Unit 3

If you aren't a surplus lines broker, the following acts are prohibited...

-Act as an agent for a non-admitted insurer -Advertise a non-admitted insurer -Aid a non-admitted insurer in transacting insurance -Advertises qualification advising the public concerning insurance or to administer workers' compensation for employees

IC must give a hearing before denying a license application if...

-Applicant is not qualified to perform the duties -Granting of the license will be against public interest -Applicant is not of good business reputation -Applicant lacks integrity -Applicant has been denied a professional, occupational, or vocational license by some other licensing authority -Applicant seeks a license to avoid or prevent the enforcement of the Insurance Code -Applicant has a knowingly/willfully made a misstatement in the license application -Applicant has previously engaged in fraudulent or dishonest business activities -Applicant has shown incompetence or untrustworthy in the conduct of business -Applicant has knowingly misrepresented the terms of an insurance policy -Applicant has been convicted of a felony or misdemeanor violation of the Insurance Code

What client file records must be kept?

-Binders -Applications -Correspondence and notes from conversation -Which person handled the transaction *Must be retained for 18 months from the date of the transaction to satisfy the requirements of the code*

Licenses are terminated if...

-Delivered to the insurance commissioner -For insurers, written notice to the IC -Licensee dies -Licensee dissolves (if a corporation) -Death or termination of the business's transactor -Change of partnership. Partners can transact business under the old one if they apply for anew one within 30 days

Producer's responsibilities with respect to premium financing

-Disclose to the insured any compensation received from the premium finance company -Maintain records of compensation from premium finance companies for 3 years -Tell an insured about financing or installment options available through the insurer before arranging financing through an outside premium finance company -Disclose in writing the interest rate, finance charge, and other information as required by the federal Truth in Lending Act. -Must send the policyholder a copy of the required documents within 72 hours when premium financing is arranged by phone

Display requirements for the license number

-Displayed on business cards and written price quotations for insurance products and printed advertisements. -Must be in the same size type as the address, fax, and phone number -Transactors on an organizational license must use the license of the organization

Types of Authority an Agent Can Have

-Express authority -Implied authority -Apparent authority

Transacting Insurance W/O License

-Guilty of a misdemeanor -Punishable by fine not exceeding $50,000 or prison up to one year, or both

IC may deny a license application w/o hearing if..

-Has a final conviction of a felony -Has a final conviction of a misdemeanor violation of the Insurance Code -Had a previous license application denied within the last 5 years -Had a previous license suspended or revoked within the last 5 years *same criteria apply to the suspension or revocation of a license*

CDI won't approve a fictitious business name if..

-It is being used by another licensee or it is similar to another licensee's name -It may mislead the public -It states or implies that the licensee is an underwriter. Licensees who have earned the CPCU designation may use it -It implies that the licensee is an insurer -The applicant already has more than two names approved by the CDI

Necessary information when advertising on internet

-Name as it appears on the license -Any fictitious name that has been approved by the CDI -Licensee's state of domicile -Licensee's principal business address -License number

What accounting records must be kept for agency billed policies?

-Name of the insured and insurer -Policy number and policy period -Gross and net premium -Return premium, if any, and how it was transmitted to the policyholder. -Commissions and who received them -Dates and amounts of payments received from the insured -When payments were deposited in the trust account -Bank name, address, and account number of the trust account -Bank name, address, and account number of trust account -Trust account statement -Canceled checks from the trust account -Records of trust account deposits

Characteristics of E & O

-Not standard -They are usually on a claims-made basis, which means that the policy responds only if the claim is made during the current policy period -They usually cover defense costs as well as damages -Defense costs usually reduce the policy limit -The insuring agreement usually promises to pay for damages arising from the rendering or failure to render professional services

Standards of behavior found in codes of ethics

-Place your customer's interest first -Know your job and continue to increase your level of competence -Identify the customer's needs and recommend products and services that meet those needs -Accurately and truthfully represent products and services -Use simple language -Stay in touch with customers and conduct periodic coverage reviews -Keep informed of and obey all insurance laws and regulations -Provide exemplary service to your clients -Avoid unfair or inaccurate remarks about the competition

What records must be kept for direct bill policies?

-Policy declarations -Copies of receipts for premiums collected by the producer -Records of when producer-collected premiums were paid to the company -Monthly company direct bill statements -Cancellation notices *Must keep these records for 5 years from the expiration of the policy*

Agent's duties with respect to insurance certificates

-Show only those coverages and provisions included in the policy -Promise the certificate holder advance notice of cancellation only when the company agrees to this provision -Send the insurer a copy of the certificate when required

Transacting Insurance

-Solicitation -Negotiation before inception of a policy -Execution of a contract of insurance -Transacting of matters subsequent to the execution of the contract and arising out of it

Producer

A broker or agent who sells insurance.

Surplus Line Broker

A broker who may place business with a non-admitted insurer. Surplus line brokers must maintain a $50,000 surplus line broker's bond.

Insurance Solicitor

A natural person employed to aid a broker-agent in transacting insurance, other than life, disability or life insurance.

Agent

A person who is authorized to act on behalf of another person, known as the principal.

Public Insurance Adjuster

Acts on behalf of an insured to negotiate and settle claims and is compensated by the insured, usually a percentage of the claim settlement. Must be licensed.

Limited Lines Automobile Insurance

Appointed by an insurer as an "agent" to sell only insurance for private passenger automobiles including motorcycles. Broker fees are not permitted with this license.

Insurance Agent

Appointed by and transacts insurance on behalf of an admitted insurer. An agent represents the company when transacting insurance.

Special Lines Surplus Line Broker

Broker who may place insurance with a non-admitted insurer, but the authority is restricted to only certain types of coverage: reinsurance, ocean marine, aviation, and property and operations of railroads. $10,000 broker bond is required

What is a direct bill policy?

Carrier sends bill to the insured. The insured sends money to the carrier, and the carrier sends the commission to the producer.

Why do insurance agents and brokers need E & O?

Clients sue claiming financial loss caused by a broker-agent because of failure to: -Bind coverage -Renew coverage -Recommend adequate limits -Explain coverage limitations and exclusions *Insurers may sue agents whose negligent actions cause them to pay losses that otherwise would not be paid*

Producer's fiduciary duties under the code are...

Collects premiums and remits them to the insurer, usually retaining a commission. Those are the fiduciary funds. They must be kept in a separate bank account, normally called the trust account, fiduciary account, or premium account. Funds may not be co-mingled.

Penalties for failure to keep required records

Commissioner may request a licensee to establish or reconstruct records within 60 days. Failure to comply is grounds for suspension or revocation of the license.

What does Fiduciary mean?

Denotes confidence or trust. Fiduciary duties often include collecting premiums from insureds and remitting them to the companies. Fiduciary relationship, one party relies on the advice or services of another with respect to assets or financial affairs.

E & O doesn't cover...

Dishonest, fraudulent, or malicious acts. Also excludes claims for bodily injury and property damage because such claims are covered by the CGL. Other exclusions: investment advice, alleged discrimination or unfair competition, punitive damages if awarded.

Agent's responsibilities with respect to policy renewals

For policies that don't renew automatically -Determine in advance what changes should be made -Order the renewal policy -Issue a binder if the policy is not received before the renewal date -Verify that the renewal policy is actually issued -Bill and collect the renewal premium -Send or deliver the policy to the insured

Why must agents maintain a suspense/diary system?

For tracking renewals, expiring binders, pending endorsement requests, and other similar items.

Administrator

Has a contract with an insurer to handle life or group health insurance premium collections and claims for California residents.

When must a licensee notify the CDI of an address change?

Immediately. Principle office is on the license application.

Independent Adjuster

Independent contractor (non an employee) engaged by an insurer to adjust claims on its behalf. Must be licensed

Insurance Adjuster

Investigates and adjusts claims on behalf of an insurer. If the person is an employee of an admitted insurer, he/she does not have to be licensed.

Insurance Broker

Is a person who, for compensation and on behalf of another person, transacts insurance, but not on behalf of an admitted insurer. Because a broker represents the client and not the insurance company. Has no binding authority.

Pretext Interview

Is one in which the interviewer pretends to be someone else or misrepresents the purpose of the interview. Insurer and its agents may not use a pretext interview to obtain underwriting information.

Implied Authority

Is scope of agent's authority which may go beyond the written agency contract. Ex: Agent didn't have authority to collect premiums, and didn't tell that to an insured, the courts would deem such authority did exist because the public would reasonably expect it.

MGA

Managing general agent. A licensed agent appointed by an admitted insurer with authority to handle certain company functions in a specific territory. Essentially acts as the insurance company.

Property and Casualty Licensee

May transact all classes of insurance except life, disability, or health insurance.

Personal Lines Licensee

May transact only personal lines coverages: personal auto, recreational vehicles, personal watercraft, residential property (including earthquake, flood, and personal inland marine) and personal umbrella.

When must a licensee file a renewal application?

Must be filed on or before the last day of the current license period. Allows licensee to continue transacting insurance for 60 days on the expired license, unless CDI sends notice that the renewal application is deficient. It is renewed every 2 years.

Producer's underwriting duties

Producer is eyes and ears of insurance company. Producer has massive underwriting duties because producer is the source of all relevant information.

Exception to the co-mingle rule

Producer may keep some of his or her own funds in the trust account for return commissions and for the purpose of advancing premiums. Producer may also use return premiums on one policy to offset premiums due from the same insured on another policy.

Evidence of Property Insurance

Provides a coverage statement for mortgagees, additional insureds, and loss payees. Summarizes the policy coverage. It differs by giving the holder of the form all the rights that go with the policy including notice of cancellation.

Apparent Authority

Results from the principal's failure to protest when the agent exceeds the express authority. The consumer cannot be expected to know extent of agent's binding authority.

Senior Citizens

Should be given special ethical considerations when conducting pretext interviews since they make easy targets for high pressure and fraudulent tactics.

Express Authority

Specifically granted in a contract. Ex: Agency agreements often give an agent binding authority to issue certain policies, collect premiums, and adjust small first party losses.

Definition of Ethics

The system or code of morals of a particular philosopher, religion, group, or profession.