Pennsylvania P&C Licensing Exam: Ch. 1

What are the qualifications of an applicant?

- 18 years or older - Must be able to read and write in English, with or without visual or mechanical aids for the visually handicapped - Must not have committed any acts prohibited under the licensing regulations - Must have paid all applicable fees - Must possess the professional competence and general fitness and integrity of character sufficient to satisfy the department that the applicant is worth of licensure - Must pass the appropriate exam unless exempt - Must maintain a business or legal address in Pennsylvania - Initial resident producer applicants are required to be fingerprinted, even if your exam was waived

Consent Agreement

- A written agreement in which an accused person does not admit or deny the charges but consents to payment of the civil penalty - May not be used in a subsequent civil/criminal proceeding, but notification is sent to the licensing authority

Temporary License

- Could be issued to an individual due to the death, disability, or active military service of a licensed producer - Issued for a period not to exceed 180 days and is not transferable

Manager

- Person who negotiates and binds ceding reinsurance contracts on behalf of a domestic insurer - Manages all or part of the insurance business of an insurer - Does not act as an agent for such insurer

What is a producer's fiduciary responsibility?

- Producers are required to act honestly and faithfully with all premiums collected. - A producer must keep all insurance premium funds separate from the producer's own funds or other agency funds, unless they have express consent of the insurance entity on whose behalf the funds were collected, to mingle (co-mingle) the funds) - Must maintain a complete and accurate accounting of such funds

How do you maintain an insurance license (renewal fees, education requirements)?

- Resident renewal fee: $55 - Non-resident renewal fee: $110 - Lapsed renewal fee: $165 Each licensee must complete 24 hours of approved continuing education for each two-year license period

A Temporary License is used until...

- The business is sold or transferred - The producer recovers and returns to the business - New personnel are trained and licensed to operate the business

Those persons who qualify for a Temporary License include:

- The surviving spouse or representative of a deceased individual producer or who becomes mentally or physically disabled - The designee of an individual licensee who enters active service in the US armed forces - Persons involved in any other situation in which the commissioner determines the public interest would be served

What activities carry disciplinary actions from the Insurance Department?

1) Acting as a producer without a license 2) Doing business with unlicensed persons 3) Representing or advertising as a producer for an non-admitted insurer 4) Soliciting applications or insurance for non-existent entities 5) Rebating 6) Misrepresentation - Twisting - Illegal inducement 7) Larceny

What are the four types of licenses issued?

1) Resident Producer 2) Non-Resident Insurance Producer 3) Temporary Licenses 4) Managers & Exclusive General Agents

What are the timeframes for reporting criminal convictions and address changes?

30 days

How does license lapse and reinstatement work?

A licensee who allows the license to lapse by failing to renew the license on a timely basis may request reinstatement of the license within one year of the renewal date. However, the first 60 days following the lapse are critical. If a licensee requests reinstatement within the first 60 days, the license will be reinstated retroactively, back to the date that the license lapsed. If not, the license will not be retroactive and there will be a gap in the period during which the producer was licensed.

Explain how the waiver requirement works for the active military and other extenuating circumstances

A licensee who is unable to timely comply with the requirements of license renewal as a result of military service or other extenuating circumstance may request the department to waive the requirements of having to complete continuing education for the period in which the license had lapsed and payment of the lapsed license fee

How does the waiver requirement work for active military and other extenuating circumstances?

A licensee who is unable to timely comply with the requirements of license renewal as a result of military service or other extenuating circumstances may request the department to waive the requirements of having to complete continuing education for the period in which the license had lapsed and payment of the lapsed license fee

Exclusive General Agent

A licensee: - Which has been granted sole authority to act directly or indirectly as an insurance producer for a domestic insurer with respect to a specific portion of the insured's business or within a specific territory - Which has authority to bind coverage; and - Either separately or together with affiliates or sub-producers produces and underwrites in any one year, direct written premium equal to or more than 25% of surplus as regards policyholders reported in the last annual statement

Producer

An individual or business entity that sells, solicits, or negotiates contracts of insurance

Certificate of Authority

Certifies that an insurance company can transact insurance as an admitted carrier by the Commonwealth

Who is allowed to be paid commission and fees?

Commission on the sale of insurance may be paid to only licensed persons with two exceptions: 1) A nominal fee may be paid to an unlicensed person for referring a prospective client to a producer. The referring person is not allowed to discuss specific terms with the producer 2) Renewal commission may be paid to a person who was licensed at the time the policy was written but whose license has since expired A producer may charge a fee in addition to commission on the sale of commercial business; however, this fee must be disclosed in advance in writing No commission can be paid to a producer if their license is under suspension or their license has been revoked

Misrepresentations

False statements including: - Twisting - Illegal inducement

Gramm-Leach Bliley Act

Federal legislation that requires states to create minimum standards for maintaining the privacy of information secured as a result of application for, the underwriting of, and the continuing servicing of insurance. There are four requirements: 1) Insurers and producers are required to advise their prospects and customers whether an dhow any personal, private, financial information may be shared and with whom 2) Customers must be given the option to "opt out" of any sharing of such private information 3) The requirements specify that an initial privacy notice must be provided to consumers and customers at the initial contact. An annual privacy notice must be given to all customers 4) This creates an additional responsibility on the part of agents and brokers to make certain that specified personal financial information is kept secure and not shared with anyone not authorized by the clients

Fair Credit Reporting Act

Federal statute that was passed to protect consumers from inaccurate and unfair information contained in files or reports of credit reporting agencies

Explain the process companies must follow in filing rates and forms in Pennsylvania

Filing - Every insurer must file with the Pennsylvania Insurance Commissioner every manual, class rate, rating schedule, or rating plan and any modification it uses. The filing must state the proposed effective date and shall indicate the extent of coverage contemplated. Pennsylvania is a prior approval state which means the the IC must approve all rates and deviations prior to them being used. Policy Forms - Insurers are required to send all policy forms, applications, and endorsements to the IC for approval. Forms are considered approved 30 days following filing, unless notice form the IC regarding disapproval is received prior to the end of the 30-day period

What are Managers & Exclusive General Agents?

Firms (licensed producers) who work as independent contractors on behalf of a domestic insurer

Rebating

Giving back a portion of the premium or other valuable consideration

Twisting

Making incomplete comparisons between policies

Illegal inducement

Offering an illegal inducement that causes the insured to enter into an agreement

Boycott

Refusal to have business dealings with other persons or entities until they comply with certain conditions

When the insurance producer works subject to such an appointment, the producer is considered a...

Representative of an insurer - Annual appointment fee of $12.50 for each producer - Once appointed, the producer remains appointed until the insurer terminates in writing or the producer's license is suspended, revoked, or otherwise terminated

When an insurance producer does not have such an appointment, the producer is considered a...

Representative of the consumer - Required to execute a written agreement with the consumer prior to acting on the consumer's behalf

What is the licensing fee for an individual resident and an individual non-resident?

Resident - $55 Non-resident - $110

How do you maintain an insurance license (renewal fees, education requirements)?

Resident renewal fee - $55 Non-resident renewal fee - $110 Lapsed renewal fee - $165 Each licensee must complete 24 hours of approved continuing education for each two-year license period

Intimidation

Resulting in or tending to result in unreasonable restrain of, or monopoly in, the business of insurance

Non-Resident Insurance Producer

Someone who neither lives nor has their office in Pennsylvania and meets the following requirements: - Is licensed as a producer in their home state - Has their principal residence in their home state and/or - Has their principal place of business in their home state

Coercion

The application of physical or mental force to persuade someone to buy insurance

What is the purpose of licensing?

To assure that the public is treated fairly and equitably by those who sell and distribute insurance

Solvency

To make sure that insurance companies doing business in Pennsylvania are financially sound, so that they can pay the present and future claims of policy holders

Appointment

When an insurance producers have a written contract under which they can sell, solicit, or negotiate insurance policies issued by the appointing insurance entity

Misappropriation of Funds

You are not allowed to improperly withhold, steal, or convert money or property received in the course of doing business. This is a theft punishable by law.

What activities carry disciplinary actions from the insurance department?

- Acting as a producer without a license. An insurer shall be responsible for a violation by its employees - Doing business with unlicensed persons - Representing or advertising as a producer for an non-admitted insurer - Soliciting applications or insurance for non-existent entities - Rebating - Misrepresentation - Twisting - Illegal inducement - Larceny

What are the three "rules" in rate making? Rates must be _________, __________, and __________

1) Adequate - The rates the insurance company uses will give it enough money, along with its earning in investment income, to pay projected losses and expenses 2) Not excessive - A rate is considered excessive if the rate is unreasonably high for the type of insurance and the insurance company's losses and expenses are relatively low compared to the cost of the insurance 3) Not unfairly discriminatory - The goal is to charge a fair and legal rate for each class of business which reflects the differences in loss exposure

What are the licensing prerequisites?

1) Complete any necessary pre-licensing requirements 2) Pass the required exam(s) or be exempt for the type of license for which you are applying 3) Apply for a license by submitting the appropriate fee and forms to the Insurance Department

What are the Federal Regulations that affect insurance?

1) Federal Fair Credit Reporting Act 2) Gramm-Leach-Bliley Act 3) Federal Terrorism Risk Insurance Program (TRIA) 4) Motor Carrier Act of 1980 5) Telephone Consumer Protection Act (TCPA) 6) CAN-SPAM Act

What are the general duties and responsibilities of the Insurance Commissioner?

1) Issue, suspend, revoke, non-renew licenses 2) Regulate companies for solvency 3) Investigate complaints 4) Regulate rates, rating plans, and forms 5) Collect fees 6) Regulate trade practices and claim practices 7) Report illegalities to Attorney General

What are the Lines of Authority?

1) Life - Coverage of human lives, including benefits of endowments, annuities, disability income, and accidental death or dismemberment 2) Accident and Health or Sickness - Coverage for sickness, bodily injury or accidental death including disability income 3) Property - Coverage for direct or consequential loss or damage to property of every kind 4) Casualty - Coverage against legal liability, including due to death, injury, disability or damage to real or personal property 5) Variable Life and Annuity - Coverage provided under variable life and variable annuity contracts that involve investment in securities 6) Personal Lines - Property and casualty insurance coverage sold to individuals and families primarily for non-commercial purposes 7) Other lines of authority include - Credit Insurance, Motor Vehicle Rental, and other limited lines as determined by the insurance commissioner

What are the three acts that require someone to have a producer's license?

1) Negotiate - To confer directly with or to offer advice directly to a purchaser or prospective purchaser of a particular contract of insurance concerning benefits, terms, or conditions of the contract, provided that the person engage in that act either sells insurance or obtains insurance from insurers for purchasers 2) Sell - To exchange a contract of insurance by any means for money or its equivalent on behalf of an insurance entity 3) Solicit - To attempt to sell insurance or ask or urge a person to apply for a particular kind of insurance from a particular insurance entity

What are enforcement options for the Insurance Department?

1) Notice - Upon evidence of a violation, the department shall notify the person of the alleged violation. It shall specify the nature of the alleged violation and fix a time and place, at least 10 days thereafter, when a hearing on the matter shall be held 2) Hearing - The department shall conduct the hearing on the violation 3) Evidence - No person shall be excused from testifying or from producing any books, papers, contracts, agreements, or documents at any hearing held by the commissioner on the ground that the testimony or evidence may tend to incriminate that person. 4) Penalties - After the hearing or upon failure of the person to appear at the hearing, if a violation of this act is found, the commissioner may, in addition to any penalty which may be imposed by a court, impose any combination of the following: - Denial, suspension, refusal to renew, or revocation of the license - Civil penalty not to exceed $5K for each action in violation - Cease and desist order - If licensee fails to correct violation within 15 days of notice, the department may assess an administrative fine of no more than $100 a day per violation

Prohibited Acts

A licensee or applicant for a producer shall not: 1) Provide incorrect, misleading, incomplete, or false information to the department in license application 2) Violate the insurance laws or regulations of this Commonwealth or a subpoena or order of the commissioner or of another state's commissioner 3) Obtain or attempt to obtain a license through misrepresentation or fraud 4) Improperly withhold, misappropriate, or convert money or property received in the course of doing business 5) Intentionally misrepresent the terms of an actual or proposed insurance contract or application for insurance 6) Admit to or have been found to have committed any unfair insurance practice or fraud 7) Used fraudulent, coercive, or dishonest practices or demonstrate incompetence, untrustworthiness, or financial irresponsibility in the conduct of doing business 8) Have an insurance producer license or other financial services license, denied, suspended, or revoked by a governmental agency 9) Forge another person's name on an application for insurance or any other document related to an insurance or financial service transaction 10) Cheat on an exam for an insurance producer license 11) Knowingly accept insurance business that was sold, solicited, or negotiated by an unlicensed insurance producer 12) Fail to comply with a court order imposing a child support obligation 13) Fail to pay state income tax or court order directing the payment of state income tax 14) Commit a felony or its equivalent 15) Commit a misdemeanor that involves the misuse or theft of money or property belonging to another person 16) Commit a violation of Sub Article B: Regulation of insurance producers 17) Commit fraud, forgery, dishonest acts or an act involving a breach of fiduciary duty 18) Transfer insurance coverage to an insurer other than the insurer expressly chosen by the insured without the consent of the insured 19) Fail to notify the department of a change of address within 30 days 20) Demonstrate the lack of general fitness, competence or reliability sufficient to satisfy the department that the licensee is worth the licensure

How does license lapse and reinstatement work?

A licensee who allows the license to lapse by failing to renew the license on a timely basis may request reinstatement of the license within one year of the renewal date. However, the first 60 days following the lapse of the license are critical. If a licensee requests reinstatement within the first 60 days, the license will be reinstated retroactively, back to the date that the license lapsed. If not, it will not be retroactive and there will be a gap in the period during which the producer was licensed.