Regulations of the Insurance Industry and State Law
McCarran-Ferguson Act (Public Law 15)
This would subject the insurance to the Federal Anti-Trust and caused many problems in the industry. Regulations of insurance is up to the state and not the federal government.
Rating Organizations
Agents have a responsibility to place coverage with a financially sound carrier and there are several organizations that rate the financial strength of insurance companies. AM Best Co or Best Guide.
Agent Responsibility
-Fiduciary - a person in a position of financial trust. -An agent who takes business fnds for his own use is guity of theft and will be punished by law. -Agent must provide the insurer with "Notice of Information Practices" or disclosure statement at time of application. -Commingling - Mixing business with personal money. -Embezzle - spending business money for personal use. -Copies of advertising must be left with the perspecive insured or policy owner. -Provide a buyer's guide and a policy summary to the insured.
The power of the agent
Expressed - Written into the agency contract Implied - normal business activities, general business practices. Apparent - This is authority that the agent has taken outside of the agency agreement and the insurer has failed to protest.
Regulations Regarding Consumer Protection
Fair Credit Reporting Act - A federal law which protects the consumer's right to privacy and sets up procedures for reporting agencies to follow reporting practices to ensure the records are confidential and properly used.
The Insuring Clause
In the event of death we promise to pay a death benefit to the named beneficiary.
Underwirting
Jon is to Protect the insurance company. A process of selection, classification and rating of risks.
Unfair Trade Practices: Replacement
Notice of replacement must me sent by the NEW replacing insurer to the OLD existing insurer within 3 days of receipt of application.
Binding Receipt
This receipt makes the insurer liable for the risk from the date of application for a peroid of time regardless of the applicant's insurability. The binder can be effective for as long as 90 days.
Controlled business
A person is not to obtain a license for the principle purpose of writing Controlled Business. The maximum amount of controlled business is 25% of the agents book of business.
Applications without Premium payment
If there is no premium submitted with the application, the applicant is "inviting the insurer" to make an offer.
Void Contract
In the case of void contract the insurer is not liable for claims, they will repay all premiums no interest. Copacity of monirs to contract for insurance is Age 15.
Agent Licensing: Exemptions
Individual who are servicing policies, collection premiums, clerical staff, a licensed attorney, ect. An unlicensed person CA receive renewal commissions.
Licensing: Transacting Business
Inducing toward or soliciting for new business. The commissioner had 90 days to approve a company's Certificate of Authority. An agent's Certificate of Authority is renewed January 1st.
Conditional Receipt
Is given when the policy owner or applicant pays with the application or date of medical exam. Application + premium = Offer, conditional receipt is given.
Licensing: Maximum benefits paid by the Guaranty Association?
$300,000 Life Insurance Death Benefits: $300,000 per insured life Life Insurance Cash Surrender: $100,000 per insured life Health Insurance Claims: $300,000 per insured life Annuity Cash Value: $100,000 per contract owner-annuitant Annuity in benefit payout mode: $300,000 per contract owner. Unallocated Group annuity benefit: $5,000,000 per contact owner.
The Law of Contracts
-In insurance the value given by the insurer consist of promises in the contract. -Competent parties - the insurer must be authorize and the agent licensed. A minor at least age 15 can contract for insurance.
The Commissioner issues the following types of licenses
1. Agent licensing 2. Adjusters license 3. Probationary license 4. Counselor's License
Statements made in insurance Applications
1. Representation - a statement made by an insurer in a life or health application are consuidered to be a representation in the absense of Fraud. 2. Warrenty - A statement that is guaranteed to be true. 3. Misrepresentation - A statement that is false. 4. Concealment - a partial statement, leaving something out, hiding something.
Grace Period
A period of time after the premium due date during which the policy remains in force. If a claim occures during the grace period it is paid. The grace period in individual life insurance is one month (30/31 days).
Reserve
Accounting measurement of the insurer's liability to the policy owner. The reserve is the amount that the future premiums to be paid and interest to be earned will meet the contractual liabilities of the insurer.
How insurance companies sell their products?
An agency is a relationship in which one person is authorized to act for another who is the principle. In insurance the principle is the insurer and the sales rep or producre is the agent.
Commissioner: FRAUD
An intentional act designed to deceive and induce another party to part with something of value. The commissioner can order a CEASE and DESIST to "Stop this immediately".
Licensing: Who funds the Gauranty Insurance Benefits?
Assessed to Insurance Companies in the state pool
Advertising
Copies of advertising is always left with the buyer. Testimonials, if it is a paid endorsement, the ad must dislose this.
How insurance companies sell their products? Presumption of Agent
If an insurer supplies a person with materials that make it appear that he/she is an agent of the company a court will hold the insurer responsible for this person's acts.
Notice of Information Practices
Must be given at the time of application - disclosure statement.
Broker
Must be licensed as an agent. A broker is an independent slae rep and represents many life and health insurance companies.
Who regulated Insurance?
National Association of Insurance Commissioners (NAIC). State insurance commissioners are the regulatory authority. Before a proposed rule can become effective it must be on file as a matter of public record for at least 10 days.
Agent Licensing: Subagent
Qualifications for a subagent are 20 hours of agent classes, no exam.
National DO NOT CALL LIST
Regulated by the FTC and state officials. Telemarketers may call between 8am and 9pm. unless someone is on the do not call list. If the consumer requests info the business can call for up to 3 months from the date of inquiry. Violators can be fined up to $16,000 per incident.
Managing General Agent or General Agent (MGA/GA)
Supervises agents within a specific geographical area. Receives commission on the business.
Commissioner: HEARINGS
The commissioner must hold a hearing when required by law or upon written demand. The hearing must be held in 30 days. The commissioner must give 10 days notice fo hearing to general insurance matters and 15 days notice of unfair trade practices. Rehearing in 30 days after the outcome of a hearing has been delivered.
The Consideration Clause
The consideration for the policy are statements in the application and payment of premiums.
Insurance Commissioner
The insurance commissioner is elected by the voters to a term of 4 years. T E R M. The commissioner will appoint a CHIEF DEPUTY who has the power to perform the duties of the commissioner and has to post a bond in the amount of $15,000.
Insurable Interest
The person purchasing the policy must have an insurable interest in the life of the person being insured.
Commissioner: Penalties
Violations of code/rule - Probation for up to 1 yr. & $1,000 fine for non-willful & $5,000 for willful. Guilty of insurance FRAUD - if loss is over %500 or more = FELONY - prison from 2-10 years and a fine of up to $10,000.
Waiver
Waiver - A voluntary giving up of a legal right or advantage. Estoppel - the insurer is stopped from denying a claim because of the insured took advice from the agent and now because of the action the insured is denying the claim.
Independent Agent
Writes business for several companies - at renewal the agent may change the policy owner from one insurer to another.
Investigative Consumer Report
a whole new fresh report. Interviews are conducted. The consumer must be given 3 days notice if they are going to do an Investigative Report. The penalty for obtaining a consumer report under false pretenses is $5,000 or prison for 1 year or both.
Contract Features
-Aleatory contract - unequal contracts - one side may get all -Adhesion contract - sticks to it as drawn - Unclear contracts are interpreted against the insurer. -Uniliateral - act for a promise. Premiums in exchange for the promise. Life insurance policies are non-canceleable. Term insurance is non-canceleable.
Agent Licensing
-Anyone who has their license revoked/refused for cause must wait 5 years before applying. License may be reissued at the discretion of the commissioner. -If the licensed agent has had a change of business address, it must be given to Ins dept within 30 days. -All licensees must keep records of all transaction made under the license for 5 years at the address. Y E A R S -An agent license expires every 2 years on the last day of your birth month. -24 hours of continual education (3 hrs of ETHICS).
Agent Licensing: Qualifications for Temporary License
A temporary license may be issued upon: -death of a licensed agent -Disability of a licensed agent -Service in the armed forces -Termination of appointment -an agent in training Temp license are good for 6 months and can be renewed for additional 3-months not to exceed 15 months
Unfair Trade Practices
Defamation, False Advertising, Misrepresentation fo Dividends, Discrimination based on blindness, Twisting - replacement brought about by misrepresentation, Rebates - offering something of value to make a sale, Malfeasance - the performance of an act that is legally unjustified, harmful, or contrary to law.
Insurance Domicile or locality
Domestic (Home grown): Incorporated in the state in which it is doing business. Commissioner must examine DOMESTIC insurers at least once very 5 years. Foreign - An insurer doing business in a state other than where it is incorporated. Alien - an insurer that is incorporated in a country other than the US.
How often does the commissioner have to examine Rating Organizations
Every 5 years. If the insurer becomes insolvent the commissioner has the authority to take over the insurer. The commissioner can change management, change investment strategy if necessary.
Information and Privacy Protections Act
Gives the consumer the right to see information an insurer has o them and also says the company cannot give out information unless consumer signs a release form. A violation of the act is $10,000 fine, if frequent the fine can be $50,000.
When does a contract become effective?
If an applicant pays his first premium with the application - the applicant has made an offer to buy to the insurance company. When the applicant or policyu owner makes an offier (pays with the application) the agent must give a receipt.
Agent Licensing: Qualifications
Residency requirement is 6 months. The commissioner may wai6ve the residency requirement if applicant lives in a trade area (within 25 miles fo the border). Satisfy 40 hrs of pre-licensing classes. Pass the state agent licensing exam (70%)
Actuary
The job of determining an insurer's premium rates. They are the mathematicians that use financial and statistical date to the rate to be charged for insurance. The 3 factors: (I) Interest - some if the premuims are set aside to invest. (M) Mortality - table used to determine the probability of dying at stated age. (E) Expenses - acqusistion costs, commissions, supplies, payroll and taxes.
