III. Texas Statutes and Rules Pertinent to Limited Lines

Discrimination

(1) The act or process of evaluating insurable risks and determining premiums on the basis of likelihood of loss. Insurance laws prohibit "unfair discrimination"—that is, the formulation of rates on the basis of criteria that do not fairly measure the actual risk involved. (2) Unfair or illegal treatment of or denial of rights to persons on the basis of certain arbitrarily chosen attributes or characteristics, including race, gender, religion, creed, age, medical condition, pregnancy, sexual orientation/preference, physical appearance, marital status, physical or mental disability, or national origin.

License Expiration

may only renew an expired license if the license has been expired for up to 90 days. To obtain a renewal license, the person must file with the Department a renewal application on the appropriate form and make payment for the required renewal fee AND an additional fee equal to one-half the renewal fee. If a license has been expired for more than 90 days, the person may not renew the license and must apply for a new license. Requirements for application of the new license differ based on how long the license has been expired. If a license has been expired for between 90 days to 1 year. Person must file a new application with the Department, along with the license fee and an additional fee equal to one-half the license fee. Person is NOT required to take a licensing exam.

Unfair Comparison

advertisements may not make any type of unfair or incomplete comparison of 2 policies, including comparisons of their benefits, dividends, or rates. Advertisements may not compare two non-comparable policies. Additionally, any advertisement that compares the policies of different insurance companies must include a statement that contains the following information:

Fiduciary Capacity

agents have a duty to their insurers in all respects, especially when handling premium funds. This duty is founded on trust or confidence in the integrity of another. It is the highest standard of conduct and care imposed by both ethics and law.

What is a certificate of authority?

also called an admitted company, an insurer licensed in Texas

License Renewal

an agent may renew a license that has not expired by filing the required renewal application and paying the renewal fee established by Department. Agents may not renew licenses that have been suspended or revoked. Once issued, an original license remains in effect from the date a renewal application is filed until the renewal license is issued or the Commissioner revokes the license.

nonresident Agent

an agent who is licensed in a domicile in which he or she does not reside

Exceptions to licensing

an applicant is not required to pass a written exam to obtain a temporary license; If a property and casualty agent is unable to pay premiums due an insurer due to death, disability, or insolvency, the Department may issue an emergency property and casualty license to an individual who is not required to take an examination; a general lines property and casualty agent referring surplus lines business to a surplus lines agent or agency that completes the insurance transaction not required to obtain a surplus lines license.

License Termination

an individual who was denied a license, or whose license was revoked, must wait 5 years before applying for an agent license. This restriction does not apply if the license denial was due to a failure to pass the required written exam or submit a properly completed license application.

Nonadmitted Insurer

an insurance company not licensed to do business in a certain state or country. In U.S. jurisdictions, such insurers can nevertheless write coverage through an excess and surplus lines broker licensed in that jurisdiction

Admitted insurer

an insurer licensed to do business in the state or country in which the insured exposure is located

Misrepresentation

an untrue or misleading statement, the omission of a pertinent disclosure or a material fact, or a material misstatement of law, whether the misstatement is made verbally or in writing, if it concerns: ■ The terms of a policy. ■ The benefits or advantages promised by a policy.

Unfair Claims Methods and Practices Act

applies to the following types of insurers:

How frequently must the commissioner audit insurers?

at least once every 5 years

Appointment

authority given by an insurer or employer to a licensee to transact insurance or adjust claims on their behalf. Expires on the 2nd anniversary of the date it was issued. May only renew an expired license for up to 90 days. More than 90 days must apply for new license. Requirements vary based on how long the license has been expired.

What are limited lines licenses?

available for selling Accidental Death & Dismemberment, credit insurance and funeral insurance.

Certificate of Authority

cannot transact insurance without a certificate; agents cannot sell for unauthorized carriers; Commissioner must provide insurer with at least 10 days' advance written notice before revoking or modifying insurer's Certificate of Authority. Notice must state reason. A disciplined party must wait one year before applying for a Certificate of Authority.

Penalties by Commissioner

commissioner may cancel or revoke an insurance license, suspend license for up to 1 year; issue a cease and desist order; order licensee to pay administrative penalty or make restitution; refer matter to AG for enforcement of unpaid penalty or restitution.

Boycott, Coercion and Intimidation

forceful actions intended to result in the unreasonable

Domestic Insurer

formed under the laws of Texas

Foreign Insurer

formed under the laws of another state

Exemptions from licensing

holding a license for 20 years, a non-resident in compliance with resident state's continuing education requirements, meets criteria for illness, medical disability or hardship beyond control; called to active military duty in combat theater; employee of funeral home or holds funeral prearrangement life insurance license and only writes life insurance and fixed annuity contracts to deliver funeral services under prepaid contracts regulated by the Texas Department of Banking. When applying must provide statements and other information as required by the Department on a timely basis. A person, firm, or corporation may not act as a managing general agent (MGA) without holding a license as a MGA. A corporation is exempt from licensing to act as a MGA if: ■ The corporation is authorized to transact insurance in Texas. ■ All of the corporation's outstanding stock is owned solely by a Texas authorized insurer that controls all the corporation's business operations and activities. ■ The primary purpose of the corporation is to provide commission dollars to an agent who is licensed to receive commissions directly from the insurer and its subsidiaries. ■ The corporation does not engage in any other act of a MGA. ■ The MGA must execute on the insurer's behalf a contract with an agent.

Emergency

if the P&C agent cannot pay premiums due an insurer due to death, disability, or insolvency, the Department may issue an emergency P&C license to an individual who is not required to take an exam. Must provide proof to Department that license is necessary to preserve the assets of the agency owned by the deceased, disabled, or insolvent agent. Once issued valid for 90 days for 12 consecutive months. May be renewed for an additional 90 days during that 12-month period if all other requirements are met.

Investigation/Notice of Hearing by Commissioner

included in the general powers and duties granted to the Commissioner by the Department and state legislature. Commissioner is the Chief Executive Officer of the Department of Insurance and enforces but does NOT establish, the state's insurance laws.

What is "transacting insurance"?

includes both buying and selling insurance.

Unfair/Prohibited Trade Practices

includes both unfair claims settlement practices and unfair or deceptive claim methods and practices.

Transacting Insurance

includes: 1. Solicitation or inducement; 2. Preliminary negotiations; 3. Effectuation of a contract of insurance;

Unfair or deceptive claim methods and practices

insurers who do not met the minimum standards of performance under this act will be investigated. Upon reviewing the findings of an investigation, if the Department determines further action is required, it will set a date for a hearing to review alleged violations further. The Department must inform the insurer of the date of the hearing and the nature of any charges, providing at least 30 days advance notice.

Additional disciplinary actions of Commissioner

may also deny original application or renewal application for licensure; suspend, revoke, deny renewal of Certificate of Authority; assess administrative penalty; reprimand a licensee; resolve a matter informally by consent order, an agreed settlement, stipulation, or default.

License Revocation

nullification or withdrawal of an insurance license, an individual who was denied a license, or whose license was revoked, must wait 5 years before applying for an agent license. Restriction does not apply if the license denial was due to a failure to pass the required written exam or submit a properly completed license application. The Commissioner may deny a license application after the 5-year period if the applicant fails to show good cause for the issuance of a new license

Alien Insurer

other than Domestic or Foreign (Canadians are aliens; however, they are in the policy territory which is the geographic limitations for a loss or occurrence.)

Mutual Insurer

owned by policyholders

stock Insurer

owned by shareholders

Rebating

prohibited unless expressly allowed by law. an agent may not pay, permit, give - or offer to pay, permit, or give - any of the following to a person who does not hold an agent license: ■ A commission, a rebate of premium, a contract for service, or any other valuable consideration or inducement not contained in the insurance policy.

False Advertising

publicly making any untrue, deceptive, or misleading assertion or statement about any person working in the insurance business or about the business itself when the

General Powers and Duties of Commissioner

regulates the business of insurance; investigates misconduct; holds hearings; assesses penalties; issues subpoenas; administers oaths and takes testimony

Insurance Service Representative

required to hold a license if he/she is a salaried employee of a P&C agent who only performs assigned duties in the agent's office. Duties only performed with express approval of supervising P&C agent and includes: explaining insurance coverage; describing insurance products; quoting insurance premium rates; issuing insurance binders.

Surplus Lines

requires agent to hold a surplus lines license before placing an insurance contract with a licensed surplus lines insurer or negotiating, soliciting, effecting, procuring, or binding; offering advice, counsel, opinions, or explanation of surplus lines insurance products with exception of underwriting policies unless a general lines P&C agent referring business; receiving commissions or other compensation; supervising unlicensed staff engaged in the transaction of surplus lines insurance business. (Subject to state regulation, taxation, supervision, and control; it is a matter of public interest.)

Disciplinary Action against Licensee

the Commissioner may impose a fine if the licensee fails to complete the required number of hours of CE during each renewal period; report an address change to the Department in a timely manner; notify the Department of an administrative action taken against the licensee by a financial or insurance regulator in another jurisdiction.

Texas Lloyds

the Company Licensing and Registration Office charters, licenses and processes various related transactions for Lloyds. A Lloyds company consists 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.

License Denial

the Department may discipline a licensee or deny a license application if individual has: willfully violated state insurance law; material misstatement on license application; obtained or attempted to obtain license by fraud or misrepresentation; misappropriated funds, converted funds to own use or illegally withheld funds belonging to insurer, HMO or insured; engaged in fraudulent or dishonest acts or practices.

Criminal Background

the Department views the relationship between licensees and the public to be one where the public places its trust in licensees and relies upon them to act legally and ethically with respect to insurance products, which are often complex. Therefore, the Department requires licensees to be honest, trustworthy, and reliable. The Department has developed guidelines that determine what crimes disqualify persons from licensure due to their serious nature

Examination of Records by Commissioner

the department must examine insurers at least every 5 years; can review their books and records as well as examine agents

Defamation

the publication or circulation of a statement that is false, maliciously critical of, or derogatory to the financial condition of an insurance company if it is intended to injure any individual or organization engaged in the business of insurance. Includes the aiding, abetting, or encouragement of such a statement whether it is made verbally or in writing

Fraud

this violates a penal law and is committed while engaging in the insurance business, as part of an insurance transaction, or as a part of an attempt to defraud an insurer. If discovered or suspected must file a written report with the Department's insurance fraud unit or the NAIC may also file report with any authorized government agency within 30 days after determining has been or will be committed.

What does litigate mean?

to file a lawsuit

Rating and Underwriting Practices

unfair discrimination in the terms and conditions of insurance policies, including during the processes of underwriting and rating, is prohibited and includes discrimination based on gender or marital status. These prohibitions apply to all insurance policies issued in this state. Specifically, no policy benefits, terms, or conditions may be restricted, modified, excluded, or reduced. If premium rates differ based on gender or marital status, they must be based upon actuarial assumptions and approved by the Commissioner.

What is a judgment rating?

when an insurer bases their rates on their experience with a certain type of risk instead of actuarial data

Controlled Business

writing insurance on a corporation the agent owns, controls, or has the power to vote at least 10% of the voting stock or rights of the corporation. Also includes a partnership if the agent, through a right to vote or other power, exercises those rights to manage, direct, or control the business of the partnership.

What happens if you move out of state?

you must give up your Texas resident license.

How long do you have to renew license before you have to take the exam again?

1 year

How long do insurers have to acknowledge receipt of a notice of claim?

10 days

How much notice does the commissioner have to give for a hearing

10 days

How long is the commissioner appointed for?

2 years

Continuing Education

24 hours every two years except 10 hours every 2 years if limited life, accident & health or limited P&C. Must complete 2 hours on the topic of ethics during every license renewal period

How much continuing education is required?!?!?!

30 hours and 2 of ethics

Temporary License

a license issued by the Department under certain circumstances that is valid for 90 days and allows the agent to service but not sell insurance or memberships to the general public. Department must deny within 7 days or all parties may assume the license will be issued and the applicant may act as an agent.

Limited License

a license that allows the holder to write job protection insurance; crop insurance, exclusively; any form of insurance for a farm mutual company; any form of insurance if being written exclusively by the individual: auto, mobile home, prepaid legal, industrial residential fire insurance, credit insurance, any other type determined by the Commissioner for the protection of Texas insurance consumers.

Texas MGAs

a managing general agent (MGA) is any person, firm, or corporation responsible for supervising the local agency and field operations of an insurance company or carrier within this state. An MGA is also one authorized by a company or carrier to accept or process, on its behalf, policies produced and sold by other agents. When a MGA and agent enter into a contract, the contract must comply with guidelines established by the Department. All terms of the contract, including amendments and changes, must be in writing. MGAs must maintain all escrow accounts in a bank that is a member of the Federal Reserve System and is insured by the Federal Deposit Insurance Corporation. All monies received by an MGA on the insurer's behalf must be deposited in the appropriate escrow account.

What are legal reserves?

a measurement of an insurers liabilities to policyholders

Agent

a person or organization who/that is authorized to act on behalf of another. An insurance agent is a person or organization who/that solicits, negotiates, or instigates insurance contracts on behalf of an insurer and can be independent or an employee of the insurer. Insurance agents are the legal representatives of insurers, rather than policyholders, with the right to perform certain acts on behalf of the insurers they represent, such as to bind coverage

Subagents

a person who acts for, or on behalf of, an agent by soliciting, negotiating, or procuring insurance or collecting premiums payments for insurance. It does not matter whether the subagent acts verbally, in writing, electronically, or in any other fashion. Additionally, a person is a subagent even if he/she simply acts as a subagent. Insurers are not required to appoint subagents separately. If a subagent is terminated for a reason other than for cause, the appointing agent must report the termination to the Department promptly.

Risk Manager

a person who holds himself/herself out to the public and examines, assesses, or evaluates risk for a person wishing to obtain or renew a P&C policy in Texas. May provide service for a fee and give advice but must hold a risk managers license and meet the requirements of insurance code.

Adjuster

a person who investigates or adjusts losses on behalf of an insurance company. Can be an independent contractor or an employee. Also supervises the handling of claims. The following types are issued in Texas: all lines, P&C and surety, workers' compensation, employer's liability and US Longshoremen's & Harbor Workers' compensation.

The Commissioner

a person who is allowed to designate any person to investigate misconduct in Texas, hold hearings, issue subpoenas, administer oaths, take testimony, and assess penalties. Also administers the workers' compensation system, ensures fair competition within the insurance industry to foster competition, protects and ensures fair treatment of consumers and approves producer licenses and insurance company certificates of authority.

Managing General Agent

a specialized type of insurance agent/broker that, unlike traditional agents/brokers, is vested with underwriting authority from the insurer. Performs certain functions that are ordinarily only handled by an insurer, such as binding coverage, underwriting and pricing, appointing retail agents within a particular area and settling claims. Usually are involved with unusual lines of coverage such as professional liability and surplus lines of insurance. This person needs specialized expertise to underwrite the policies. Also writes some personal lines business, especially in geographically isolated areas such as western Oklahoma and North Dakota where an insurer does not want to set up a branch office. This allows insurers to rely on the expertise of this person which saves them money because they do not need a branch office and they do not need to develop in-house knowledge, they can rely on this person to handle the geographical area for them.

License Suspension

a temporary lapse in an insurance license as a punishment by the Commissioner when the agent violates