Cliff Notes CH 5

Definitions

1) Authorized (AKA admitted) Insurer

2) Cease and desist

1) Insurer that meets the state's financial requirements and is approved to transact business in the state & holds a Certificate of Authority.

2) order to stop or discontinue business. Issued if the Commissioner/Superintendent finds a licensee engaging in an unfair method of competition or an unfair practice. To prevent a producer or insurer from further violating laws for transacting insurance.

Definitions

3) Coercion

4)Controlled Business

3) forceful act or threat aimed to influence a person to act against their will. Ex: offering a loan but

only if consumer gets an insurance policy

4) Insurance on the producer's own life or property, or the lives or property of the

producer's family or business associates. Controlled business is legal when the commissions from it do not exceed the aggregate commissions on all the other business (specific limits may vary from state to state).

Commissioner could have grounds to discipline a producer for obtaining a license SOLELY to write policies to family members and associates.

Definitions

5) Counselor

6) Domicile

5) Life & health insurance 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.

6) refers to the location where an insurer is incorporated, not necessarily where the insurer conducts business.

Definitions

7) Principal

8) Twisting

7) In the agent/insurer relationship, the principal is the insurer

8) misrepresentation made to persuade an insured, to their detriment, to cancel, lapse, or switch policies from one to another

MORE definitions

1) Domestic insurers

2) Foreign insurer

1) are those incorporated in the state of Texas.

2) means an insurer with home office in another state, that has obtained a license from this state's Insurance Commissioner.

MORE definitions

3) Alien insurer

4) Fraternal benefit society

3) is a company based in another country that has obtained a Certificate of Authority admitting it to do business in Texas.

4)provides insurance benefits for members of affiliated lodges, religious organizations, or fraternal organization with a representative form of government. Operates for the benefit of its members.

Marketing Practices:

- Agents can only share commissions with other agents who are licensed for the same lines of insurance.

- no more than 15 business days from a receipt of notice of a claim.

Unfair and Prohibited Trade Practices:

1) Misrepresentation

1) is considered to be an unfair trade practice, including making misleading statements, illustrations or advertisements and/or the guarantee of future dividends. Issuing sales material with exaggerated statements about policy benefits (false advertising).

Unfair and Prohibited Trade Practices:

2) Defamation

3) Rebating

2) is defined as making oral or written statements that are false or maliciously critical of the financial condition of another insurer or agent.

3) is defined as the giving of something of value in order to induce the client to purchase an insurance policy, usually part of the premium paid or the commission received, can be stocks, securities, bonds, offer of employment, etc.

Rebating is illegal.

Unfair and Prohibited Trade Practices:

NOT rebating examples

Providing promotional materials, educational items, articles of merchandise, or traditional courtesy is

not considered rebating if the materials are provided to all applicants or insureds and do not exceed $25 in value.

Unfair and Prohibited Trade Practices:

- Refusing to make available coverage for persons of the same class would be considered an unfair

discrimination.

- Examples of unfair claims settlement practices: Refusing to pay claims without conducting reasonable

investigation, failing to adopt and implement reasonable standards for settling claims, failing to

acknowledge pertinent communication pertaining to a claim.

Unfair and Prohibited Trade Practices: PT 2

- Fraud is defined as an intentional misrepresentation or concealment used to induce a party.

- The Texas Department of Insurance (TDI) may require insurer to file periodic reports based on

complaints of unfair settlement practices. Reports must contain:

1) The total number of claims from the past 3 years, and information on how or if they were settled;

2) 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.

Insurance Guaranty Association:

- The Insurance Guaranty Association is designed to protect consumers (policyowners, insureds,

beneficiaries) against financial loss caused by insurer insolvency.

- All insurers authorized to write insurance within a state are required to be members of the Insurance

Guaranty Association.

- Insurers are prohibited from making statements & advertising that an insurer's policies are guaranteed

by the existence of the Insurance Guaranty Association.

LICENSING REQUIREMENTS

Producer

- A producer (insurance agent or broker) is a licensed person who sells, solicits, or negotiates insurance contract on behalf of an insurer. Licensee that represents insurer.

LICENSING REQUIREMENTS

Officers, directors, or employees

- Officers, directors, or employees who are not involved in and compensated for the selling of insurance

are not required to receive a producer license. Salaried full-time employees who counsel or provide

advice on the purchase of insurance are not required to be licensed, as long as they do not receive

commissions from sale of insurance.

Licensing Process

- Pass examination in last 12 months

- Submit application and licensing fees

- Applicant must be 18yrs old

- Provide a complete set of fingerprints upon request from the Department of Insurance.

Types of Licenses

Individuals: resident and nonresident (resides and is licensed in another state, but authorized to transact insurance in this state)

Temporary license - valid for 180 days; issued to maintain the existing business for example produce's spouse or designee in case the licensed producer dies or becomes disabled

Maintenance and Duration

- Continuing education - 24hrs of continuing education (CE) must be completed every 2yrs

- Pay renewal fee

- Producers must notify the Commissioner (Department of Insurance/Director/superintendent) on a monthly basis of any change in address, felony conviction or adverse administrative action taken against them in another state.

Maintenance and Duration

(Disciplinary actions:)

o Suspension, revocation or refusal to renew license

o Cease and desist order

o Monetary penalties

STATE AND FEDERAL REGULATIONS

Commissioner of Insurance

- Appointed by the Governor for 2 years

- Does not write laws

- insurer being examined is responsible for costs associated with the examination. Examinations can happen whenever necessary but at least once every few years (per state regulation but no less than 5yrs).

STATE AND FEDERAL REGULATIONS

Company Regulation

1) Domestic/foreign/alien

2) Ownership:

- Certificate of Authority - required for an insurance company to transact insurance in a state. License

issued by the Insurance Commissioner to insurers

1) location of incorporation. Domestic (corporation in the same state as business). Foreign (incorporated in another state or us territory). Alien (incorporated outside of USA)

2) stock (owned by stockholders) or mutual (owned by policyholders)

STATE AND FEDERAL REGULATIONS

Company Regulation PT 2

- Mutual insurers are owned by policyholders.

- Avoid unfair trade practice (defamation/boycott/rebating) or unfair claims settlements (ex: taking a long time to process claims, or if there are 2 insurance policies and waiting to see what other policy will cover before paying claim).

Memorize these numbers and their definitions

Department of Insurance Regulations:

- 2 years = Commissioner's term of office

- 60 days = For agent to request a hearing after receiving a cease and desist order

- 30 days = To hold hearing after receiving the request for Commissioner for hearing

- 5 years = Commissioner must conduct annual examinations (audits) of authorized insurers

Memorize these numbers and their definitions

Licensing and Appointment Requirements:

- 18 Years = Minimum required age for licensing

- 12 months = Results of the licensing examination are valid. Applicants whose license has been expired for < 1 year may obtain a new license w/o exam.

- 5 years After license revocation or denial before another license application can be filed

Memorize these numbers and their definitions

Miscellaneous Producer Regulations:

- 24 hours = CE to be completed during each reporting period every 2 years, including 3 hrs of ethics

- 3 hours = Minimum requirement for ethics training