Insurance Section 4
Open Competition
The open competition rating method, also known as no-file laws, allows insurers to compete with one another by quickly changing rates without reviews by the state regulators. Under such a plan, market forces, rather than administrative action, determine what rates will be charged for a risk. This is also known as "open rating" and is used for workers' compensation.
California Financial Information Privacy Act - July, 2004
The purpose is to establish standards for the collection, use, and disclosure of information gathered in connection with insurance transactions, and to maintain a balance between the need for information and the public's need for fairness and privacy. Fine no more than $10,000 or imprisonment of up to 1 year.
What does the State Legislature do?
They propose, write, enact, and make changes in the code (insurance law), CIC.
Administered Code of Regulation
This is issued by the commissioner to explain how the code is to be administered. Regulations are sometimes referred to as the CCRs or Title 10.
SEUA Case of 1944
US vs. Southeastern Underwriters Association, the court reversed its earlier decision under Paul vs. Virginia by ruling that insurance was interstate commerce, and the federal government could regulate insurance once again.
Notice of Legal Action
means notice of an action commenced against the insurer with respect to a claim, notice of action against the insured received by the insurer, or notice of action against the principal under a bond, and included any arbitration proceeding.
Principal
means the person whose debt or other obligations is secured or guaranteed by a bond and how has the primary duty to pay the debt or discharge the obligation.
May means...
permissive (can)
File and Use
An insurance company must file rates with the Commission, but i can use those rates only until instructed otherwise by the Commission.
Uniform Insurers Rehabilitation Act
Describes the steps the commissioner must take when attempting either to restore a bankrupt insurer to a stable financial condition or to assist an insurer that cannot be rehabilitated.
Prior Approval
Insurers must file policy rate information with the State Department of Insurance. After filing, the insurer delivers evidence that the rates proposed are reasonable and fair. The Commissioner then has 30 to 60 days to either approve or reject those rates. If the Commissioner fails to respond within the 30 to 60 days on a new rate and 180 days on a change of rate, the rates are considered approved.
Domestic Violence Suspicions
Insurers providing life or health insurance are not allowed to do anything that affects the coverage or premiums of anyone, because the insurer suspects the person may become a victim of domestic violence, even if the applicant has been a victim in the past.
Health Insurance Portability and Accountability Act (HIPAA)
Provides specific rules for how agents must protect personal medical information. These types of organizations are required to comply: • Covered Entities • Business Associates • Employer and Other Sponsors of Group Health Plans
Unfair Claims Practices
Settling for less than what a reasonable person would expect by referring to printed or advertising material; telling a client not to obtain the services of an attorney; misleading the claimant as to the applicable statue of limitations; delaying an investigation by requiring a preliminary report then a formal report requiring the same information. Penalties - $5,000 per violation, if not willful; and $10,000 per violation, if willful.
Use and File
Some Companies use the rate they determine appropriate first and then file the rate with the commission.
Paul vs. Virginia 1868
The US Supreme Court ruled an insurance policy was not an instrument of commerce and was not involved in interstate commerce transactions that would make it subject to federal regulation. This established the rights of the states to regulate insurance.
Person means...
individual (human being) or entity. • The estate of a deceased person is considered a person. Family is not considered a person. • Entities: associations, organizations, partnerships, business trusts, limited liability companies, or corporations
Shall means...
mandatory (must)
Claimant
means a first or third party claimant, any person who asserts a right of recovery under a surety bond, an attorney, or any person authorized by operation of law to represent the claimant, or any person properly designated by the claimant, such as: an insurance adjuster, a public adjuster, or any member of the claimant's family.
Proof of Claim
means any documentation in the claimant's possession submitted to the insurer that provides any evidence of the claim and that supports the magnitude or the amount of the claim loss.
Notice of Claim
means any written or oral notification to an insurer or its agent that reasonably apprises the insurer that the claimant wishes to make a claim against a policy or bond issued by the insurer, and that a condition giving rise to the insurer's obligations under that policy or bond may have arisen.
Obligee
means the person named as obligee in a bond.
Violation of Cease and Desist Order
• A fine up to $5,000, if the violation is not found to be willful, PLUS the amount of any outstanding. • A fine up to $55,000, if the violation is found to be willful, PLUS the amount of any outstanding.
NAIC (National Association of Insurance Commissioners)
• An organization that assists in the industry of self-regulation. • Has tremedous influence; however, its power is not binding. • It develops laws, contracts, and guidelines for the industry, which in turn brings uniformity.
Insolvent Insurer
• Any impairment in paid-in capital. • Insurer unable to meet their financial obligations When an insurer has only enough assets to cover reinsurance and liabilities, it is insolvent. (Need to also cover paid-in capital to be solvent.) When a business becomes insolvent, the Commissioner's first responsibility is to attempt to restore the company.
Penalties for unfair practices
• Commissioner can order a cease and desist • Violation of a cease and desist order - $5,000 to $55,000 in addition to the penalty for violation. • Subsequent violations of cease and desist - suspension or revocation of license
Four Types of Rating Laws
• Prior Approval • File and Use • Use and File • Open Competition
Summary Seizure
Any person having possession of and refusing to deliver any of the books, records, or assets of the person against whom a seizure order has been issued by the Commissioner, shall be guilty of: • misdemeanor • subject to fees up to $1,000 and/or 1 year imprisonment
State Regulation of Rates
Commissioner shall notify the public of any application by an insurer for a rate change. The application shall be considered approved 60 ays after public notice unless: • consumer requests a hearing within 45 days and commissioner grants a hearing or doesn't • commissioner, on his or her own motion, determines to hold a hearing • the proposed rate adjustment exceeds 7% of the then-applicable rate for personal lines or 15% for commercial lines, in which commissioner must hold a hearing
What is every insurance company in California required to do on or before March 1st?
Every insurance company in California is required to reports its financial condition to the commissioner every year on or before March 1st.
What is every insurer required to have?
Every insurer is required to have a Fraud Unit to investigate fraud claims made by insureds or against insured's policies.
Gramm-Leach-Bliley Act (GLB Act)
Has provisions to protect consumers' personal financial information held by financial institutions. Three parts to the privacy requirements: • the Financial Privacy Rule • Safeguards Rule • Pretext provisions
The Insurance Code
Is the main body of laws that regulate the business of insurance in California. The present form of the code was enacted in 1935 as restatement and expansion of previously established law.
Unfair Methods of Competition
Leading a client to expect dividends; stating an insurer is a member of the Guarantee Association in sales or advertisement; boycott, coercion, or intimidation, which is restraint of trade; making or refusing to make an entry in such a way as to deceive anyone looking at the records.
Requirements for Rates
No rate will remain in effect if it is inadequate, excessive, or unfairly discriminatory. Impartial or not competitive is not a factor.
Requirements for Notice by Mail
Notices only require that they be mailed to the insured, at the last known mailing address, postages prepaid. Proof of mailing is sufficient.
Definition of Paid-In Capital
Paid-In Capital includes the funds and property contributed to a insurer by its stockholders or investors.
McCarran-Ferguson Act of 1945 Public Law 15
This law recognized that state regulation of the insurance industry was in the public's best interest and EXEMPTED the insurance industry from the federal regulations for most interstate commerce industries. HOWEVER, this Act did give authority to the federal government to apply antitrust laws to the insurance business, which was not being regulated at the state level.
Unfair practices is divided into two categories:
Unfair Methods of Competition and Unfair Claims Practices
Penalty for Fraud
Up to 5 years imprisonment and/or $150,000 or twice the amount of the fraud, whichever is greater.
What does the Commissioner do?
Writes the regulations (CCRs). The regulations explain how the code will be administered.
Insurance Regulation
• Highly regulated business Primarily regulated on the state level, then self-regulated like the NAIC, and lastly federal level.
How the Cal-GLBA affects aspects of an agent's business:
• How client files are secured • How a firm markets, collects, and shares nonpublic information with third parties; • An "Opt-out/Opt-in" system with enhanced privacy requirements.
Insurance Commissioner
• Is elected by the citizens of CA at the same time as the Governor, for the same term period (4yrs). • Can hold 2 terms (8yrs total). • DOI is like the police force of the insurance industry and the commissioner is the Chief of Police • Has no power or authority to write or change the law but has the power to enforce it. • May appoint people on his behalf to negotiate settlements but he has the final approval.
Unfair Discrimination
• Is morally unacceptable and illegal. • Classifications based on acceptable actuarially guidelines: -tobacco use -geographic location -profession and avocations (hobbies) - age - gender -height/weight ratio
Sexual Orientation
• It is illegal to ask a client about sexual orientation. • However, can reach this conclusion by analyzing further factors in applicant's life and then adjusting benefits or premiums based on the presumption of an increased risk for AIDS. CAN'T ASK ABOUT: living arrangements, martial status, beneficiaries, jobs, zip code or gender ** If an insurer wants to test a particular applicant for HIV, they must test all applicants not just one.
What is required to change the code?
• Legislative action is required to change the code. • Introduced to Assembly or Senate
Identify Standards for Prompt, Fair, and Equitable Settlements
• No insurer shall discriminate in settling a claim based on race, religion, ancestry, language, physical handicap, income, or territory of property or person insured. • Upon proof, in no more than 40 days, the insurer must accept or deny a claim in whole or part. • If insurer needs more time, they must notify claimant that additional time is needed. • No insurer can make a settlement offer than is unreasonably low. • Once in agreement, the insurer has up to 30 days to render claim payment.
Fair Discrimination
• Occurs when an underwriter finds info that indicates increased risk that can be verified through actuarial proof. • Code does not prohibit discrimination based on age and gender in the class of life and disability.
California Insurance Guarantee Association (CIGA)
• Pays contractual obligations/claims of INSOLVENT members. • Managed by a 9 member Board of Governors appointed by the Commissioner. 5 of the 9 must come from domestic insurers. • Pays up to $50,000 for a claim.
Penalty for Unfair Discrimination
• Subject to $1,000 civil penalty, plus court fees, payable to the person concerned. • If the violation is proven intentional, the civil penalty is $1,000 - $5,000, plus court costs. • If person suffers emotional, physical, or economic harm, violation becomes a misdemeanor crime, and a fine of $10,000.
