP-1 is ACV - Actual Cash Value.

6 and 7. Investigation and Penalties

Process for Department of Insurance investigations and penalties: If the DOI investigates and finds that the insurance code has been violated, they give written notice to the person charged with the violation. The violator then responds to accept the findings and penalty or to demand a hearing. The DOI is authorized by state statute to impose administrative penalties on a person or entity licensed in the state. Penalties of thousands of dollars may be levied. Lists of insurer violations and penalties are sometimes listed on the state's DOI website.

DP-2 Broad

The DP-2 is referred to as the broad form and is used primarily when company underwriting has some reservations about the risk and would like to limit the perils they are covering. DP-2 insures for more perils, additional other coverages and replacement cost on dwellings.

DP-3 Special

The DP-3 or special form is commonly used and provides the most protection for the policyholder. DP-3 includes all the features of the DP-2 and covers buildings for open perils.

Felonies in AZ from 1-6

What Are The Punishments For The Various Felonies In Arizona? Different crimes result in different punishments. The different levels of felonies warrant different prison time in the state. As the most serious crimes, Class 1 felonies are reserved for only first-degree and second-degree murder charges. If convicted of first-degree murder, an individual will face life in prison or will be sentenced to death. A second-degree murder charge will result in anywhere from 16 years to life in prison. Class 2 felonies have varying terms. As an example, an aggravated term is 12.5 years in prison while a presumptive term is five years. Examples of Class 2 felonies are producing or creating child pornography. Class 3 felonies might include having cultivated four or more pounds of marijuana in your possession. For a presumptive Class 3 felony, the punishments are three years and six months in prison for a presumptive term while an aggravated term is eight years and nine months. Class 4 felonies include the theft of property worth between $3,000 and $4,000. A presumptive sentence is two years and six months in prison and an aggravated term is three years and nine months. Class 5 felonies are felonies that have not been indicated in a specific class by laws. A presumptive term is two years while an aggravated term is two years and six months of prison time. Examples of Class 5 felonies are pimping and pandering. Class 6 felonies are the least serious of Arizona felony crimes by class. For a presumptive term, it is a year in prison while an aggravated term leads to two years in prison. If certain circumstances apply, a judge can designate a Class 6 felony as a Class 1 misdemeanor conviction and sentence according to that conviction.

3. License approval

What was the term we used to describe an insurance company who has received their Certificate of Authority? Admitted. What do we call an individual who has been approved by the state to conduct insurance business? Licensed. Individuals who want to conduct insurance business must be licensed by the state's insurance department. Each state sets forth the license types and requirements. For example, if a person would like to become an insurance agent to sell policies for an insurance company such as Liberty Mutual, they would first have to meet the licensing requirements which includes passing the state licensing exam. Once they have obtained their agent license, then Liberty Mutual could file for their appointment. An appointment means they may represent that insurance company. Agents who work for independent insurance agencies may be appointed to represent multiple companies for a variety of products. An appointed agent is one who has obtained your license and the insurance company has authorized you to represent them in the business of insurance.

countersignature only P & C policies needs to be signed

agent signs it with customer

Policy Contracts

example, when the insured causes injury or damage to others, the policy pays the third party even though they are not the policyholder.

Insurance 101

purpose to share the risk

fire claims survey

using drones to look at the damage, eliminates the human work and potential to get injured. Drones create videos not jus still photos

C) Maintaining a license: Agents are responsible for maintaining their license. In order to do so, they must be aware of the following:

Appointments - Agents must ensure that they are appointed by each company they represent. Appointments are filed by the company and remain in place until terminated or withdrawn. If an agent holds a license but is not appointed by any company for a period of time, their license may be terminated due to the inactivity. Communicating w/ DOI - Agents must notify the DOI of a change in their mailing address, a felony conviction or administrative action taken against them. Continuing Education - Agents have a responsibility to stay current on the insurance laws and practices in their state. Each state establishes continuing education requirements including the number of CE hours per license renewal period. The requirements may also include specific topics as established by the state. Agents are responsible for ensuring that the state has received evidence of course completions. Failure to comply with the continuing education requirements can result in a disciplinary action such as an appointment or license termination. Professional Behavior - The Insurance Commissioner may deny, suspend, terminate, or refuse to renew a licensee who violates the state insurance laws, has failed to maintain the qualifications of the license including continuing education, committed a felony or engaged in any unethical trade practices.

Rules and Regulations:

As you know, each state has an insurance department headed by a Director/Superintendent/Commissioner of Insurance who is responsible for controlling insurance matters in the state. The commissioners from each state make up the National Association of Insurance Commissioners (NAIC) which meets regularly to discuss and coordinate regulations for each state. The state department of insurance is responsible for: Insurance Companies Insurance Agents Ratification - Approval of policy forms, endorsements, rates, filings, and rights. Enforcement - Actions taken when companies and agents do not follow the law. The commissioner has the authority to take action to enforce the law (suspend, revoke, remove license of agent or a company's authority). Insurance laws govern how insurance companies and agents operate in each state. While there are some laws unique to individual states, many of the insurance laws are consistent in most states. In this section, we will address those rules and regulations that are similar in most states. Then in the state specific lesson, we will address the unique differences for your state. The commissioner is the state's Department of Insurance's chief executive and administrative officer. In broad terms, the commissioner and the DOI are tasked with: regulating the business of insurance in the state, ensuring that the laws pertaining to insurance are followed and enforced, protecting and ensuring that consumers are treated fairly, and maintaining fair competition in the insurance industry. Gross Premium Tax - Some states levy a tax that insurance companies must pay based on a percentage of the gross premiums earned.

Insurance companies desiring to operate in a state must apply for the privilege with the state's department of insurance. The DOI will investigate and if the company is found to be financially and operationally sound, they will grant authorization by giving the company a ____________________.

Certificate of authority

Very important:

Important Note: The TCPA-Telephone Consumer's Protection Act prohibits telemarketers from calling before the hours of 8:00 am or after 9:00 pm (called party's local time).

Insurance Guaranty Association

Most states have an Insurance Guaranty Association in place to protect insured and claimants against losses when an insurance company becomes insolvent. All property and casualty insurance companies operating in the state are required to be members of the association and commit to share in the losses resulting from a company becoming insolvent. This non-profit association helps pay the claims of insolvent insurers who are residents of the state at the time of the loss or the property is permanently located in the state. Some states have limitations on claims payments related to the total amount of the claim or the time period for filing. Unearned premiums for policies in force may also be considered within the association's guidelines. For example, 80% of the paid, unearned premium may be reimbursed to the policyholder by the Guaranty Association.

DP-1 Basic

The DP-1 is considered basic and rarely used in the marketplace because of its limited coverage. The perils are limited and claims are settled on an actual cash value basis. DP-1 does NOT include Cov. E -Additional Living Expense but the coverage may be added by endorsement.

4. Examination of the records

The Department of Insurance may examine the records of both companies and agents in the state to ensure they are in compliance with state laws. The DOI has the power to require free access to all books and papers related to the business.

5. Unethical conduct investigation

The Insurance Commissioner does not write insurance laws, but it does enforce them. The Commissioner's office will investigate unethical conduct and take the appropriate actions which could include fines, suspensions and revocations.

1. Transacting insurance and company approval

The Insurance Commissioner oversees the transacting of insurance. But, it's important to consider what this means for agents, service representatives, and insurance companies. You may think of the Certificate of Authority as the company's license to operate in the state. The state's Department of Insurance investigates the company to determine if they meet the qualifications and are both financially and operationally sound. The Department of Insurance then issues the company a Certificate of Authority and they can then begin doing insurance business in the state. Admitted means the company has their Certificate of Authority. A non-admitted or unauthorized insurer is not licensed in the insured's state but may be licensed in the state where the company is based. Surplus Lines insurers are an example of non-admitted insurers. Non-admitted insurer's policies are still valid but are subject to different regulations than admitted carriers. Lloyds of London is an example of a surplus lines insurer. It is foreign licensed but sells policies in the U.S. Non-admitted carriers to not participate in the state's guaranty fund and therefore are not backed by the state. However, they fill an important role in the insurance economy by offering insurance for specialty risks not served by standard insurance carriers.

Fair rental value and additional living expenses: Coverages D - Fair Rental Value and E - Additional Living Expense Dwelling Policy vs. Homeowner Policy The HO policy's Coverage D-Loss of Use includes both benefits together. The DP policy breaks those coverages apart so they can be purchased separately since most customers are not occupying the residence and would not need Additional Living Expense. Coverage D - Fair Rental Value Coverage D reimburses the insured for the rent they cannot collect due to a covered loss to the portion of the building rented to others. The building has to be uninhabitable and the damage caused by a peril insured against in the policy. Payment stops once the damage is repaired and can be rented. Coverage E - Additional Living Expense This coverage is similar to the Homeowner Program and applies only when the property is occupied by the owner.

example 1 Scenario What coverage does she need and why? Sylvia Owns a 3-family dwelling Insurance company insists on a Dwelling Policy Lives in one unit and rents the others Sylvia needs both Coverages D and E. She needs Coverage D to reimburse her for her lost rent if her dwelling was uninhabitable due to a covered loss. She also needs Coverage E to help her with her additional living expenses if she has to move out of the home while it is being repaired. example 2 Scenario What coverage does he need and why? Diego owns a house he rents to Jenny Collects $1,000/month rent Diego needs Coverage D and he should consider that it could take up to 6 months sometimes to rebuild a home so he would need at least $6,000 in coverage. example 3 Scenario What coverage does she need and why? Jenny rents the house from Diego She would have expenses if she had to move because of a loss Jenny should purchase an HO-4 Renter's policy as Diego's Dwelling Policy provides no benefit for Jenny.