Texas Statutes and Rules Common to All Lines

The Commissioner Examination of Records

* Regulates insurance companies authorized to do business in this state; ensures companies remain solvent and conduct business in compliance with state laws and regulations pertaining to licensing, policy forms, rates, claims, and market conduct. * Must examine all authorized insurers at least once every 5 years; Applies to all domestic insurers. admitted foreign and alien insurers

Insurance Transaction

-Solicitation; -Negotiations; -Sale (effectuation of a contract of insurance); -Advising an individual concerning coverage or claims

Types of Licensees

1. Agents 2. Nonresident Agents 3. Counselor 4. Temporary 5. Adjuster 6. Emergency Adjuster 7. Limited Lines 8. Managing General Agent 9. Risk Manager 10. Corporations or Partnerships 11. Surplus Lines

Agent's Duties and Responsibilities

1. Fiduciary Capacity 2. Commission Sharing 3. Intent to Actively Engage in Business of Insurance for General Public

An insurer must acknowledge receipt of a Notice of Claim within how many days?

15 days

Certificate of Authority

A document that authorizes a company to start conducting business and specifies the kind(s) of insurance a company can transact. It is illegal for an insurance company to transact insurance without this certificate. Insurers bust obtain a Certificate of Authority prior to transacting business in this state

Reciprocity

A mutual interchange of rights and privileges

An individual licensed as an Insurance Service Representative may be employed by which of the following?

A property and casualty agent An insurance service representative may be employed on a salaried basis to perform assigned duties in the office of a property and casualty agent

Emergency Adjuster

Adjusters who are temporarily licensed by the insurance commissioner to handle claims during catastrophes or emergencies that produce an overwhelming number of claims in a short period of time. Emergency license may be issued for a period of 90 days, can be revoked for any cause. Applicant does not need to be a state resident or otherwise licensed adjuster

Which of the following is another term for an authorized insurer?

Admitted

Which of the following applicants will be able to obtain an adjuster's license without taking the state exam?

An applicant who is renewing a license

Foreign Insurer

An insurance company that is incorporated in another state, the District of Columbia, or a territorial possession. * Ex. A company chartered in California would be a foreign insurer within the state of New York, a company chartered in Puerto Rico will be foreign in any U.S. state.

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?

Authorized

An insurance professional advises a client regarding the benefits of her life insurance policy, in exchange for a fee. Which of the following terms best describes this type of insurance professional?

Counselor

Rebating (Marketing Practices)

Defined as 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. Rebates may include, but not limited to: - Rebates of premiums payable on the policy - Special favors or services - Advantages in the dividends or other benefits - Stocks, bonds, securities, and their dividends or profits.

Coercion

Forceful act or threat aimed to influence a person to act against his or her will

Home Office

Insurer's headquarters, principal place of business

Misrepresentations (Marketing Practices)

It is illegal to issue, publish, or circulate any illustration or sales material that is false, misleading, or deceptive as to policy benefits or terms, or the payment of dividends. This also refers to verbal statements - Making an untrue statement of material fact - Failing to state a material fact necessary to make other statements made not misleading - Making a statement in a manner that would mislead a reasonably prudent person to a false conclusion of a material fact - Making a material misstatement of law - Failing to disclose a matter as required by law

Which of the following best describes the unfair trade practice of defamation?

Making derogatory oral statements about another insurer's financial condition

In which of the following situations is it legal to limit coverage based on martial status?

Never

Exempt

Not subject to an obligation

A participating insurance policy may do which of the following?

Pay dividends to the policyowner

Commission

Payment to the agent by the insurance company for placing insurance, usually a percentage of the policy premium

Restitution

Restoration to the original condition or repayment

Temporary

Temporary agent's license may be issued to an applicant who is being considered for appointment as an agent by another agent, an insurer, or a health maintenance organization (HMO), without a written examination. - Must provide at least 40 hours of training to the applicant within 30 days after applying for the license - Temporary license is valid for 180 days after date of issuance - Cannot sell new insurance or replace an existing individual life insurance policy or annuity contract that is in force.

Fraud (Marketing Practices)

The intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from a making a contract, or to deceive or cheat a party. Fraud is grounds for voiding an insurance contract. If a person suspects that a fraudulent insurance act has been or is about to be committed in Texas, the person must report the information in writing to the Insurance Fraud Unit of the Department within 30 days.

Surrender of License (Disciplinary Actions)

The surrender of an agent's license to the insurance department will not negate any offense committed before the surrender's effective date. Surrendering the license will not keep the agent from being penalized.

An agent explains the details of a life insurance policy to a client. The agent does not realize, however, that the state has recently rewritten two of the provisions. As a result, the agent inadvertently misrepresents the policy, making it more attractive than it really is. What best describes this situation?

There is no misconduct In order to be charged with conducting a deceptive claim settlement, the agent would have had to misrepresent knowingly and/or chronically

Cease and Desist

To stop or discontinue

Insolvent

Unable to meet financial obligations

Limited Lines

* License must specifically limit the types of insurance that may be handled by the person * Person may not adjust claims in a kind of insurance other than that for which the adjuster is specifically licensed

Continuing Education (CE) (Maintenance and Duration)

* Licensees must complete 24 hours of continuing education every renewal period (2 years); at least 3 hours must cover ethics. * All CE hours must be completed during the reporting period * At least 50% of all required CE hours must be completed in a classroom or classroom equivalent setting.

The Commissioner Investigations, Hearings, and Penalties

* The Commissioner may issue a statement of charges and hold a hearing for any purpose deemed necessary if an insurer or its agent is suspected of committing a violation or engaged in an unfair trade practice * An emergency cease and desist order may be issued to any licensed agent the commissioner believes is engaged in any form of unfair method of competition or trade practice, is in a hazardous financial condition, or that an unlicensed person is engaging in the sale of insurance - final after 61 days from the date they are served

If an agent suspects that insurance fraud is being committed, within how many days must the agent notify the Insurance Fraud Unit of the Department of Insurance?

30 days

Which of the following is NOT a possible penalty for a violation of the Insurance Code?

A fine up to $100,000 The penalty for a violation may not exceed $25,000

Statute

A formal written law enacted by legislature; insurance statutes can be found in the state Insurance Code

Agent Appointment for Licensing and Appointments

A licensee may not act as an agent unless they have been appointed by a designated insurer who is authorized to engage in business in Texas. When an insurer terminates an agent's appointment, it must immediately file with the Commissioner a statement of the facts related to the termination and the date and cause.

Counselor

A life and health counselor is any person who, for a fee or commission, offers to examine a life, accident, or health insurance policy, an annuity, or pure endowment policy, to give a recommendation or information regarding the policy's terms, conditions, benefits, coverage or premiums.

Risk Manager

A person who, for compensation, examines, assesses or evaluates risk for, and provides advice for reducing risk to a person who seeks to obtain or renew property and casualty coverage in Texas. May not act or hold themselves out to be a risk manager unless licensed as such in Texas. A risk manager's license is valid for 2 years; licensee may renew an unexpired license by filling an application for renewal and paying the renewal fee - Be 18 years old - Maintain a place of business in Texas - Meet the application requirements - Take and pass licensing examination - Pay examination and licensing fees

False Advertising (Marketing Practices)

Advertisements cannot include any untrue, deceptive, or misleading statements that apply to the business of insurance or anyone who conducts it. False or deceptive advertising specifically includes misrepresenting any of the following: - Terms, benefits, conditions, or advantages of any insurance policy - Any dividends to be received from the policy, or previously paid out - Financial condition of any person or the insurance company - The true purpose of an assignment or loan against a policy

Fiduciary Capacity (Agent's Duties and Responsibilities)

Agents are legally obligated to treat applicants and insureds in an ethical manner and because an agent handles the funds of the insured, the insurer has fiduciary responsibility. A fiduciary is someone in a position of trust. It is illegal for insurance producers to commingle premiums collected form the applicants with their own personal funds

Nonresident Agents

An agent who resides or is domiciled in a state other than Texas. Can be licensed as an insurance agent if the Texas licensing requirements are met, as long as the agent's home state gives Texas residents the same privilege (reciprocity). A nonresident license will automatically be suspended, canceled, or revoked if the licensee's home state suspends, cancels, or revokes the licensee's resident license.

Domestic Insurer

An insurance company that is incorporated in this state. * Ex. A company chartered in Pennsylvania would be considered a Pennsylvania domestic company

Alien Insurer

An insurance company that is incorporated outside the United States.

Commission Sharing (Agent's Duties and Responsibilities)

An insurer or licensed insurance agent doing business in Texas must not pay commissions to any person or corporation for services as an insurance agent within Texas unless that person holds a valid agent's license. A temporary license holder cannot receive commissions from a sale made to a family member or an employment or business associate. Referring a customer or potential customer to an agent is not considered acting as an agent, and is legal as long as the unlicensed individual does not discuss specific insurance policy terms or conditions with the customer. It is illegal for an insurer or agent to pay an unlicensed person for performing the duties of an agent. This includes a rebate of premiums payable, a commission, employment, a contract for service, or any other inducement that is not specified in the insurance policy.

Inducement

An offer that attempts to influence the other party

Licensing and Appointments

Applicants for an original insurance agent license in Texas must submit a written application and nonrefundable filing fee (up to $50) to the Commissioner. Application must include applicant's full name, age, occupation, place of residence and business for the past 5 years and a statement as to whether the applicant has ever held a license before, been refused a license or had one revoked. Can be denied if a complete set of fingerprints is not provided upon request. - 18 years old - passed licensing exam in the last 12 months - submitted application, fees, any other information required by the Department - Not committed any acts for which a license may be denied

Forcing a client to buy insurance from a particular lender as a condition of granting a loan is defined as

Coercion

Stock Companies

Companies owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses. Nonparticipating (stock) Policies: - Policyowners do not share in profits or losses - Does not pay dividends to policyowners; taxable dividends are paid to stockholders, but dividends are not guaranteed as they are based on company profit

Moral Turpitude

Conduct that is contrary to community standards of justice, honesty or good morals

Defamation of Insurer (Marketing Practices)

Defamation occurs when an oral or written statement is made that is intended to injure a person engaged in the insurance business. This also applies to statements that are maliciously critical of the financial condition of any person or a company.

All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT

Dividends from a mutual insurer

Boycott, Coercion and Intimidation (Marketing Practices)

Illegal to be involved in any activity of boycott, coercion, or intimidation that is intended to restrict fair trade or to create a monopoly. This would include unfair behavior that influences not only clients, but competing agents and brokers. Coercion is to require, as a condition to a loan, that the applicant purchase insurance from a specific insurer.

Texas Lloyds

Insurance companies regulated by the Texas Insurance Code that consist of an arrangement between an attorney-in-fact and at least 10 underwriters (individual, partnership, or association of individuals) to provide property and casualty insurance. Lloyds maintain an Articles of Agreement and Power of Attorney vs. an Articles of Agreement for the insurance corporation. $2 miillion statutory minimum

Texas Department of Insurance

Regulates insurers and other companies that conduct, solicit, and/or sell insurance in this state

All of the following are unfair claims settlement practices EXCEPT

Suggesting negotiations in settling the claim

Denial of License (Disciplinary Actions)

The Commissioner may discipline a license holder or deny an application to anyone who has done: - Willfully violated any provision of the Texas Insurance Code - Intentionally made a material misstatement in the licensing application - Misappropriated or converted to personal use money belonging to an insurer, insured or beneficiary - Been guilty of fraudulent or dishonest practices - Materially misrepresented the terms and conditions of life insurance policies or contracts - Made or issued any statement misrepresenting or making incomplete comparisons regarding the terms of an insurance or annuity contract in an attempt to induce the owner to forfeit or surrender the contract and replace it with another (also called twisting) - Been convicted of a felony

Maintenance and Duration

The Commissioner will issue an initial license after the applicant passes a written exam. If license is denied, the Commissioner must notify the applicant and insurer, in writing, that the license will not be issued

Insurer (Principal)

The company or organization that issues a policy of insurance

An agent receives an Emergency Cease and Desist Order for chronically misrepresenting his insurance policies. The agent knows that he did not commit the violations stated in the Emergency Cease and Desist Order. He wants to contest the charges in a court hearing. Which of the following is true?

The hearing must be held within 30 days of receiving a request, unless both parties agree to a later date

Adjuster

Types of adjuster's licenses available in Texas: - All lines - Property, casualty and surety - Workers compensation, employer's liability, U.S. Longshoremen's and harbor workers compensation insurance

An applicant properly notifies her insurer of a straightforward claim, but the insurer waits an exceedingly long time to process it. Which of the below terms best describes the behavior of the insurer?

Unfair claims settlement practice

Acts that constitute the Business of Insurance by insurers or agents

* Making or proposing to make an insurance contract * Taking or receiving an insurance application * Receiving or collecting any consideration for insurance (ex. a premium, commission, membership fee, assessment, or dues * Issuing or delivering an insurance contract * Directly or indirectly acting as an agent for an insurer * Contracting to provide indemnification or expense reimbursement for a medical expense to a person living in Texas or for a risk located in Texas * Doing any kind of insurance business specifically recognized as constituting insurance business within the statutes of the Insurance Code

The Commissioner Broad Powers and Duties

* Regulate the internal affairs of the Department of Insurance * Prescribe forms and procedures to be followed in proceedings before the Department * Aids in the interpretation of any state insurance law * Issue insurance licenses and certificates of authority * Monitor insurance companies and their adherence to the Insurance Code * Protect and ensure the fair treatment of consumers * Enforce penalties, fines, denials, suspensions or revocations of licensees and certificates of authority

Managing General Agent (MGA)

Any person, firm or corporation who has supervisory responsibility for the local agency and field operations of an insurance company within Texas or is authorized on behalf of a company to accept or process insurance policies other agents produced and sold. MGA licenses do not permit the licensee to see any form of insurance; must have appropriate license to sell insurance An MGA may perform: - Receive and pass upon daily reports and monthly accounts - Receive and be responsible for agency business - Handle the adjustment of losses - Appoint or direct local recording agents, state agents or special agents within Texas

All of the following are considered unfair or deceptive acts in connection with the sale of insurance EXCEPT

Attempting to settle a claim in which liability is clear

Insurance Companies

Classified in a variety of ways based on ownership, authority to transact business, location of incorporation (domicile), marketing and distribution systems, or rating (financial strength)

When twin brothers applied for life insurance from Company A, the company found that while neither of them smoked and both had a very similar lifestyle, one of the twins was in a much stronger financial position than the other. Because of this, the company charged him a higher rate for his insurance. This practice is considered

Discrimination Permitting individuals of the same class to be charged a different rate for the same insurance is the unfair trade practice of discrimination

On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are

Not taxable since the IRS treats them as a return of a portion of the premium paid

Insurance Services Representative

Insurance service representative license is required for each person who is employed only in the office of a property and casualty agent on a salaried basis to perform assigned duties including explaining insurance coverage, describing an insurance product, quoting insurance premium rates and issuing insurance binders only with the express approval of the property and casualty agent who supervises the insurance service representative.

Unfair and Prohibited Trade Practices (Marketing Practices)

Insurers and insurance producers may not engage in any trade practice that is defined as, or determined to be, an unfair method of competition or an unfair or deceptive or practice in the business of insurance. 1. Misrepresentations 2. False Advertising 3. Defamation of Insurer 4. Rebating 5. Controlled Business 6. Boycott, Coercion and Intimidation 7. Unfair Discrimination 8. Fraud

Agents

Any person who solicits insurance on behalf of any insurance company, takes or transmits (other than for himself or herself) an insurance application or policy, examines any risk or loss, or receives, collects, or transmits any premium. - At least 18 years of age - Passed licensing examination in the last 12 months - Submitted application, required fees, and other required information required by the Department - Not committed any acts for which a license may be denied

A producer who fails to separate premium monies from his own personal funds is guilty of

Commingling

Commissioner

The chief executive and administrative officer of the state Department of Insurance; appointed by the Governor for a 2-year term ending on February 1 of each odd-numbered year. - Must be a citizen of the state of Texas - Well-informed and qualified in the field of insurance and insurance regulation - At least 5 years of experience in the administration of business or government or as a practicing attorney or certified public accountant

Commissioner

The head of the State Department of insurance.

Corporations or Partnerships

An agent license may be issued to a corporation or partnership if its has been admitted to transact insurance in this state, and has submitted application and paid all required fees. - At least 1 officer of the corporation or 1 active partner of the partnership is individually licensed separately from the corporation or partnership - An officer, director, member, manager, partner, or other person who has the right or ability to control the corporation or partnership has not had a license suspended or revoked or been the subject of any other disciplinary action by a financial or insurance regulator of any state in the U.S., or committed an act for which a license may be denied - The corporation or partnership has the ability to pay any amount up to $25,000 on a claim or compensation for a negligent act, error, or omission

Records Maintenance

An agent must maintain all insurance records (including all records relating to customer complaints) separate from the records of any other business of the agent

Suspension, Revocation or Refusal to Renew (Disciplinary Actions)

The Commissioner will suspend or revoke an existing license, or deny a new license: - Willful violations of state insurance laws - Intentional material misstatements in the license application - Attempting to obtain a license by fraud or misrepresentation - Felony conviction - Rebates of insurance premiums No one whose license has been revoked can apply for another license in Texas for 5 years

Claim Methods and Practices (Marketing Practices)

The following acts, omissions, or practices are defined as unfair and deceptive claim settlement practices: - Misrepresenting to insureds pertinent facts or policy provisions relating to coverage at issue - Not attempting in good faith to effect prompt, fair and equitable settlements of claims on which liability has become reasonably clear - Failing to promptly provide to a policyholder a reasonable explanation for the insurer's denial of a claim or offer of a settlement - Failing to affirm or deny coverage of claims of a reservation of rights within a reasonable time - Refusing or delaying a settlement solely because there is other insurance available to partially or entirely satisfy the claim loss - Attempting to force policyholder to release a claim that is only partially paid (unless a settlement is in place) - Refusing to pay a claim without conducting a reasonable examination - Requiring the claimant to produce federal income tax returns before settling a claim The Texas Department of Insurance (TDI) may require an insurer to file periodic reports based on complaints of unfair settlement practices: - The total number of claims from the past 3 years, and information on how or if they settled - The total number of complaints, their classification by line of insurance, the nature of each complaint, the disposition of these complaints, and the time it took to process each complaint.

An individual applies for a life policy. 2 years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen?

The policy will not be affected In this particular instance the applicant did not commit intentional fraud

Location of Incorporation (Domicile)

Domicile refers to the location where an insurer is incorporated, not necessarily where the insurer conducts business: * Domestic * Foreign * Alien Regardless of where an insurance company is incorporated, it must obtain a Certificate of Authority before transacting insurance within the state

Exemptions and Exceptions for Licensing and Appointments

Insurance agent license is not required provided they are not directly or indirectly involved with the actual sale of an insurance contract and DO NOT RECEIVE ANY COMMISSION - Salaried employee of an agent who is not involved in soliciting or negotiating insurance and devote their full time to clerical and administrative services and does not receive any commissions - Insurance adjuster, or practicing attorney at law acting in the regular transaction of their business, not a local agent and is not acting as an adjuster for an insurer - Attorney in fact or the traveling salaried representative of an admitted reciprocal or interinsurance exchange - Attorney in fact of a Lloyd's plan - Group motor vehicle insurance business/department of a company engaged in that business

Surplus Lines

Insurance for which there is no readily available, admitted market. - Usually involves insurance for high-risk individuals, and is placed with nonadmitted insurers who specialize in offering insurance to the high-risk market. - Most state require that they be on that state's "approval" list.

Intent to Actively Engage in Business of Insurance for General Public (Agent's Duties and Responsibilities)

Insurance licenses are issued with the intent that the licensee will engage in the business of insurance with member of the general public, and that the license will not be used primarily to earn commission on personal business, from the licensee's immediate family or close associate - known as controlled business. In the state of Texas, at least 25% of licensee's total volume of premiums in a calendar year must be from business other than controlled business (from persons other than the applicant and from property other than that on which the applicant controls the placing of insurance through ownership, mortgage, sale, family relationship, or employment).

Controlled Business (Marketing Practices)

Insurance licenses are issued with the intent that the licensee will engage in the business of insurance with members of the general public, and that the license will not be used primarily to earn commissions on personal business, from the licensee's immediate family or close associates - known as controlled business. In Texas, at least 25% of a licensee's total volume of premiums in a calendar year must be from business other than controlled business (from persons other than the applicant and from property other than that on which the applicant controls the placing of insurance through ownership, mortgage, sale, family relationship, or employment).

Mutual Companies

Owned by the policyowners and issue participating policies. Participating Policies: - Policyowners are entitled to dividends; are a return of excess premiums and are nontaxable. Dividends are generated when the premiums and earnings combined exceed the actual costs of providing coverage, creating a surplus. Dividends are not guaranteed

Expiration and Renewal (Maintenance and Duration)

Agent's license must be renewed every 2 years on the licensee's birthday; will continue in effect until refused, revoked, or suspended Department must give licensees 30 days' notice of the expiration of their license If an agent allowed their license to expire, following reinstatement rules apply: - If expired for no more than 90 days, the license may be renewed by filing a renewal application, paying the renewal fee, and paying an additional fee (equal one-half of the renewal fee). - If expired for more than 90 days but less than 1 year, the licensee may obtain a new license by filing a new application, paying the license fee and an additional fee equal to one-half of the license fee. A license exam is not required. - If expired for 1 year or more, the license cannot be renewed. The person must go through a complete licensing process for a new applicants

Notification of Department of Certain Information

An individual licensed as an agent must notify the Texas Department of Insurance (TDI) on a monthly basis: - A change in mailing address - A felony conviction - An administrative action taken against the licensee by a financial or insurance regulator of Texas, another state, or the U.S. A corporation or partnership licensed as an agent must file biographical information with the TDI for: - Each executive officer, director, or unlicensed partner who administers the entity's operations - Each shareholder who is in control of the corporation or partner who has the right or ability to control the partnership - If the corporation or partnership is owned, in whole or in part, by another entity, each individual who is in control of the parent entity A corporation or partnership must notify the Department no later than 30 days after the date of: - A felony conviction of a licensed agent - Disciplinary action taken in other states - The additional or removal of an officer, director, partner, member, or manager

Prompt Payment of Claims (Claims Methods and Practices)

Claims must be settled promptly. Within 15 days of receiving notice of a claim, the insurer must: - Acknowledge receipt of the claim - Begin an investigation of the claim - Request all statements, forms and items that the insurer believes will be required from the claimant if the insurer suspects that arson is involved, the insurer has 30 days to notify the claimant of its acceptance or rejection. Up to 45 days if insurer needs more time for a claim decision but must give the claimant the reason for the delay. Once a claim is approved, the insurer must pay the claim within 5 business days after notifying the claimant that the claim will be paid. Surplus lines insurers have 20 business days to pay the claim under these circumstances. If an insurer delays payment of a claim later than 60 days from receiving the required statements and forms from the insured, the insurer must pay the claim with an additional interest 18% per year, including any potential attorney's fees as a result of the delay.

Unfair Discrimination (Marketing Practices)

Discrimination in rates, premiums, or policy benefits for a persons within the same class or with the same life expectancy is illegal. No discrimination may be made on the basis of an individual's martial status, race, national origin, gender identity, sexual orientation, creed, or ancestry unless the distinction is made for a business purpose or required by law.