16. The Insurance Marketplace
California Insurance Code defines a variety of specific licenses which may be issued to qualified persons:
- Life-only agent (formerly life agent) - Accident and health agent (formerly life agent) - property and casualty broker-agent - personal lines agent - surplus lines broker
insurance solicitor (pic of text)
A natural person employed to assist a property and casualty broker-agent acting as an insurance agent or insurance broker in transacting insurance other than life, disability, or health A person authorized to act as either an insurance agent or broker is not eligible at the same time to act as an insurance solicitor may: - make prospecting phone calls - set appointments - offer quotes - take applications for insurance other than life insurance requires an insurance solicitor's license there is no such license as "life solicitor"
market regulation
Legislative action is required to change the Insurance Code the word "shall" indicates something is mandatory
Chapter Recap - Part 1
State regulations
A domicile refers to the location where an insurer is incorporated, not necessarily where the insurer conducts business (T/F)
True
An insured who signs a fraudulent claim form may be guilty of perjury (T/F)
True
Dividends associated with mutual companies are nontaxable and not guaranteed (T/F)
True
It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds (T/F)
True
The application and renewal fee for a surplus lines broker is $700 for a 2-year license term (T/F)
True
The major difference between government and private insurance is that the government programs are funded with taxes and serve national and state social purposes, while private policies are funded by premiums (T/F) government:taxes::private:premiums
True
The maximum penalty for transacting insurance without a valid license is:
a misdemeanor a fine up to $50,000 or imprisonment in a county jail for up to 1 year, or both
misc code requirements and specifications
all licensees must report any administrative actions or criminal convictions and background changes to the California Department of Insurance Producer Licensing Bureau within 30 days of the final deposition of the matter insurance licenses are to be renewed every 2 years and have 60 days past the expiration date to fulfill all the renewal requirements and still conduct business The one exception to the license number requirement (must put on all printed materials placed before the public) is: - motor club (AAA, etc.) advertisements which include insurance in a general list of services provided without giving details regarding the insurance products must keep records for 5 years ...see pic for details
agent/producer
an individual licensed to sell, solicit or negotiate insurance contracts on behalf of the principal (insurer) responsible for: - completing applications for insurance - submitting the application to the insurer for underwriting - delivering the policy to the policyowner
certified insurance agent
certified insurance agent an agent certified by the Exchange to transact in the individual and Small Business Health Options Program (SHOP) Exchanges - Covered California is the state's Health Benefit Exchange - assist enrollees with completing the application, tracking their process - help evaluate individuals' health care needs and budget considerations to recommend a plan that works best for each enrollee - provides additional help on an ongoing basis, among other services must be a natural person (not a business) who holds a valid license to transact in accident and health insurance, and is in good standing, and must be recertified every 5 years
law of agency
defines the relationship between the principal and the agent/producer the acts of the agent/producer within the scope of authority are deemed to be the acts of the insurer - an agent represents the insurer, not the insured - any knowledge of the agent is presumed to be knowledge of the insurer - if the agent is working within the conditions of his/her contract, the insurer is fully responsible - when the insured submits payment to the agent, it is the same as submitting a payment to the insurer
domestic, foreign, alien, 5 major US territories
domestic: incorporated within this state (California) foreign: incorporated in another state or territorial posession 5 major US territories: - Puerto Rico - US Virgin Islands - Northern Mariana Islands - American Samoa - Guam alien: incorporated outside the US
earned surplus and policy dividends
earned surplus: unassigned funds, as required to be reported on the insurer's annual statement policy dividends: the underwriting income of mutual insurance companies - not income or profit, but refunds
misc code requirements and specifications (cont'd)
if the insurer identifies a policy form as one to be marketed without an illustration, any use of an illustration for any policy using that form prior to the first policy anniversary is prohibited ... see pic for details
life settlement broker, license requirements (pic of text)
life settlement broker: a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract - represent only the policyowners
direct response marketing
mass marketing of insurance products through mail solicitations, print media advertisements, or television and radio generally low in benefits and premiums "direct response" refers to the necessity of the potential client to take the initiative and respond to the advertisement through a telephone or mail contact with the insurer as directed in the ad
insolvency, paid-in capital
paid-in capital: see pic insolvency: - an inability of the insurer to meet its financial obligations when they are due - any impairment of minimum paid-in capital required of an insurer by the provisions of the Insurance Code for the class, or classes, of insurance that it transacts anywhere
participating vs nonparticipating
participating: policyowners are entitled to dividends nonparticipating: policyowners do not share in profits or losses
Chapter Recap - Part 3
types of insurers
duties upon receipt of communication
upon receiving any inquiry from the Department of Insurance concerning a claim, the licensee must respond within 21 calendar days upon receiving any communication from a claimant (regarding a claim) that reasonably suggests that a response is expected, every licensee must furnish the claimant with a complete response within 15 days see pic for more details once a claim is received, insurers must either accept or deny it within 40 calendar days upon acceptance of a claim: insurers are required to provide payment within 30 days
CLHIGA liability (pic of text)
with respect to a single owner of multiple nongroup policies of life insurance (usually found in business insurance or similar circumstances), the Association is not liable for more than $5,000,000 in benefits, regardless of the number of policies and contracts for health insurance claims, the CLHIGA is obligated to pay the less of the actual covered claims of an insured, but no more than $200,000 in health insurance benefits, adjusted for inflation according to the consumer price index (CPI) health insurance claims do not include the following: - accidental death or dismemberment - workers compensation - long-term care - credit disability, disability income, or indemnity
penalties for insurance fraud
- imprisonment to the county jail for 1 year, or in the state prison, for up to 5 years - fine up to $150,000 or double the value of the fraud, whichever is greater - both imprisonment and fine 2-year enhancement for those with a prior felony conviction
4 principal departments for the major functions of insurers
- marketing or sales - underwriting -> main objective: prevent adverse selection - claims - actuarial -> study the nature of claims and actual claims experience, even factoring in the potential for fraudulent claims and the financial impact of those claims, including investigative fraudulent claims and payments
Private companies can be classified in a variety of ways:
- ownership - authority to transact business - location (domicile, = country) - marketing and distribution systems - rating (financial strength)
purpose, requirements of continuing education (pic of text)
- protect the public by maintaining high standards of professional competence in the insurance industry - maintain and improve the insurance skills and knowledge of licensed producers ...look at pic now those with more than one license can fulfill the requirements for either one Excess hours completed can be carried over to the next renewal period, but cannot exceed the number of hours that are required to renew the license licensees who have been in good standing for 30 continuous years in this state and who are 70 years of age or older are not required to comply with the requirements for continuing education
When a person performs any of the following actions, he or she is transacting insurance (pic of text)
- solicitations of insurance - negotiations preliminary to the execution of a contract - the actual execution of a contract - any transactions that later result from the operation of the contract
California Code of Regulations (CCR)
= California Administrative Code a set of regulations issued by the Department of Insurance that identifies the standards for the Insurance Code, and how it is to be administered
exclusive agent
(=captive = career) agent an agent with a contract with one company exclusivity pros and cons pro: the agent can represent a product that would otherwise be unavailable to the client con: the agent is not able to search throughout the industry for a product which will be more to the client's advantage
administrator (pic of text)
a person who performs life and health insurance-related services such as collecting premiums from, or settling claims on behalf of, insurers and insureds often known as a third-party administrator, this person must meet all the basic requirements of a life agent and have a written agreement with the insurer specifying their responsibilities and compensation arrangements (if any) with the insurer must hold a certificate of registration from the Commissioner of Insurance payments from the insureds to administrators are considered as having been received by the insurer
Insurance Information and Privacy Protection Act
Section 791 of the Insurance Code is concerned with access to, or collection and distribution of, a person's private or privileged information pretext interviews are prohibited except in the investigation of a claim, particularly when fraud is suspected penalties of Section 791 violations: - suspension or loss of license - civil fines for violating cease and desist orders up $10,000 for each violation - up to $50,000 if the violations are found to be committed with a frequency indicating they are a general business practice
(insurance) agents vs brokers
agents legally represent the insurer brokers legally represent their clients insurance agent: a person authorized to transact all classes of insurance on behalf of an admitted insurer other than life, disability, or health insurance insurance broker: a licensee who, for compensation and on behalf of a person other than an insurer, transacts insurance other than life, disability, or accident and health * no such license as "life broker" or "health broker" life licensee: a person authorized to act as a life agent on behalf of a life insurer or a disability insurer to transact life insurance, accident and health insurance, or both
appointment regulations (intro) (diagram)
an insurance agent or producer cannot legally act as an agent of an insurer unless he or she becomes an appointed agent of that insurer an insurance producer who does not act as an agent of an authorized insurer does not need to become appointed in order to validate and legitimatize the agency relationship and the insurance contract, the insurer must submit a notice of appointment within 14 days to the Commissioner an appointment will cease and the licensee will become unable to conduct business to the insurer when any of the following conditions exist: - the licensee loses his/her license - the licensee is terminated or resigns his/her appointment
insurer's qualifications
any person capable of making a contract may be an insurer a person must at least 18 who is legally competent, or any of the following entities: - association - corporation - organization - partnership - business trust - limited liability company any person may be an insurer by meeting the following guidelines of the California Insurance Code: - using acceptable D.B.A ("Doing-Business-As") names - using only licensed agents and brokers - maintaining required financial reserves - submitting all forms, products, premiums, and advertising for approval prior to use
life and disability analyst (pic of lic reqts)
any person who receives a fee or other compensation from any person or source other than an insurance company for the purpose of advising or offering to advise an insured, beneficiary, or other person who has an interest in a life of disability insurance contract about their rights, benefits, or any other aspect of the contract must be properly licensed must take a prelicensing examination no more than 12 months prior to applying for this license must have been licensed as a life, accident, and health insurance agent for at least 5 years
Ch. 16 terminology (preliminary) - Part 1
appointment the authority given by an insurer to an agent to transact insurance on the insurer's behalf cease and desist to stop or discontinue coercion forceful act or threat aimed to influence a person to act against his or her will commission payment to the agent by the insurance company for placing insurance, usually a percentage of the policy premium Commissioner the head of the State Department of Insurance exempt not subject to an obligation inducement an offer that attempts to influence the other party injunction a court issued order to stop committing an act or violation principal insurer (in life insurance)
Uniform Insurers Rehabilitation Act
describes the steps that the Commissioner must take when attempting to either rehabilitate an insolvent or delinquent insurer to sound financial condition or liquidate an insurer that cannot be rehabilitated describes the mandatory action the superior court is required to take when the Commissioner presents a petition for either a conservation or liquidation order
denial, suspension, or revocation, termination of license
...see pic for details any person caught willfully cheating on the licensing exam will be barred from taking any license exam and from holding an active license for 5 years all convictions, at any time in the applicant's past, must be disclosed on the license application - otherwise the the producer's license will be denied A permanent license may be revoked for any of the reasons given for which a license could be denied - if one of the 4 conditions mentioned in the pic exists, a hearing would not be allowed an insurance license automatically terminates if: - licensee: the licensee dies - organization: the partnership, association, or corporation dissolves -> when new partners join, a partnership can continue its license if it files notice within 30 days with the Department and the changes are approved -> when any of the aforementioned organizations cease, they may continue to conduct business under another name if the same people remain involved and the necessary paperwork is completed within 30 days
agency name, use of name
California state regulation has no ability to limit a human being's right to use his/her actual name to conduct the business of insurance to prevent confusing the insurance consumer, the Commissioner may deny use of a name for any of the following reasons: ... see pic for reasons any licensed agent or broker who advertises online must identify the following information, even if the agent or broker is not responsible for maintaining his or her internet presence: - the licensee's name approved by the Commissioner - the state of the licensee's principal place of business - the licensee's license number any person who conducts the following online is deemed to be transacting insurance in this state: - provides insurance premium quotes to California residents - accepts applications from California residents - communicates with California residents regarding terms of an insurance agreement
regulation of admitted and nonadmitted insurers
The Insurance Code provisions limit the insurance that may be placed with nonadmitted insurers to the following: - reinsurance of the liability of an admitted insurer - insurance against perils of navigation, transit, transportation, or other shipowner property, or marine insurance needs - aircraft or spacecraft insurance - insurance on property or operations of railroads in interstate commerce
prohibited acts regarding nonadmitted insurers
The following acts are misdemeanors except when performed by a surplus broker: - acting as an agent for a nonadmitted insurer in the transaction of insurance - advertising a nonadmitted insurer in any way - aiding a nonadmitted insurer to transact insurance in any way fine of $500 with $100 for every month of continuance does not apply to surplus line brokers
Insurers must obtain a Certificate of Authority and/or a license prior to transacting business in this state (T/F) Insurers who are approved to transact business in this state are considered authorized or admitted (T/F) Transaction of insurance business in this state without a certificate of authority is considered a public offense punishable by:
True; True - imprisonment according to the Penal Code - imprisonment in a county jail for up to 1 year - fine up to $100,000 - both fine and imprisonment
An agent (or producer) will always be deemed to represent the insurer, not the insured (T/F) if the insured submits payment to the agent, it is the same as submitting a payment to the ___________
True; insurer
discontinuation and replacement of group life insurance
discontinuance: the termination of a plan of insurance between the insurer and the entire group of employees - does not refer to the termination of benefits with regard to an individual employee whose employment is terminated extension of benefits: provisions established to protect covered persons, employees, or dependents, who are totally disabled prior to the discontinuance or termination of the group insurance - 12 months of continued coverage no loss, no gain: old claims are covered by old policy, new claims are covered by new policy - the covered person would not be entitled to receive more or less benefits than the preceding insurer would have been required to provide
The Commissioner
elected officer in California that cannot be an active agent, officer, director, or employee of an insurance company may be elected to serve no more than 2 consecutive 4-year terms has no power or authority to write or change the law but has the authority to enforce the law oversees the California Department of Insurance (CDI) and directs all of the CDI's affairs and staff can appoint persons to act on his or her behalf can issue cease and desist orders - impose a fine up to $5,000 for each day the order is violated provides to the insurer a description of any complaint against the insurer at least 30 days prior to a public release of a report summarizing the information required
California Financial Information Privacy Act
enacted to provide consumers the ability to control how consumer nonpublic personal information is shared or sold to third-party financial institutions designed to provide greater privacy protections than those under the federal Gramm-Leach-Bliley Act (GLBA) restricts financial profiling of consumers and makes consumers aware of their rights through a clearly written and easy-to-understand notice, which provide the consumer the ability to opt-in or opt-out of sharing nonpublic personal information nonpublic personal information refers to personally identifiable information collected by a financial institution by way of the consumer providing it, a transaction between the institution and consumer, or other means ...see pic for details a financial institution is not required to obtain a consumer's consent if nonpublic personal information is shared with its wholly owned financial institution subsidiaries violations: up to $2,500 per violation of one's consumer information being released, or $500,000 for multiple consumers
California Life and Health Insurance Guarantee Association (CLHIGA)
exists to pay claims of insureds or beneficiaries when an insurer is insolvent or impaired provides coverage for the following: - most contracts of life and health insurance annuities - persons who are state residents, and in special circumstances, who are nonresidents - structured settlement annuities
3 types of agent authority
express authority: the authority written in the contract - authority a principal intends to grant to an agent by means of the agent's contract implied authority: authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal - derives from express authority apparent authority: =perceived authority the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created
fiduciary regulations
fiduciary: describes the responsibility inherent in handling another person's financial affairs any person who diverts or appropriates fiduciary funds to his or her own use is guilty of theft and punishable by law if fiduciary funds are received by a licensed producer, he or she must ensure the following: - remit and return premiums received to the insurer (minus commissions due) - maintain fiduciary funds at all times in a trustee bank account separate from any other accounts. in the amount at least equal to the premium and return premiums received by the produce and unpaid to the person entitled to those funds
Ch. 16 terminology (preliminary) - Part 2
insolvent unable to meet financial obligations restitution restoration to the original condition or repayment surplus lines insurance insurance that is not available to admitted insurers producer legal entity, either human or corporate, that acts on behalf of, or in the place of, its principal (~insurer) independent agent has contracts with more than one insurer and, ideally, is then in an enhanced position to offer clients a wide range of product options own the renewal or own the expiration the independent agent can move the client to a different insurer for the renewal fiduciary someone in a position of trust fiduciary responsibility an ethical and legal obligation to perform a person's duties in a trustworthy manner
reinsurance
insurance purchased by a primary insurer to protect itself against the catastrophe of a comparatively large single loss or a large number of small losses caused by a single occurrence between a reinsurer and a primary insurer the contract may be either an automatic treaty or a facultative treaty
errors and omissions (E&O) liability insurance
insurance that protects against financial losses the could occur due to the agent's negligent acts or actions renewable annually usually written with "per claim" deductibles of at least $500 or $1,000 -> "limit per claim" or "limit for all claims during the policy period" provision describes the contract's maximum benefit ...see pic now losses not covered: - liabilities that result from a person's -> criminal acts (i.e. fiduciary crimes) -> unfair business or trade practices -> material misrepresentations which result in financial loss or damages to a client * the agent is responsible, not the E&O policy
regulations regarding Interstate Commerce (pic of text)
it is considered unlawful insurance fraud for any person engaged in the business of insurance to willfully, with the intent to deceive, make any oral or written statement that contains either false statements or omissions of material fact anyone engaged in the business of insurance whose activities affect interstate commerce, and who knowingly makes false material statements: - may be fined, imprisoned for 10 years, or both -> may be extended to 15 years if the activity jeopardized the security of the accompanied insurer - those caught embezzling funds face the aforementioned fines and imprisonment -> imprisonment may be reduced to 1 year if the embezzlement was less than $5,000 ...see pic for rest
prohibitions, exceptions of free insurance
it is illegal for any insurance licensee to offer free insurance as an incentive to conduct some other type of business violation may result in the suspension or revocation of that person's license or certificate not exceed 1 year ...see pic for exceptions
Chapter Recap - Part 2
licensing requirements
various training requirements, responsibilities
life agents who sells annuities to individual consumers is required to complete 8 hours of training, an 4 hours every 2 years thereafter long-term care training is required if an agent is transacting accelerated death benefit provisions or rider that require the provision of personal care services to the chronically ill insureds - (otherwise the selling of accelerated death benefits not requiring personal care does not require long-term care training) - 8 hours for first 4 12-month periods beginning from the date of the original license issuance - 8 hours of training prior to each license renewal thereafter ...look at pic now accident and health agents who intend to sell California Partnership for Long-Term Care (CPLTC) insurance are required to complete: - one long-term care training course - 8-hour California Partnership for Long-Term Care classroom course - 8-hour classroom course on Partnership every 2-year licensing period
more on life and disability analysts
life and disability analysts are not permitted to charge a fee for any services they provide unless they have a signed, written agreement with the party being charged, including a statement of the charge or basis on which charges are to be made not permitted to receive a fee from a client for any service which is customarily associated with soliciting or transacting insurance, or for which the analyst is receiving any form of compensation form the insurance company life agent vs life analyst life agents receive a commission, life analysts don't life agents acts on behalf of an insurer, life analysts don't life agents transact insurance life analysts advise about rights, benefits, or contracts
appointment regulations (cont'd)
life insurance the insurer must file the notice of appointment with the department within 14 days of a life or accident and health agent presenting a coverage proposal to a client for an insurer with whom the agent is not appointed, and results in an application and the policy is issued see pic for exceptions disability insurance a person licensed as a property and casualty broker-agent, a life-only agent, or an accident and health agent may transact disability insurance on behalf of any insured that is authorized to transact disability insurance if he/she has filed a notice of appointment for the purpose of transacting disability insurance inactive license a licensee with no appointments has a license which is designated as inactive -> upon being appointed by any insurer, the license becomes active again acting as an agent without appointment a licensed life or accident and health agent who is not specifically appointed for a particular insurer may not solicit insurance to a prospective client with that insurer or pass on an application for insurance to that insurer if that insurer requires that all its agents represent only that insurer notice of appointment sent by insurer to Commissioner within 14 days for exclusive/captive/career agents... notice of appointment within 2 weeks of receiving the application
life settlement
life settlement: refers to any financial transaction in which the owner of a life insurance policy sells a policy that is no longer needed to a third party for some form of compensation, usually cash viatical settlements: used for the terminally ill business of life settlement: any activity relating to the solicitation and sale of a life settlement contract to a third party who has no insurable interest in the insured qualified institutional buyer: one that owns and invests at least $100 million in securities and is allowed by the SEC to trade in unregistered securities ... (look at pic now) life settlement producer: a person licensed as a resident or nonresident insurance agent who is qualified to transact life settlements financial entity: includes any accredited investor who provides funds for the purchase of one or more life settlement contracts and who has an agreement in writing to do so financial transaction takes place when a licensed settlement provider obtains funds from the financial entity
nonadmitted insurers
one who has not met the requirements, either by choice or by failure, to legally have its representatives physically present in order to conduct business in California - can be represented within California by "surplus line brokers" -> they help residents purchase types of property and casualty insurance that are not available from an admitted insurer - a valid "Certificate of Authority" must first be secured from the department of insurance prior to conducting business in California
rebating, twisting, defamation, etc.
rebating: any inducement offered to the insured in the sale of insurance products that is not specified in the policy both the offer and acceptance of a rebate are illegal twisting: prohibited persuasion, incomplete or fraudulent comparison of insurance policies to persuade an insured/owner to cancel, lapse, or switch policies defamation: occurs when an oral or written statement is made that is intended to injure a person engaged in the insurance business - also applies to statements that are maliciously critical of the financial condition of any person or a company coercion: to require, as a condition of a loan, that the applicant purchase insurance from a specified insurer it is illegal to be involved in any activity of boycott, coercion, or intimidation that is intended to restrict fair trade or to create a monopoly
ethical concerns regarding senior citizens
regarding senior citizens (65 or older): an insurance agent or broker may not be involved in the origination of: - reverse mortgage, unless there is no direct financial incentive -> may not receive compensation or commissions -> agents may still offer title insurance, hazard, flood, or other peril insurance, or other similar products that are customary and normal under a reverse mortgage loan - veteran benefits for a senior, unless there is no financial incentive - living trust or other legal document other than an insurance contract ... additionally, a person who meets with a senior citizen in the senior's home regarding the sale of life insurance or annuity products is required to deliver a notice in writing to the senior between 24 hours and 14 days prior to the individual's initial meeting in the senior's home - written in 16-point font
reinsurer, primary insurer, , retrocession, automatic and facultative treaties
reinsurer: the company that., in consideration of the premium paid, assumes the net line (a part of the risk over an amount retained by the primary insurer) primary insurer (=ceding company): the insurer covering losses on a first dollar basis (sometimes subject to a deductible) who issues the policy over which reinsurance is purchased automatic treaty: the reinsurer agrees, in advance, to accept a portion of the gross line of the primary company's risks that meet the reinsurer's underwriting rules facultative treaty: each risk is considered individually by both parties - a risk is submitted to the reinsurer for acceptance or rejection -> if the risk is accepted, the primary insurer may accept or reject the rates and terms of the offer retrocession: when an insurance company reinsures risks with other reinsurance companies
Gramm-Leach-Bliley Act (GLBA)
stipulates that, in general, an insurance company may not disclose nonpublic personal information to a nonaffiliated third party except for the following reasons: - the insurance company clearly and conspicuously discloses to the consumer in writing that information may be disclosed to a third party - the consumer is given the opportunity, before the time that information is initially disclosed, to direct that information not be disclosed to the third party - the consumer is given an explanation of how the consumer can exercise a nondisclosure option requires 2 disclosures to a customer (a consumer who has an ongoing financial relationship with a financial institution): - when the customer relationship is established (i.e. a policy is purchased) - before disclosing protected information the customer must also receive an annual privacy disclosure, and have the right to opt out, or choose not to have their private information shared with other parties
mutual, stock, and fraternal insurers
stock company: owned by stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses - traditionally issue nonparticipating policies mutual company: owned by policyowners - issue participating policies fraternal benefit society: an organization formed to provide insurance benefits to members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government - considered charitable institutions, not insurers