Licensing CH2

Penalties

A person convicted of violation is subject to punishment by a civil fine of up to $50,000 per act or in an amount received or provided in the course of the violation, whichever is greater, or imprisonment for a maximum of 10 years, or both penalties.

Exception

Anyone who is convicted of a criminal felony that involves a breach of trust, dishonesty, or a violation of this Act is prohibited from engaging in the business of insurance without first obtaining a waiver of written consent from the appropriate state insurance department Commissioner in the jurisdiction that the person intends to engage in the business of insurance. Any person who fails to obtain such written consent is subject to federal criminal and civil penalties, and administrative actions. Waiver: Under the act, it is a criminal offense for an individual who has been convicted of a felony involving dishonesty or breach of trust or any violations of 18 USC 1033, 1034 to engage or participate in the business of insurance unless that person has first obtained the written consent of the appropriate regulatory official (Commissioner/ Director). Test Point: A person must have written consent from the director/ commissioner to sell insurance if they have been convicted of a felony. It is a criminal offense if they do not get the waiver.

Each state has its own department or division of insurance headed by a _______

Commissioner/superintendent/director

Consumer Reporting Agencies

Consumer reporting agencies compile and maintain credit information about consumers nationwide, and issue credit reports to third parties who have a valid business need for the information. Consumers have the right to request removal of their name and address from lists provided to consumer reporting agencies for any consumer report that was not commenced by a credit or insurance transaction of the consumer. Credit reporting agencies must provide consumers with a way to notify agencies that they do not want their information used. This includes providing consumers with a toll-free number to call. Consumers notifying agencies by phone can request a two-year hold on information; however, if a request is made in writing, the hold on information is permanent unless withdrawn by the consumer.

FTC Intervention

In the 1950s The Federal Trade Commission (FTC) wanted to control health insurance advertising and sales literature. However, in 1958 the Supreme Court asserted that the McCarran-Ferguson Act prohibits supervision of the insurance industry by a federal agency. Since then the FTC has tried to control the insurance industry, but has been unsuccessful.

SEC Intervention

In the 1950s the issue arose of how variable annuities would be regulated: by states or as securities products through the Securities and Exchange Commission. The Supreme Court ruled that variable products (variable life and annuities) are securities and would be regulated as such.

Notice of Disclosure Authorization

Insurers must provide insurance applicants advance notice of the insurer's privacy practices in writing

list the instances in which insurers should provide notice to applicants and insureds regarding personally identifiable information:

Insurers must provide privacy policy information to individuals when the policy is delivered (at the latest) and annually. When a policy is renewed, notice must be provided by the date of renewal. For policy reinstatements, the insurer must provide notice to the applicant/insured when the reinstatement request is made. For changes to policy benefits, the insurer must provide the insured with a notice when the policy change request is made. For a third party interview regarding an applicant, the insurer must provide the applicant with notice upon collection of information. For an applicant interview, the insurer must provide the applicant with notice when the policy is delivered.

12 exemptions upon which an individual's written consent is not required in order to release personally identifiable information:

On a "need to know" basis within an agency Disclosures required by the Freedom of Information Act For routine uses within an agency For the Bureau of the Census to perform a census or survey If used strictly for statistical research or reporting record To the National Archives and Records Administration as a record which has sufficient historical or other value A request made by law enforcement For circumstances affecting the health or safety of an individual To Congress To a general accounting office Court-ordered To a consumer reporting agency (debt collection)

Guaranty Associations

State life and health guaranty associations provide a safety net for all member life, health and annuities insurers in a particular state. Guaranty associations protect insureds in the event of insurer insolvency, or inability to pay claims. Guaranty associations protect the insurer, which in turn protects the insured. All life, health and annuities insurers within a state are required to be members of the state guaranty association, unless exempt (i.e., fraternal benefit societies and nonprofit insurers). There is a dollar limit to how much a guaranty association will pay per policy and per insured. Each state has its own set of limits, such as: $200,000 for life insurance death benefits, $100,000 for life insurance cash surrender and $100,000 for health insurance benefits. Insurance producers are not permitted to use the existence of a state guaranty association to induce a sale of insurance or annuities. Check your state specific dollar amounts in the supplement.

Privacy Act of 1974

Statute that establishes a code of fair information practices dictating how information is handled by federal agencies.

Penalties

The Commissioner of each state has the power to investigate insurers to verify compliance with the Privacy Act. The Commissioner may order a hearing if he believes a person or insurer is in violation of the Privacy Act, and issue a cease and desist order if that person or insurer is found to be in violation. The Commissioner may issue a maximum fine of $10,000 for each occurrence in which a person or insurer continues to violate the Privacy Act after a cease and desist order has been issued. Repetitive violations that indicate a general business practice are punishable by a fine of up to $50,000 per violation. Any person who obtains personal or private information without good reason is subject to one year in jail and a maximum fine of $10,000.

Consumer Rights

The FCRA requires that applicants receive a notice upon policy application that a credit report may be performed. Consumers have the right to know what is in their credit reports and who has obtained their credit report within the prior year. If an insurer declines to offer coverage or must modify the coverage as a result of the information provided in a consumer or investigative report, the insurer must provide the consumer with the name of the credit reporting agency and address. Consumers have the right to dispute a credit report requiring the credit-reporting agency to perform a reinvestigation. If the credit report is discovered to be inaccurate, the report must be corrected and sent to all parties who received a credit report from the agency within the prior two years. A credit report that prompts an adverse action must be provided to the consumer with a statement of the consumer's rights in writing prior to carrying out the adverse action. Notice must be given at time of Application.

Gramm-Leach-Bliley Act (GLBA), Financial Services Modernization Act of 1999

The Financial Services Modernization Act was passed in 1999 with the purpose of allowing financial entities, such as banks, to merge and create greater competition. This law repealed the Glass-Steagall Act, giving insurers the ability to merge with banks, and either financial institution to perform the duties of both. Regardless, its respective state insurance department regulates any entity acting as an insurer. The GLBA defines a consumer as an individual who obtains financial products or services that are to be used primarily for personal, family, or household purposes from a financial institution. Customer is a consumer who has an ongoing relationship with a financial institution.

Collection and Disclosure of Customers' Personal Financial Information

The GLBA defines collection of information as that which is organized by a person's name or personally identifiable number, such as a Social Security number or insurance policy number. The GLBA protects against the disclosure of nonpublic personally identifiable information. The first disclosure must be made when the customer relationship is established. Two disclosures must be made to customers. The first disclosure must be made when the customer relationship is established. This occurs when a consumer becomes a customer, such as when an insurance policy is purchased. At this time, the company provides the customer with their privacy policies. The company must provide customers with an update of privacy policies on an annual basis. The second disclosure must be made before disclosure of protected information. At this time, the company must provide the customer with an opportunity to opt-out of this disclosure, and instructions for how to opt-out. The disclosure will indicate to what the opt-out applies. The opt-out must be in writing.

National Association of Insurance Commissioners (NAIC)

The National Association of Insurance Commissioners (NAIC) is a membership association of state insurance commissioners. The purpose of the organization is to advance the uniformity of regulation between states in insurance matters without encouraging the imposition of federal regulation. The NAIC does not have legal authority, but has done much to promote the standardization of insurance laws and regulations among the states including the model laws for individual accident and sickness policy provisions, standard valuation laws, and nonforfeiture benefits.

National Association of Insurance and Financial Advisors (NAIFA)

The National Association of Insurance and Financial Advisors, or NAIFA, is an association that works for the best interest of policyholders and seeks to broaden the opportunity and advancement of the individual agent. NAIFA represents the interest of insurance professionals and advocates for a positive legislative and regulatory environment, enhanced business and professional skills and the promotion of ethical conduct of insurance professionals.

Consumer Reports Prohibited Information

The following information may not be included in consumer reports unless the consumer credit report is requested for life insurance policies with a face amount of $150,000 or more: Bankruptcies dating back more than 10 years Civil suits and judgments dating back more than seven years or cases in which the statute of limitations has expired, whichever period is longer Tax liens dating back more than seven years Adverse information dating back more than seven years Reports of a consumer's arrests, indictments or convictions

Fraud and False Statements

The purpose of Fraud and False Statements legislation is to provide punishment for people who willfully engage in insurance fraud or make false statements that affect insurance business and interstate commerce. Commissioners, insurers, agents, and employees of insurers are subject to the provisions of the act. Whoever is engaged in the business of insurance whose activities affect interstate commerce will be punished if they: Knowingly, with the intent to deceive, makes any false material statement or report, or Overvalues land, property or security in connection with any financial reports or documents presented to any insurance regulatory official or agency to examine the affairs of such person, and for the purpose of influencing the actions of such official, agency, or examiner. The attorney general can bring a civil action against a person for engaging in fraud or false statements.

National Conference of Insurance Legislators (NCOIL)

The purpose of the National Conference of Insurance Legislators, or NCOIL, is to help state legislators make informed decisions regarding insurance issues, to improve the quality of insurance regulation, and to combat the federal government from encroaching on each state's control of insurance regulations.

Paul v. Virginia

U.S. Supreme Court ruled that insurance transactions crossing state lines are not interstate commerce This legislation lasted for 75 years until 1944 with the United States v. South-Eastern Underwriters Association case

McCarran Ferguson Act/ Public Law 15

passed by Congress on March 9, 1945 states that while the federal government has the authority to regulate the insurance industry, it would not exercise its right if the insurance industry were regulated effectively and adequately on the state level

Fair Credit Reporting Act (FCRA)

passed in 1970 with the purpose of regulating the way credit information is collected and used. The Act requires consumer-reporting agencies to implement policies and procedures to preserve the confidentiality, accuracy, relevance, and appropriate utilization of consumer's private credit information. There are two types of reports insurance underwriters will utilize to obtain credit information about an applicant: Consumer Reports and Investigative Consumer Reports. Pretext interviews are a third source of information, but are usually prohibited by law. Consumer Reports are any written, oral, or other communication of information by a consumer reporting agency about a consumer's credit worthiness, character, general reputation, personal characteristics or mode of living which are used to determine a consumer's eligibility for credit, insurance, employment, or other authorized purposes. The person seeking a consumer report on an individual must have a valid business need for the information. Investigative Consumer Reports contain information on a consumer's character, general reputation, personal characteristics, or mode of living, but are obtained through personal interviews with neighbors, friends, or associates of the consumer. Investigative consumer reports do not use credit information from creditors, credit records, or credit reporting agencies. Investigative consumer reports cannot be performed unless the consumer has been notified in writing of the report within three days of when the report was initially requested. Consumers must be informed at the time of application that a consumer report may be requested. Consumers must be informed that they have the right to request additional information about the report; such information must be provided to consumers within five days, if requested. Consumers must be informed at the time of application that a consumer report may be requested, regardless of whether a report is actually ordered or not. Consumers should also be informed that they have the right to request additional information about the report, such as the name of the company that provided them with a report. Such additional information must be provided to consumers within five days, if requested. Note, however, that the insurance company cannot tell the client what was in the report or why the client has been denied. Pretext interviews are interviews in which the interviewer assumes a false identity or refuses to disclose their true identity and interviews a person without disclosing the true purpose of the interview. A Pretext interview is forbidden by law except in cases where there is substantial evidence of fraud, criminal activity or misrepresentation.

Penalties

persons accessing credit information are subject to civil and criminal action for failure to comply with the Fair Credit Reporting Act. Persons who fail to comply may be subject to pay a criminal penalty of up to $50,000.

United States v. South-Eastern Underwriters Association

ruled that insurance transactions crossing state lines are interstate commerce and are subject to federal regulation. overruled court decision of Paul v. Virginia in 1944

The insurance industry is primarily regulated on a _____ basis

state-by-state