Pennsylvania Laws and Regulations Applicable to All Lines of Insurance

Illegal Inducement

offering of anything not stated in insurance contract, including a rebate of premiums, special favors, or dividends - illegal inducement is a third degree misdemeanor

Fair Credit Reporting Act

- All insurers and their producers must comply with this act regarding information obtained from a third party concerning the applicant - A "notice to the applicant" must be given to all applicants that a report will be ordered concerning their past credit history and any other pertinent information (consumer reporting agencies include credit agencies, Equifax, Medical Information Bureau, etc.) - When an applicant is denied coverage due to information obtained from a third party source, the applicant will be informed of the source - Insurer must permit an applicant to refute any adverse information - Applicant can obtain a copy of report if declined - If the applicant feels information is incorrect, the applicant can send a brief statement to reporting agency with correct information

***Unfair Claim Settlement Practices

- misrepresenting policy provisions - failing to acknowledge and respond to claim communications - failing to implement reasonable standards for the prompt investigation of claims - failing to settle promptly when liability is reasonably clear to influence settlements under the other parts of the policy - compelling insureds to institute litigation to recover amounts due under policies by offering substantially less than the amounts ultimately recovered in actions brought by the insureds - making known to claimants a policy of appealing arbitration awards to compel claimants to accept a compromise less than the amount awarded in arbitration - attempting to settle a claim based on an altered application - failing to state the coverage for which payment is made - delaying an investigation or payment of a claim by requiring an insured's physician to submit a preliminary claim report and subsequently to submit formal proof of loss forms that contain substantially the same information - failing to affirm or deny coverage of claims within a reasonable time

Prohibited Acts

A licensee or applicant for an insurance producer license may not... - provide incorrect, misleading, incomplete, or false information to the department in a license application - violate the insurance laws or regulations - obtain or attempt to obtain a license through misrepresentation or fraud - improperly withhold, misappropriate, or convert money or property received in the course of doing business from an unlicensed person - intentionally misrepresent the terms of an insurance contract or application for insurance - commit any unfair insurance practice or fraud - have an insurance producer license denied, suspended, or revoked by a governmental entity - knowingly accept insurance business from an unlicensed person - use fraudulent, coercive, or dishonest practices - fail to pay child support - fair to pay state income tax - commit a felony or its equivalent - commit fraud, forgery, dishonest acts, or an act involving a breach of fiduciary duty - fail to notify the department of a change of address within 30 days - demonstrate lack of general fitness, competence, or reliability

Producer Appointment: Termination

Producers remain appointed with insurer until appointment is terminated in writing or until producer's license is suspended, revoked, or otherwise terminated. - The insurer must notify the Department in writing within 30 days following effective date of termination - The insurer must mail copy of notification to licensee within 15 days of notification - Licensee may file written comments regarding notification within 30 days of receipt

Civil Penalties per Insurance Fraud Violation

- first violation: $5,000 - second violation: $10,000 - each subsequent violation: $15,000

Privacy

A licensee may not, disclose non-public personal financial information about a consumer to a non-affiliated third party unless: - consumer has received initial privacy notice - consumer has received an opt-out notice, and has not opted out Licensees must provide a privacy notice to customers at least once in any 12 consecutive months

Do Not Call List

Created by Telephone Consumer Protection Act and Federal Trade Commission; commercial telemarketers are not allowed to call if number is on the registry, subject to the following exceptions: - Calls from organizations with which there is established business - Calls when written permission has been given - Calls that are not commercial - Calls that de not include unsolicited advertisements - Call by or on behalf of tax-exempt, non-profit organizations

Insurer Examinations

Examination of books and record - The department may conduct examinations of insurers whenever deemed appropriate, but at least once every five years

Producer Regulation

Fiduciary responsibility - insurance producer will be responsible in a fiduciary capacity for all funds collected or received - may not commingle funds with own funds - funds of each insurer must be identifiable from producer records

Commissions and Fees

Insurers and producers may pay commission or other compensation to a licensee for selling, soliciting, or negotiating a contract of insurance - May not pay commission to unlicensed person - Renewal or deferred compensation may be paid if the person was licensed at time of sale but is no longer licensed - May pay one time nominal referral fee to unlicensed person for each referral that does not depend on sale

Continuing Education

Must complete 24 credit hours for each 2 year license period - licensee may carryover up to of 24 hours to the next licensing period The following licensees are exempt fro CE requirement - licensees continuously licensed prior to 01/01/1971 - business entities - limited line and limited line credit insurance licensees - licensees with only fraternal line of authority - non-resident licenses

Insurance Fraud Prevention Act

Purpose: - to coordinate and fund fraud prevention activities - support enforcement of insurance fraud laws - administered by insurance fraud prevention authority

***Rate Regulatory Act

Two acts provide oversight in PA - fire, marine, and inland marine rate regulatory act - casualty and surety rate regulatory act Insurance rates must not be excessive, inadequate, or unfairly discriminatory. Commissioner examines all rating and advisory organizations at least once every five years. - organization pays cost for examination MUST NOT BE EXCESSIVE, INADEQUATE, OR UNFAIRLY DISCRIMINATORY

Unfair Discrimination

Underwriting standards must not be based on race, religion, nationality or ethnic group, age, sex, family size, occupation, place of residence, or marital status - it is unfair discrimination to charge different premiums or extend different benefits to individuals of the same class and essentially same hazard

Tie-In Sales Prohibited

a financial institution may not require purchase of insurance from a specific insurer or producer as a condition of any loan or deposit transaction

Redlining

give someone a quote so high that they won't ever think to buy from us

Advertisement

printed, audio, and visual literature used in direct mail, newspapers, magazines, radio/TV, sales talks, presentations, and materials used by agents, brokers, or solicitors

Misappropriation of Funds

producer who embezzles or fraudulently converts money to his own use while negotiating a contract is guilty of theft

Licensing Process: Pre-Licensing Education Requirements

Pre-licensing education requirements: - 24 credit hours - 3 of the 24 hours must be in ethics

Boycott, Coercion, and Intimidation

engaging in action or agreement that would result in unreasonable restraint or monopoly of insurance business

Types of Licenses: May Require a License

- property insurance - casualty insurance - personal lines - limited line credit insurance - motor vehicle rental - limited lines, as determined by the Commissioner - life insurance - accident and health or sickness insurance - variable life and annuity policies

***Disciplinary Actions: Commissioner

If the Commissioner suspects an insurance violation, the Commissioner will hold a hearing regarding the alleged violation - at least 10 days notice of the hearing is required After the hearing, if a violation is found, the Commissioner may - deny, suspend, refuse to renew, or revoke the license - assess a civil penalty of up to $5,000 for each violation - issue a cease and desist order

Regulation of Insurer Solvency

Insurers doing business in PA must maintain specified minimum levels of capital stock and surplus - amount depends on line of insurance and how company is organized Domestic insurers must submit report of risk based capital levels to commissioner and the NAIC every year by March 1

Insurer Exceeding Authority

- Any insurance company that exceeds the powers granted under its certificate of authority must pay a $500 fine for each policy issued in violation - The insurer may request a hearing within 10 days of notice of violation

Licensing Process: Qualifications for a License

- Must be at least 18 - Have not committed any prohibited act under insurance laws - Satisfied pre-licensing education requirements - Passed of is exempt from licensing examination - Paid applicable fees

Producer Appointment

An insurance producer may not act on behalf of or as a representative of an insurer unless appointed by the insurer. - The insurer must file a notice of appointment of the producer with the Department If representing a consumer (as opposed to insurer), the producer must execute a written agreement with the consumer regarding delineation of services - There must be full and complete disclosure of fee to be paid to the producer by the consumer

Insurance Fraud

a person commits an offense if, knowingly and with the intent to defraud, that person: - presents false, incomplete, or misleading claim information - conspires with another person by submitting false claim information - intentionally engages with an unlicensed producer or unauthorized insurer - knowingly benefits directly or indirectly from a violation - is an owner, administrator, or employee of any healthcare facility which allows another person to use the facility to further scheme or conspiracy - uses another person's insurance identification cared to present a fraudulent claim

***Maintenance and Duration: Assumed Names and Address Change

- Assumed Names: license may only be issued in name of applicant or business entity; licensee must notify Commissioner in advance if fictitious name is to be used - Address Change: licensee must notify Commissioner within 30 days of any change in address COMMISSIONER OPERATES UNDER THE EXECUTIVE BRANCH

Licensing Process: License Exam and Pre-Licensing Education Exemptions

- Business entity - Non-resident producers - Professional designations (CLU--Life and Health license, CPCU--Property and Casualty license, CIC--Life, Health, Property, and Casualty licenses) - Line of authority is only limited line credit insurance - Line of authority is restricted to limited line - Line of authority is restricted to fraternal insurance

Claims Practices

- Department inquiries must be responded to within 15 working days - if a claim investigation cannot be completed within 30 days, the insurer must provide the claimant with a written explanation for the delay and state when a decision may be expected - within 15 working days after the insurer receives the proof of loss, the first-party claimant must be advised of the acceptance or denial of the claim

Maintenance and Duration: License Reinstatement

- licensee may request reinstatement within one year of lapse - reinstatement is effective retroactively back to the lapse date if reinstated within 60 days after the license lapsed - reinstatement is effective on the date of reinstatement if reinstated more than 60 days after the license lapsed - if a person applies for reinstatement more than one year after the lapse date, the person must reapply for a license

Disciplinary Actions: Maximum Fines

Unfair competition where person knew it was a violation - $5,000 for each violation - $50,000 in aggregate in any 6 month period Unfair competition where person did not know it was a violation - $1,000 for each violation - $10,000 in aggregate for any 6 month period Violation on a commissioner's order - up to $10,000

Types of Licenses: Producer

a person may not sell, solicit, or negotiate a contract of insurance in Pennsylvania unless licensed as an insurance producer for the line of authority under which the contract is issued

Twisting

making misrepresentations or incomplete comparisons of policies to insureds in order to induce policy lapse, forfeit, or surrender of insurance to write a new policy with similar risks with another carrier Churning is detrimental replacement with the same insurer Twisting is detrimental replacement to a different insurer

False Advertising

making or circulating of an advertisement containing any statement regarding the business that is untrue, deceptive, or misleading; it is prohibited to make, publish, or circulate any advertisement that: - misrepresents benefits, conditions, terms, or dividends of a policy - misrepresents the financial condition of person or insurer - uses as insurance policy name that misrepresents its true nature

Rebating

offering valuable consideration or inducement to or for insurance on a risk

Commissioner

- executes insurance laws to protect the public interest - issues, suspends, or revokes licenses - regulates insurer solvency, and approves policy forms and insurance rates - may not be a director, officer, or producer of an insurer - is appointed by governor for a four-year term - issues rules and regulations to implement and administer the insurance code, but may not change the code itself - participates in the National Association of Insurance Commissioners centralized insurance producer license registry for submitting or obtaining information on insurance producers

Financial Institution Sales

Licensees employed by a financial institution soliciting annuities or life insurance sales (except credit life insurance) must provide applicants with a written disclosure at or prior to the time of application stating: - the insurance or annuity is not a deposit - the insurance or annuity is not insured by the FDIC or any other federal agency - the insurance or annuity is not guaranteed by the financial institution - the insurance or annuity is subject to investment risk, including potential loss of principal

Approval of Policy Forms

Life and health policy forms must be approved by commissioner prior to use - Once filed, the forms are considered approved after 30 days unless rejected - Commissioner must notify insurer to extend the review for another 30 days Disapproval and appeals - If a form is disapproved, commissioner notifies insurer within 30 days of the notice - Hearing must be held within 30 days after the commissioner receives request for hearing

***Advertising Requirements

Must be... - complete and clear to avoid deception - truthful and not misleading in fact or implication Advertising file - company must maintain file of all advertisements - file must be kept for four years Testimonials and endorsements - must be genuine, current, and accurate - must state if the person is being paid Prohibited advertisement of guaranty fund - it is unlawful to use the existence of a guaranty fund as an inducement to purchase any kind of insurance protected by the fund (pays back premium of $10,000)

NAIC

National Association of Insurance Commissioners - organization formed to promote uniformity in state insurance laws - prepares model laws that commissioners may represent to their respective legislators

License Renewal

- Producer licenses renew every 24 months in the producer's birth month - Licensees must: submit renewal form, pay renewal fee, and complete continuing education requirement LICENSE EXPIRES EVERY TWO YEARS ON LAST DAY OF BIRTH MONTH

Types of Licenses: Managers and Exclusive General Agents

- anyone acting as a manager or exclusive general agent must be licensed - violation is considered a third-degree misdemeanor; fine of up to $1,000/day

Misrepresentation

- making written or oral statements misrepresenting terms of policy or contract - making statements that dividends are guaranteed

Financial Institution Sales (part 2)

Financial institutions must have a separate area for sales of annuities or insurance distinct from the area where deposits and loan applications are discussed and accepted - signs must be used to distinguish insurance and annuity sales area from lending and deposit area - commissioner must exempt financial institution if number of staff or size of the facility prevents compliance

***Fraud and False Statements

If found guilty, certain types of false or fraudulent statements have been specifically outlined in federal law as punishable by the following penalties - a fine - imprisonment for up to 10 years - both of the above Imprisonment can be ordered for up to 15 years if the false statements jeopardized the safety and soundness of an insurer and were a significant cause of the insurer being placed in conservation, rehabilitation, or liquidation by the courts Fraudulent actions, statements, or reports include the following: - overvaluing of any land, property, or security - false financial condition or solvency of a business in insurance - willfully embezzling, abstracting, purloining, or misappropriating any money, funds, premiums, etc. - corruptly influencing, obstructing, or impeding the due and proper administration of the law under which any proceeding is pending

Gramm-Leach Bliley Act

- Consumer: an individual who obtains, from a financial institution, financial products or services which as to be used primarily for personal, family, or household purposes; also, the legal representative of such an individual - Customer: a consumer that has developed an ongoing relationship with a financial institution; customers must be given an initial and annual privacy notice - Privacy notices must explain: what information the company gathers about the customer, where this information is shared, and how the company safeguards that information - The initial privacy notice must be given to the customer no later than when the customer relationship begins - Consumers must be allowed to opt out of the institution's disclosure of non-public information to non-affiliated third parties - In addition, customers must be allowed to opt out of the institution's disclosure of non-public information to affiliated third parties - The Fair Credit Reporting Act is responsible for the 'opt out' opportunity, but the privacy notice must inform the customer of this right under the GLBA - The customer cannot opt out when the information is legally required to be disclosed

***Types of Licenses: Temporary License

may be issued to surviving spouse, employee, or court-appointed representative if a producer dies, becomes disabled, or enters active military service - temporary license may not exceed 180 days and is not transferable - person may not use temporary license to transact new insurance business - purpose of temporary license is to maintain, transfer, or conclude existing business ONLY ALLOWS YOU TO COLLECT COMMISSION AND DO SERVICING ON BUSINESS THAT HAS ALREADY BEEN PLACED

Defamation

making or issuing an oral or written statement that is false, derogatory, or maliciously critical to the financial condition of a person or insurer

Reporting of Actions

- Administrative Action: a licensee must report to the department any administrative action taken against the licensee in another jurisdiction or by another governmental agency in PA within 30 days after the final disposition of the matter - Criminal Conduct: a licensee must report to the Department within 30 days of being charged with criminal conduct MUST NOTIFY INSURANCE COMPANY OF CHANGE OF ADDRESS (MAILING, BUSINESS, EMAIL, ETC)

Type of Licenses: Non-Resident

- An individual who is currently licensed as a resident insurance producer in another state or territory may apply to the Department for a non-resident insurance producer license for the same lines of authority as in their home state - Reciprocity--department may waive requirements for non-resident license in PA if producer's home state awards the same to PA producers