TX Limited Lines - Section 1 (What is an Insurance agent)

Appointment Requirements:

1. A licensed person may not engage in insurance business until an authorized insure appoints the licensee to act as an agent. The notice of appointment must be filed with the Commissioner. 2. A licensed agent may represent and act as an agent for more than one insurer at any time while the license is in force. 3. The appointment will be in force until it is terminated by the insurer or withdrawn by the agent. 4. An agent appointed under this section may act on behalf of the appointing carrier before the TDI receives the filing 5. Insurers are not required to appoint sub-agent separately.

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1. A person whose license is about to be suspended or revoke is entitle to a hearing in Travis County District Court after a 10-day notice from the Insurance Department. 2. A license suspension is effective for up to 6 months. 3. A person whose license is revoked or whose application for a license is denied (except for a failure to submit a complete application) may not apply for a new license for 5 years. 4. Instead of suspending or revoking a license, the Commissioner may impose a fine of up to $2,000 per violation 5. If the commissioner has begun disciplinary proceedings against a licensee and the licensee has voluntarily surrendered his license, the surrender does not reduce the licensee's culpability for conduct before the license surrender.

Insurance agent functions:

1. Act as an agent (perform duties) 2. Maintain an office 3. Record business transactions 4. Effect insurance 5. Perform recognized insurance business 6. Solicit, negotiate, and procure 7. Make or propose to make an Insurance Contract 8. Make applications for insurance 9. Bind risks 10. Receive premiums or commissions for insurance 11. Sign, execute, and deliver policies

Continuing Education (CE) Requirements

1. All agents and ISRs are required to complete 30 hours of CE before license renewal (every 2 years) 2. All license EXCEPT LIMITED LINES require 30 hours of CE every 2 years. 3. 50% of CE hours must be completed in a classroom setting 4. 2 hours must be in ethics or consumer protection. 5. Extensions of time to complete CE 6. An individual who has continuously held an insurance agent license for at least 20 years is exempt from CE 7. No CE hours can be carried over from one term to another, 8. Agents are to retain proof of CE for 4 years (records are subject to inspection by the commissioner)

What fees can an agent charge for?

Agents may charge for motor vehicle reports and photographs of property, but those fees may not exceed actual incurred costs. That agent may also charge for special delivery or postal charges, printing and reproduction costs, electronic mail costs, telephone transmissions and similar costs. Also, the agent may collect an inspection fee, credit report fee, taxes, finance charges, and policy fees.

Insurance service representative (ISR)

An ISR license is required for each person who is employed on a salaried basis to perform assigned duties only in the office of a P&C general lines agent.

Licensing Requirements - General lines property and casualty agents:

At least 25% of the agent's total volume of premiums must come from sources over which the agent has NO CONTROL through ownership, mortgage, sale, family relationship, or employment (controlled business).

Boycott, coercion, or intimidation

Committing or entering into an agreement to commit any act of boycott, coercion, or intimidation resulting in unreasonable restraint of or monopoly in the business of insurance is prohibited.

False financial statements

Filing publishing, or placing before the public any false statement of financial condition of an insurer with the intent to deceive.

Exemptions/Exceptions

Holders of the Chartered Property Casualty Underwriter (CPCU) designation are exempt from the written property/casualty examination.

Can insurance agents share commission with anyone?

Insurance agents may not pay or share commissions with anyone but another licensed agent.

License Termination, Revocation, and Suspension

Licenses may be revoked if: • There was violation of any insurance law; • The agent or ISR has knowingly deceived or defrauded a policyholder or insurance applicant; or • The agent or ISR has failed or neglected to remit any premium collected to the insurance company.

Defamation

Making any oral or written statement that is false or derogatory as the financial condition of any insurer and that is circulated to injure any person or company.

Personal lines agents:

May sell personal auto, home, flood, inland marine, and personal umbrella.

Can an Insurance agents charge an additional fee for services when those services also result in payment of a commission?

No. Insurance agents may not charge an additional fee for services when those services also result in payment of a commission.

Rebating

Offering or receiving anything of value as an inducement to buy insurance (e.g., splitting commission with the customer)

Controlled business

Soliciting or procuring insurance for the agent, the agent's family, or business associates, and not for the general public. Agents who become license only to handle business that they control through ownership, sale family relationship, or employment are engaging in control business, Agents are expected to draw at least 25% of total premium from persons other than the agent's family and business relationships.

Fiduciary

Someone who undertakes a high level of trust when acting in the interest of another person.

Disability Probation:

The Commissioner may place an insurance agent on disability probation if the agent has a physical, mental or functional condition that renders that agent unable to perform his professional responsibilities. Generally, this is used when an agent has a substance abuse problem and helps the agent remain active while undergoing supervised rehabilitation.

What does the agent have to do before charging any of these fees?

The agent must advise the client of these fees in advance and obtain the client's written consent before the expenses are incurred.

Marketing Practices (Article 21.21 Texas Insurance Code) - Unfair and prohibited trade practices: False Advertising

The use of advertisements, announcements, or statements that are untrue, deceptive, or misleading (e.g., an agent cannot use the term dividends in a misleading manner)

Qualifications:

To act as a licensed agent, an individual must:: • Be at least 18 years or older; • Maintain a place of business in Texas; • Meet the application requirements; • Take and pass the licensing exam; and • Pay the examination and licensing fees.

Surplus lines agent

To receive a surplus lines agent license, an individual must be currently licensed as a general property and casualty agent or as a managing general agent. At least one agent in an agency must be licensed as a surplus agent for the agency to sell surplus.

Unfair Claims Practices

Two-party dispute regarding claims practices; the insured is the claimant (complaining party).

Discrimination

Unfair discrimination is making or permitting any unfair discrimination between individual of the same class and of essentially the same hazard (accident and death) or life expectancy (life) in the rates charged for a policy or in the dividends, benefits, or other contract terms.

Unfair comparison

Unfair or incomplete comparisons between policies, benefits, dividends, or rates, or comparison of non-comparable policies is prohibited.

MGA's

a) A company may not accept business from a managing general agent, and a managing general agent may not place business with a company unless there is a valid written contract relating to responsibilities of both parties, cancellation or termination, reports, records, auditing, and, if applicable, premium. b) An MGA must pass the MGA exam to be licensed. The MGA license does not authorize the license to sell insurance directly to the public.

A nonresident agent resides outside the state of Texas and wishes to transact insurance business within the state of Texas.

a) A general lines agent license may be grants to a nonresident provided the state's licensing requirement are similar to Texas' requirements and that state affords the same privilege to Texas agent (reciprocity.) b) If the applicant is currently licensed in his state of residence, the appropriate official of that state must certify that the applicant holds a valid license in that state and is in good standing c) A nonresident agent is subject to the same fees, qualifications, requirements, and restrictions as a Texas agent, except for the requirement to maintain an office in Texas

False use of statistics

a) Advertisements cannot use statistics that are false or irrelevant b) The source of statistics must be identified in the advertisement.

Other licensing rules:

a) An applicant may take a licensing exam any number of times until passed. b) No one may act as an agent or be paid commissions (except spouses or children f deceased agents) unless duly licensed. c) The fine for operating without a license or with a revoked or suspended license is up to $5,000, 2 years in jail, or both d) Agents must keep TDI informed of their current business address at all times and must notify TDI within 30 days if that address changes. e) Two or more agents holding active licenses of the same type may jointly advertise f) No agent may hold more than one license of the same the currently in effect. g) An agent must surrender his license when requested by the Commissioner after a hearing in Travis County court.

Banks may also be licensed as general lines property and casualty agents, subject to the following requirements:

a) At least one bank office and each individual who will be performing the acts of an insurance agent must be individually license. b) No unlicensed person may share any commissions c) The balance of requirements is the same as that for corporate agencies. A bank may also own a corporate agency, which would meet both sets of requirements. d) Thank bank agency must be separate from the banking operations.

Fraud

a) Enforced by Insurance Fraud Unite b) A fraudulent act is an attempt to defraud an insurer in the course of an insurance transaction. c) Anyone with knowledge of fraudulent act must report it within 30 days d) Must be report to the TDI (Texas Department of Insurance).

Risk Manager

a) For compensation, a risk manager examines, assesses, or evaluates risk for reduction of risks. b) The risk manager also provides advice for reduction of risks to a person who seeks to obtain or renew property and/or casualty insurance in Texas c) This license does not permit the risk manager to sell insurance to the public.

Insurance agent duties & responsibilities to the insurer:

a) If an agent incorrectly implies or tells an insured that there is coverage under a policy when no coverage actually exists under that policy, the insurer could be held liable for the loss. b) The insurer might have to pay the loss but could then have a valid claim against the agent and could sue to recover the amount paid to the insured.

Emergency License

a) Issued when an agent dies or becomes disable to preserve the agent's assets b) No examination required c) Valid for 90 days; may be renewed by the department for an additional 90 days

A corporate general lines P&C agency/partnership must meet additional requirements:

a) It must be a corporation or partnership in good standing in any US state b) At least one officer or partner and anyone doing insurance business must hold an appropriate Texas insurance agent's license c) The corporation or partnership must be able to pay up to $25,000 for any claims made against it. This can be accomplished with a $25,000 bond payable to the TDI or $250,000 errors and omissions policy with a deductible of 10% or less.

Fiduciary Capacity

e) Insurance agents may not pay a referral fee for insurance business f) Insurance agents may not pay any rebate of premiums or commission or any other valuable consideration not specified in the insurance contract as an inducement to purchase insurance. g) A property and casualty (P&C) agent may not knowingly permit a client to purchase higher amounts of insurance against loss by fire than the property is worth

ISR duties include:

• Explaining insurance coverage; • Describing an insurance product; • Quoting premium; and • Accepting premium & issuing binders only with the express prior approval of general lines P&C agent.

Licenses may also be revoked or suspended for:

• No agency appointment; • Intentional misstatement on an application; • Fraud in obtaining a license; • Any act that would serve as grounds for denial of the original license; • Misappropriating money (commingling funds); • Misrepresenting the terms of a contract; • Misstatements to induce the expiration or lapse of a policy (twisting); • Engaging in a fraudulent transaction; • Felony conviction; • Material misrepresentation, with intent to deceive, of the person's status as a public insurance adjuster; • Demonstrated incompetence or untrustworthiness. • Rebating; or • Not selling to the public (controlled business).

TDI may issue a surplus lines license after an agent has:

• Submitted the annual fee of $50; • Submitted a completed application; • Passed the examination

MGAs who wish to also sell insurance must have the appropriate license - Concurrent license:

(1) An MGA may hold any other agent license for which he is eligible (2) The agent may not engage in the life insurance business, health and accident insurance business, or annuity business.

MGA duties/acts:

(1) Receive and pass on daily reports and monthly accounts (2) Receive and be responsible for agency balances (3) Handle adjustment of losses (4) Appoint direct general lines property and casualty agents or special agents in Texas

Referral Business and insurance company appointments

1. A licensed general lines property and casualty agent who does not have an appointment from a particular insurance company may refer an application for insurance to another general lines property and casualty agent or to a managing general agent (MGA) who does have an appointment with that company. 2. If a policy is issues, the agent with the appointment may share commissions with the agent who does not have an appointment. 3. The general lines P&C agent without the appointment may prepare an application and collect and remit the premium owed to the agent who issued the policy. 4. The general lines P&C agent without the appointment may also deliver the policy and any endorsements to the insured and should be regarded as the agent of the insured, but will not be considered as an agent of the company for any purpose. 5. The general lines P&C agent without the appointment must also give written notice to the insured that the agent is not authorized to bind coverage or to execute or issue a policy for the risk. 6. The agent without the company appointment cannot sign or execute policies or issue binder or endorsements.

Termination of appointment

1. Insurers are required to notify the TDI of the termination of all agents for cause and file with the TDI a statement of the facts regarding termination 2. If an agent terminates a sub-agent, the agent must report the termination to the TDI, and the sub-agent cannot work for the agent. 3. After an agency contact has been in effect for 2 years, a company may not cancel the contract without giving the agent at least 6 months' advance notice of cancellation. 4. The agent may waive the 6 months' advances notice if desired. 5. The company must renew all policies for 6 months after the date of termination, provided that the risk meets the company's current underwriting guidelines; however the company does not have to accept any increases in hazard or any new liabilities. 6. Loss of appointment does not result in loss of license.

License Renewal

1. License renew every two years on the anniversary of license issuance. 2. If a license lapses for less than 90d days, the licensee must pay a 50% penalty with the renewal fee 3. If the license lapses for more than 90 days but less than 1 year, the license may not be renewed, instead a new license will be issue and the agent must pay all back penalties and fee. 4. If the license lapses for a 1 year or longer, the agent must retake the licensing examination and pay examination and licensing fees.

Managing general agent (MGA)

A person, firm, or corporation that has supervisory responsibility for the local agency and field operations of an insurance company within Texas if authorized by the carriers in this state.

Temporary License

A temporary agent may be appointed for life insurance or casualty products for a period of 90 days. The entity (agent, insurer, or HMO) considering an appointee for full time appointment must make the appointment. The temporary agent must complete 40 hours of instruction within 14 days of appointment (10 hours must be in the classroom). There is no written exam requirement. A temporary license cannot be renewed or issued more than once in a 6-month period.

Unfair claims practices include the following acts

a) Misrepresenting facts regarding coverage b) Failure to promptly acknowledge communication (15 days is acceptable to TDI) c) Failure to adopt reasonable standards for handling of claims d) Not attempting in good faith to have prompt, fair and equitable settlement of a claim in which liability has become reasonably clear e) Compelling policyholders to sue because they cannot recover amounts due by offering substantially less than the amounts ultimately recovered f) Failure of insurer to maintain a complete record of all complaints it has received within the last 3 years or since the date of its more recent financial examination by the Insurance Commissioner g) Failing to promptly provide claim forms for a claims settlement. h) Not attempting to act in good faith to settle claims where liability is reasonably clear in order to influence settlement under other portions of the policy i) Failing to promptly provide the policyholder with a reasonable explanation of the basis in the insurance policy of the denial of a claim or for the offer of a compromised settlement j) Failing to deny or affirm a claim within 15 business days from receipt of information requested by insurer. k) Refusal, failure, or unreasonably delayed offer of settlement under first-party coverage on the basis that other coverage may be available l) Attempting to settle a claim for less than the amount that a person would have believed was acceptable by reference to an advertisement m) Undertaking to enforce a full and final release from a policyholder when only a partial payment has been made n) Failing to establish a policy and proper control to make certain that agent's calculation and deliver funds due und3er policy provisions regarding cancellation of coverage. o) Refusing to pay claims without conducting a reasonable investigation p) Failing to respond to claimants' questions q) For Texas personal auto policies, denying claims because there is other insurance of a different type available to partially or entirely satisfy the loss forming the basis of the claim; the claimant is entitle to choose under which coverage and in what order payment is to be made. r) Violation of the Insurance Code 542.051 to 542.061 (Prompt Payment of Claims) • Insurer must acknowledge receipt of claim within 15 days of receipt. • Once the claim is accepted, the insurer must send payment within 5 business days • In the event of a weather-related catastrophe or major natural disaster, the deadlines are extended for an additional 15 days s) Requiring claimants to produce federal income tax returns for investigation unless the claim is a fire or loss of income claim

Misrepresentation

a) Misrepresenting terms, benefits, or advantages of any policy or the dividends or share of the surplus to be received, or making false or misleading statements as to dividend or shares of surplus previously paid on similar policies. b) Making any misrepresentation to any policy holder for the purpose of inducing or tending to induce that person to lapse or surrender his insurance (also known as twisting)

Disparagement

a) No advertisement may contain untrue or misleading statements with respect to another insurer's assets, corporate structure, financial standing, age, or relative position of the insurance company in the industry. b) No Advertisement may disparage competition or their policies, services, or business methods

Unlawful inducement

a) No insurance company or agent may stat or imply a guarantee of return of premium as an inducement to purchase insurance b) An advertisement may not imply anything offering a guarantee of contractual right of financial value outside the express terms of the insurance contract.

Testimonials

a) Testimonials must be genuine, represent current opinion of the author, be applied to advertised policy, and be accurately reproduced. b) Advertisements cannot state or imply that the insurer or agent is endorsed by the state or federal government or by and individual, group of individuals, society, association, or organization unless such is fact and unless any proprietary relationship between the entity and the agent or insurer is disclosed. c) If a person is being compensated for the testimonial, that fact must be indicated in the advertisement

Insurance agent duties & responsibilities to the insured:

a) To meet the client's insurance needs and make proper recommendations with regard to coverage b) If an agent fails to recommend a needed coverage or leaves a coverage gap that results in a loss that is not covered, the insured may have a valid claim against the agent.

Penalties

a) Violation of the Unfair Competition and Unfair Practices Law may result in conviction for a Class A misdemeanor, a $500 fine, and/or six months in jail per violation, in addition to any other penalty. b) By giving 10 days' notice of hearing the Commissioner may, after the hearing, suspend or cancel the certificate or license of a company or person violation this law