Insurance Regulation

Solvency

commissioner monitors financial strength and integrity of insurers to ensure their continued operation will not be hazardous to policy holders, creditors, or the public in general

State Regulation 1. Commissioner's General Duties and Powers

-supervise insurance business -licensing -approve policies and forms -enforce insurance laws and impose penalties for violations -conduct examinations, investigations, hearings

License exam will not be required if applicant is person who...

has following professional designations... -Chartered Life Underwriter (CLU) -Chartered Property and Casualty underwriter (CPCU) -Certified Insurance Counselor (CIC) is licensed in another state as an insurance producer is applying for limited line credit insurance will be licensed in domestic mutual fire insurance will be appointed with a fraternal benefit society ->insurance producer is nontransferable and is issued for max period of 2 years

3. Privacy (Gramm-Leach-Biley Act)

insurance company may not disclose nonpublic info to a nonaffiliated third party except for the following reasons: -insurance company clearly and conspicuously discloses to the consumer in writing that information may bed disclosed to a third party -consumer is given that opportunity to direct that info not be disclosed to the third party -consumer is given an explanation of how the consumer can exercise a nondisclosure option 2 disclosures to a customer... -when the customer relationship is established -before disclosing protected info

Examination of Records

purpose is to ensure companies remain solvent, ability to fulfill its financial obligations and comply with state laws -every insurer must be examined once every 5 years, records must be kept for 5 years from the last exam -dept. may conduct an exam when it sees fit

Applicant must submit following documents to the Department of Insurance

-completed application -fingerprints, used by the dept. to obtain national criminal history records -documentation verifying that the applicant has met the licensing education and exam requirement -license fee

Nonresident Producers

an individual or business entity currently licensed as a resident producer in another state, may apply to the department for nonresident producer license -dept. may verify individuals licensing status through the Producer Database maintained by the NAIC -licensed person moves to PA, he/she may become licensed as a resident by submitting a completed application within 90 days of establishing residence

2. Fraud and False Statements

-considered unlawful insurance fraud for any person engaged in the business of insurance to willfully make any oral or written statement that either false or omit material facts -penalty can be 10-15 years -individual convicted of crime, involving dishonesty, breach of trust or a violation of Violent Crime Control and Law Enforcement Act of 1994 to work in insurance unless they receive a written consent aka a 1033 waiver

5. Privacy of Consumer Financial Info

-financial institutions are prohibited from sharing insurance coverage info with a third party to sell or solicit the purchase of insruance -if notice is given and customer does not sign return within 30 days, info may be shared licensee may not disclose nonpublic personal financial info about a consumer to a nonaffiliated third party unless... -licensee has provided to the consumer an initial notice -licensee has provided to the consumer an opt-out notice -licensee has given the consumer reasonable opportunity to opt out -consumer does not opt out Disclosure Required prior to time of application the producer must each person a disclosure that states the insurance/ annuity is... -not a deposit -not insured by the Federal deposit insurance corp or any other federal gov't agency -not guaranteed by the financial institution -subject to risk, including the loss of principal

Policy Rates and Forms

-insurers must file their premium rates with commissioner -all rate filings are subject to a 30 day waiting period before they become effective -Commissioners will examine each rating organization as often as deemed necessary but at least once every 5 years Forms -all, included changes to previously applied forms, must be filed with commissioner who will approve or disapprove within 30 days -if no action is reported in 30 days, insurer can assume that the form is approved Violations... -face misdemeanor charges and a fine of up to $500 Commissioner may pursue any following actions... -suspend license of the offending person -refuse to issue a new license to this person for 1 year -issue a fine of up to $1000 for each violation

Temporary License

Commissioner may issue without needing a written exam in any of the following cases -to the surviving spouse, next of kin, or personal rep of deceased producer -to spouse, next of kin, employee, or conservator of licensed producer who is disabled due to sickness -to the designee of a licensed producer who enters active service in the armed forces of the United States -any other person that Commissioner deems fit -> granted for up to 180 days

2. Ethics for insurance agents

Four primary responsibilities... -insurer -policy owners -general public -state Insurer -owes duties of honesty, good faith, and loyalty -obligated to reveal to the insurer all material facts concerning agency -remember they are a direct reflection on the insurer's image within the community Policy Owners -filings needs and providing quality service -agent owes the policy owner the same degree of loyalty that they provide the insurer -full disclosure, confidentiality, timely submission of all applicants and prompt policy delivery Sell to Needs -commitment to obtain and maintain the knowledge and skills necessary to carry out those tasks -commitment to education the prospect or client about the products and plans may be implemented Service the Sale -must provide quality service to customer during and after the sale Service begins with the application -responsibility to the insurer to ensure application is completed accurately -responsible to educate prospective insured to make sure that he or she fully understands the nature of application process -why info is required -how ti will be evaluated -need for accuracy and honesty in answering all questions -meaning of terms such as "waiver of premium", "automatic premium loan", "Nonforfeiture options", and "conditional receipt" Responsibilities to the Public -to inform the public about insurance with the highest level of professional integrity -to strive for an equally high level of professionalism in all public contacts in order to maintain a strong, positive image of the industry Promptness -agent needs to ensure that there are no unnecessary delays in underwriting process-> checking application for accuracy and giving careful thought to it before the application is actually submitted -inform applicants of underwriting delay Policy Delivery -agent owes his or her new policy owner prompt delivery of policy and review of its features and benefits If policy is rejected... -to personally review the rating or rejection, agent should have much info as possible and be able to explain the rating should have as much info as possible -notify applicant promptly, withholding info is a breach of ethics and could actually harm applicant and his or her family

Federal Regulation 1. Fair Credit Reporting Act

established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used -protects consumers against the circulation of inaccurate or obsolete personal or financial info Consumer Report= written and/or oral info regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources Investigative Consumer Reports= info is obtained through investigation and interviews with associates, friends, and neighbors of the consumer -cannot be made unless consumer is advised in writing within 3 days of when the report was requested -insurer or reporting agency has 5 days to provide consumer with the additional info -if a policy of insurance is declined because of info contained in either one of the two reports, consumer has the right to know what was in the report Prohibited Info= bankruptcies more than 10 years old, civil suits, records of arrest Negative info= info regarding delinquencies, late payments, any form of default

Ethics 1. Ethics: Principles and Practices

ethics= our concern for good behavior, we feel an obligation to consider not only our own personal well-being but also that of others and of human society as a whole Avoiding Conflicts of Interest -insurance agent cannot serve two principals at the same time -insurer can determine if there is conflict of interest Independent Agents guidelines for dual-agency -agent represents the insurance company when insurance is being applied for and when it is in the process of being underwritten -agent "represents" their client only during the process of helping the client select the insurance plan best suited to the client's needs

Managers and Exclusive General Agents

exclusive general agent= licensee which has been granted sole authority to act directly or indirectly as an insurance producer for a domestic insurer manager= person that negotiates and binds ceding reinsurance contracts on behalf of a domestic insurer or manages all or part of the insurance business of an insurer and does not act as an agent for that insurer Not required to be licensed as manager or exclusive general agents... -licensee whose authority is limited to the production of insurance business with limited underwriting authority -manager or exclusive general agent operating under a management contract or exclusive general agency agreement entered into prior to December 22, 1965 -person subject to regulation as a managing general agent ->anyone who is caught pretending to be is guilty of third degree misdemeanor and faces a fine of up to $1,000 for each day of their offense

Producer Appointment

insurer must certify producer's appointment as a rep. of the insurer insurer that appoints a producer must file a notice of appointment with the dept. fee of $12.50 billed to insurer annually for each producer appointed, must be paid within 30 days if insurer terminates a producer's appointment, the commissioner must be notified within 30 days of termination date insurer must mail a notice to producer within 15 days after notification is sent to commissioner producer has right to send comments to commissioner within 30 days of receiving note failure to notify could result in suspension or revocation of insurer's certificate of authority or a fine of no more than $5000 for each violation

Producer

person who sells, solicits, or negotiates contract of insurance Individuals applying must... -be at least 18 years old -have not committed any prohibited act -satisfy the pre-exam education requirements, including 3 hours of ethics, -pass the insurance producer licensing exam -pay all applicable fees -possess general fitness, competence, and reliability Business entities must.... -have one or more designated licenses in good standing with the dept. -apply for licensure in the same lines of authority held by the designated licensees -have not committed any prohibited acts -be owned, operated, and managed by persons possessing general fitness, competence, and reliability -pay all applicable fees -meet any other criteria established by dept.

3. Producer Regulation Fiduciary Responsibility

-agents are legally obligated to treat applicants and insureds in an ethical manner, they are in positions of trust because they handle funds of the insured and insurer -failure to submit funds appropriately could constitute embezzlement -violation is a misdemeanor subject to a fine of $5000 for each violation or 6 months of imprisonment Commissions and Fees if a person is not properly licensed they may still receive commissions in the following cases... 1) if the person was licensed at the time of the sale, solicitation or negotiation 2) for referring a person that is interested in purchasing insurance as long as the referring person does not discuss specific terms and condition of contract -licensee can charge fee in addition to commission to a person for the sale Producer Disclosure Requirements -insurance producers who do not have any company appointments are considered representatives of the consumer -producer who acts on behalf of an insurance consumer needs a written agreement which outlines the services provided by the producer and full and complete disclosure of the fee Prohibited Acts for an applicant -providing incorrect, misleading, incomplete or false info to the dept. in a license application -violating the insurance laws or regulations, or a subpoena, or order of the commissioners of this or another state -obtaining or attempting to obtain a license through misrepresentation or fraud -improperly withholding, misappropriating or converting money or properly received in the course of doing business Disciplinary Actions Hearings -may be held if commissioner suspects an insurer or its agent has committed a violation or is engaged in an unfair trade practice -legal hearing= give written notice at least 10 days prior to hearing Cease and Desist Order -commissioner may issue if person has violated an insurance law of PA Civil Penalties -each intention act of engaging in an unfair method of competition or practice, a penalty of up to $5000 for each violation -for each unintentional act, a penalty of up to $1000 for each violation

4. Do Not Call Registry

-allows consumers to include their telephone numbers on the list to which solicitation calls cannot be made by telemarketers Telemarketers must do in order to comply... -call any number on the National Do Not Call Registry -deny someone a right to be placed on any Do Not Call Registry -call outside permissible calling hours (before 8 am and after 9pm) -abandon calls Exceptions... -from or on behalf of organizations which have established a business relationship with the consumer -for which the consumer has given prior written permission -not commercial or that do not include unsolicited advertisements -by or on behalf of tax-exempt nonprofit organizations Organizations must consult registry every 31 days

Unfair Claims Settlement Practices

-misrepresenting pertinent facts or insurance policy provisions relating to coverages -failing to acknowledge and act reasonably promptly upon communications with respect to claims -failing to adopt and implement reasonable standards for the prompt investigation of claims -refusing to pay claims without conducting a reasonable investigation based upon all available info -failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed -not attempting in good faith to effectuate prompt , fair and equitable settlements of claims in which liability has become reasonably clear Insurers must comply with following regulations for claims settlements... -acknowledge the receipt of claims or any other pertinent communication within 10 working days -respond to inquiries from the dept. within 15 working days -after receiving notification of a claim, provide the necessary claim forms within 10 working days -complete investigations related to claims within 30 days of notice, if cannot insurer should give insured notice (within 30 days of initial notice), and provide further notice every 45 days that the investigation continues -accept or deny any claims within 15 days of their receipt. if the insurer needs more time, notice should be provided within 15 days Claimant should be notified of any time limit affecting their rights -30 days for first party claimants -60 days for third-party claimants -upon payment of $1000 or more in settlement of third-party liability claim, the insurer must send written notice to the claimant.

6. Insurance Fraud Regulation

Following actions are considered insurance fraud if conducted with intent to defraud an insurer... -presenting documents and statement that contain false, incomplete, or misleading info concerning any fact material a claim -presenting documents and statement that contain false, incomplete , or misleading info concerning a motor vehicle insurance rate filing, transaction, or action in response to an agency request -engaging insurance transaction activities without being properly licensed Civil penalty --up to $5000 for 1st violation, $10000 for 2nd, $15000 for each subsequent violation Insurance Fraud Protection Act of 1994 purpose is to protect consumers and insurance companies from white-collar insurance fraud Insurance Fraud Prevention Authority -established to develop and sponsor the implementation of statewide plans, programs, and strategies to combat insurance fraud Insurance Fraud Prevention Trust Fund -created to fund the investigation and prosecution of insurance fraud Section of Insurance Fraud -responsible for investigation and prosecuting insurance fruad Consent Agreement -person who is accused of violating insurance fraud statues of the insurance code may enter -accused does admit or deny the charges but agree to pay a fine

3. Avoiding Unethical Practices

Indisputable facts about insurance and buying public... 1)average insurance buyer knows very little about insurance and relies on advice and recommendations of the insurance agent 2)by the time a consumer finds that a particular policy does not meet his or her needs or does not live up to the agent's promises, it may be too late to purchase another policy NAIC model -purpose is to establish guidelines to ensure that insurance companies and their agents promote their products properly and accurately, without exaggerating the benefits or minimizing the drawbacks Deceptive Sales Presentations -probably have generated more complaints of unethical agent behavior that any other activity -any presentation that gives a prospect or client the wrong impression about any aspect of an insurance policy or plan is deceptive Attitude Toward Competition -agents should avoid criticizing other agents, detrimental to everyone in the business -do not criticize another company's policies -refer applicants to a widely-respected insurance company rating system such Weiss Rating Inc. if asked about an insurance company's reputation

Exemption from Licensing

Individuals not required to hold an insurance producer license... -director or employee of an insurer whose activities are limited to executive administrative, managerial, or clerical -director or employee of a special agent assisting insurance producers by providing technical advice and assistance to licensed insurance producers -person who secures and furnishes information for group insurance or performs administrative services related to mass-marketed property and casualty insurance

Licensing 1. Process and Types (available in PA)

Life- Coverage on human lives Accident and health- coverage for sickness, bodily injury or accidental death, and disability income Property- coverage for the direct and consequential loss or damage to property of every kind Casualty- coverage against legal liability variable life and variable annuities- coverage under variable life and/or variable annuities Personal lines- noncommercial property and/or casualty coverage Credit- debt insurance (limited line) Motor vehicle rental- auto rental insurance (limited line) Limited lines-any other type of insurance as determined by the Commissioner

4. Unfair Insurance Practices

Misrepresentation -illegal to issue, publish, or circulate any illustration or sales material that is false, misleading or deceptive False Advertising -ads cannot include any untrue, misleading, or deceptive statements that apply to the business of insurance or anyone who conducts it -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 true purpose of an assignment or loan against a policy -company must maintain a file of every ad used for a 4-year period Rebating= any inducement offered to the insured in the sale of insurance products that is not specified in the policy -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 Twisting= misrepresentation, or incomplete or fraudulent comparison of insurance policies that persuade an insured to cancel or switch policies (to their detriment) Illegal Inducement unlawful to pay, offer or accept any of the following as an inducement to buy insurance -any special favor or advantage in dividends or benefits -any stocks, bonds, securities, or accrued benefits or profits -anything of value not specified in the insurance contract Defamation=oral or written statement is made intended to injure a person engaged in the insurance business, also includes statements that are maliciously critical of the financial condition of any person Boycott, Coercion or Intimidation -illegal to be involved in any of above to restrict fair trade or create a monopoloy coercion= to require that the applicant purchase insurance from a specific insurer Misappropriation of Funds= person in a fiduciary position has used funds in manner for which they were not intended such as wrongful taking or use money belonging to another Theft= misappropriation of funds by insurance products Unfair Discrimination -discrimination in rates, premiums, or policy benefits for persons within the same class or same life expectancy is illegal cannot discriminate between individuals of the same class.... -rate or dividends of the policy -amount of premium, coverage, fees, rates, terms or conditions of the policy -underwriting standards by reason of race, religion, nationality, ethnic group, age, sex family size, occupation, place of residence or marital status Gender and marital status may be considered when calculating amount of insurance that can purchased for a given premium

2. Maintenance and Duration

Renewal -license may be renewed every 2 years -lapsed license fee= $165 in addition to the renewal fee Reinstatement within 60 days of license lapse, it will occur retroactively, reinstatement effective on the date of the lapse Reinstatement beyond 60 days of date of lapse, license will be reinstated prospectively -reinstatement effective the date that the license is reinstated Continuing Education -rules established to protect the public my maintaining high standards of professional competence in the insurance industry and to maintain and improve the insurance skills and knowledge of license produceres -all insurance producers must successfully complete a minimum of 24 credit hours of continuing education every 2 years Address Change -every producer licensed in PA must notify dept. within 30 days of any change of address in their residence or business Reporting of Actions -licensee must report any administrative action taken against them in another jurisdiction within 30 days of the final disposition of the matter -if licensee is charged with criminal conduct they must provide dept. with following docs within 30 days of their availability... -copy of criminal complaint -copy of order resulting from pretrial hearing -report of final disposition of the charges

4. Ethics vs Values

ethics= rightness of what you do values= what you believe in, what you hold important Ethical Decision Making -evaluate alternative courses of conduct on the basis of core ethical principles -choose the action that best advances those principles Core Ethical Values Honesty- truthful, straightforward, sincere and candid Integrity- honorable, courage of conviction promise-keeping: always strive to keep commitments loyalty- commits to being reliable and dependable fariness- strives to be equitable, open, just and unprejudiced caring/ compassion- considerate, kind, sharing, charitable respect for others- respects freedom, dignity, and rights of others personal responsibility- considers consequences and accepts responsibility for actions and inaction Rationalization as Tool -makes it easier to live with ourselves when we do things that we want to do, rather than the things that we know we should be doing 4 Basic Principles of a Highly-Ethical Individual -individual is at ease when interacting with diverse customers -individual is obsessed with fairness, other person's interest count as much as their own -individual assumes personal responsibility for his/her actions, responsible to themself first and then to their organization -individual sees his/ her activities in terms of purpose, ties individual to organization and organization to the environment Characterstics of Highly-Ethical Organiztion or industry -exists a clear vision and picture of integrity throughout the industry -vision is owned and embodied by top management in the industry, over time -reward system is aligned with the vision of integrity -policies and practices of the industry are aligned with the vision -every significant decision has ethical value dimensions Benefits of Applying Ethics -support individual growht -help to avoid criminal acts of omission and can lower fines -improve society -manage values -promote strong public image Bottom Line- ethical standards legitimize managerial actions, strengthens the coherence and balance of the industry, improves trust in the relationship between individuals and groups, and supports greater consistency in the standards and qualities of products

2. Company Regulation Certificate of Authority

insurance must obtain in order to legally transact insurance indicates that the commissioner has examined the business and found it to be financially stable and organized in accordance with the insurance code must notify commissioner within 5 days when there is any material cahnge