Transcript INSURANCE REGULATION AND ETHICS

INSURANCE REGULATION AND ETHICS
Denton Educational Services
TEXAS INSURANCE CODE
T.I.C. is Texas’ code of laws responsible for governing the
insurance business
Subject to change (amendment) by the State legislature
Identified by ARTICLE numbers
TEXAS ADMINISTRATIVE
CODE
Texas Department of Insurance (T.D.I.) rules which
interpret State laws as written in the insurance code.
Exercises T.D.I.’s authority over the insurance business as
conducted in this state - implements/enforces laws
Identified by the letters TAC
TEXAS DEPARTMENT OF
INSURANCE
PURPOSE - to protect citizens of Texas
– From illegal, unfair insurance practices
– From failure to pay claims
– To make sure that insurance is available to meet consumers’ needs
at a fair price and sold in a non-discriminatory manner
TEXAS DEPARTMENT OF
INSURANCE
SCOPE OF AUTHORITY
• Set /review pricing for some insurance lines
• Determine forms and content of many types of insurance policies
• Authorize insurers to operate in Texas - including oversight of financial
•
solvency License agents
Disciplinary actions - cease & desist orders, suspend/revoke licenses,
impose fines & administrative penalties up to $25,000
TEXAS INSURANCE
COMMISSIONER
Head of T.D.I. who makes policy and renders decisions
regarding rules, rates, hearings, appeals, disciplinary actions,
formal orders and regulations
Appointed by the Governor; approved by the Senate
2 year term
AGENT / COMPANY
RELATIONS IN TEXAS
DUTIES/OBLIGATIONS OF AGENTS TO COMPANIES
• FIDUCIARY RELATIONSHIP - agent owes principal an accounting
•
for money/property belonging to principal
LAW OF AGENCY (Common Law)
Agent must not exceed authority granted by principal
Agent Informs principal of all material facts
Agent must protect principal’s interests
AGENT / COMPANY
RELATIONS IN TEXAS
 DUTIES/OBLIGATIONS
OF COMPANIES TO AGENTS
– Enable agent to do business/perform contract - partial termination OK
– Protect agent during contract cancellation
6
mos. notice of intent; then 6 mos. renewals
 No new business/ increased limits without company consent
 U/W rules or commissions can’t be changed solely because of
termination (i.e. for only 1 agent)
– Withdrawal plan - file to pull out of markets
LRA LICENSE
REQUIREMENTS
Be at least 18 and a Texas resident
Be appointed by an insurer as an agency owner/principal
Obtain a “clearance letter” if any other state licenses held within past
5 years
Pass state exam for Emergency or Temp. license
Take 80 hours instruction and pass exam for Permanent license
within 1 yr.
SOLICITOR REQUIREMENTS
Be at least 18 and Texas resident
Obtain clearance letter if necessary
Pass state solicitor exam
Be appointed by an LRA; salary and/or commission compensation
Be active as a solicitor with no more than 75% controlled business
Work inside or outside agent’s office
May not sign/execute policies; can bind
ISR REQUIREMENTS
Be at least 18 and Texas resident
Obtain clearance letter if necessary
Pass state ISR exam
Be appointed by a Local Recording Agent
Work only inside agent’s office/salary compensation
May not sign or execute policies, but can bind
RISK MANAGER
“A person who presents him or herself to the public and
who for compensation examines, assesses or evaluates risks
for and provides advice for reduction of risks to a person
who seeks to obtain or renew property and casualty
insurance coverage in Texas.”
RISK MANAGER
REQUIREMENTS
Be at least 18 with a place of business in Texas
Meet application requirements
Pass state exam; pay licensing fees
If employed by insurance company or a single corporate
employer, no RM license required; must have if acts as
independent consultant on a fee basis
MANAGING GENERAL
AGENT
A person, firm or corporation having
supervisory responsibility for the local agency
& field operations of an insurance company
within the state or who is authorized by a
company to accept or process insurance
policies produced and sold by other agents
MGA REQUIREMENTS
Have company appointment and accept referral business that equals
50% or more of the agency’s total business or $500,000 premium.
Be at least 18 and a Texas resident
Provide $100,000 proof of financial responsibility
Pass state exam
Pay licensing fees
SURPLUS LINES AGENT
Be a resident of Texas (unless licensed as non-resident acting on
behalf of a purchasing group) and office in Texas
Hold either an LRA or MGA license
Provide $50,000 proof of financial responsibility
Pass licensing exam
Pay licensing fees
SURPLUS LINES AGENT
Have facilities to accumulate/preserve records
Have facilities to collect, maintain, report and remit premium
taxes
Have knowledge and experience in insurance placement to
determine eligibility for surplus lines
Have knowledge/experience to collect and analyze financial and
other data to determine eligibility (i.e. financial condition) of
surplus lines carrier
DUE DILIGENCE
 Reasonable
care owed by LRAs to public when placing
standard business
 Higher standard of care owed by retail and surplus lines
agents when placing non-standard business
 Make reasonable effort to determine financial condition of a
non-standard lines insurer
– Check the insurer’s financial rating.
– If rating is low, advise insured in writing and get a signed
authorization
SURPLUS LINES MARKETS
 Standard
(admitted carriers) authorized by State which has direct
financial monitoring responsibility for them (audits every 1-3 years)
 Nonstandard (non-admitted) carriers licensed by State but not audited
for financial soundness.
 TIC prohibits the “export of coverage to non-admitted market unless
a “diligent effort” has been made to locate an admitted carrier to
write the coverage”
GROUP I (LIFE & HEALTH)
AGENTS
 Be
at least 18 and a Texas resident
 Temporary license - 90 days without exam
 Complete 40 hour pre-licensing education program
 Pass
state exam to get permanent license
 Includes those selling HMO related services
OTHER LICENSES
 Adjuster
- investigates & settles losses on behalf of an insurer
or self-insurer
 Variable contract agent - sells contracts which pay variable
benefits depending on investment experience
 Third Party Administrator - provide administrative services or
handle funds for insurance companies
OTHER LICENSES CONT’D.
 Premium
Finance Company - makes loans by entering into
finance contracts with insureds
 Life Insurance Counselor - charges fee to examine
life/annuity contracts; make recommendations to public
CORPORATE &
PARTNERSHIP LICENSES
 Each
principal must hold individual license
 Partnership or corporation must also hold same license(s) as
principals
 Financial responsibility (E & O of at least $100,000)
 Exception is bank agency in a town under 5000 - only 1 officer
required to hold license(s)
NON-RESIDENT LICENSES
 Any
agent who sells or services P & C insurance outside
residence state must be licensed in other state(s) before
company can legally pay commission
 Each state has different laws, procedures, licenses,
restrictions, continuing education requirements, etc.
 Generally requires letter of good standing from “home” state
EXEMPTIONS FROM
LICENSING
 Farm
Mutual insurance company employees and agents
 Salaried clerical employees
 Home office solicitors of companies licensed in Texas
 Rental car companies and employees (limited license)
CONTINUING EDUCATION
 LRA,
Solicitor, ISR, Group I, Adjuster and MGA all must complete 30
hours approved CE every 2 years (to coincide with license renewals)
 Certificates must be kept in file for 4 years (agent’s responsibility)
 Ethics certificates must be kept 6 years
 Agent licensed continuously 20 years or more is exempt by filing
affidavit of history of license(s) held
SUSPENSION/REVOCATION
 Willful
violation of insurance laws
 Intentional material misrepresentation on license application
 Misappropriation or conversion of insured’s or insurer’s money
 Conviction of fraud or dishonest acts
 Felony conviction
 Writing more than 75% controlled business
SUSPENSION/REVOCATION
 Discrimination
between insureds based on race, color,
national origin, religion, age, gender, marital status,
geographical location, disability or any other criteria not
based on sound actuarial principles
 Misrepresenting the terms of a contract to induce insured to
cancel or surrender the policy and replace it with another
CHARGING FEES
 PERMISSIBLE
FEES
Printing,reproduction, electronic mail or phone
Special delivery & other postal
Order MVRs
Property photos and inspections (reimbursement)
Agent fees (in addition to or in lieu of commission)
 DISCLOSURE
STATEMENT - signed by insured - maintain
records for 5 years
FAIR CREDIT REPORTING
ACT
 Protects
consumers subject to adverse action based on a credit report
 Requires permission from consumer prior to obtaining credit information
 Requires user of adverse credit information to provide
written notice of adverse action
name, address and phone of agency furnishing report
information to obtain free copy of report
TEXAS GUARANTEE FUND
 Provides
protection in the event that an authorized insurer
(standard/admitted company) becomes insolvent
 Court places company into liquidation: any claims must be filed with
the Fund or appointed receiver
 All admitted carriers assessed a pro rata share
 $100,000 cap except workers comp
 May NEVER be used as a sales benefit
REFERRAL BUSINESS
 “Brokering”
between 2 LRAs: agent who has a company
appointment accepts business from agent who doesn’t commissions are shared
 Producing agent prepares application, collects premium and services
policy
 Placing agent binds coverage, executes policies and provides
evidence that insurance is in force
COMMISSION SHARING
 Illegal
to share commission with ANY unlicensed person including payment of “bonuses”, “finders fees”, “referral fees”
or “incentives” (any valuable consideration)
 Solicitor may not “broker” business to or accept commission
from any LRA except the appointing agent
CHANGES
 All
agency names must be registered with TDI (file LDTL
certificate)
 All changes of ownership/principals must be filed with TDI
 Every LRA and Group I appointment by a company must be
approved by TDI
 TDI must be notified of agency address change
 ISR or Solicitor must file agency change with TDI
UNFAIR COMPETITION AND
TRADE PRACTICES
 MISREPRESENTATION
- an untrue statement or omission
of a material fact or law or making a statement in a way that
would lead a reasonable person to a false conclusion. Also
inaccurate or incomplete comparisons of insurance companies
or contracts
UNFAIR PRACTICES Cont’d.
 FALSE
ADVERTISING - printed or published literature
intended for public distribution which is untruthful in fact or
implication. Includes:
– Print or visual ads and billboards
– sales and form letters
– prepared sales presentations/proposals
– materials included with policy when delivered
UNFAIR PRACTICES Cont’d.
 DEFAMATION
- false or malicious statement about financial
condition of insurer: also distributing false or derogatory
information about others in the insurance business
 COERCION - forcing someone to do business with you
 BOYCOTT - 2 or more agents jointly refusing to place
business with a carrier
UNFAIR PRACTICES Cont’d.
REDLINING - refusing to write insurance
based on location
 UNFAIR DISCRIMINATION - refusing to write insurance
based on other than underwriting decision
 REBATING - providing ANY valuable consideration outside
the insurance contract as an inducement to purchase

UNFAIR PRACTICES Cont’d.
TIE IN SALES - making availability of
one policy conditional on purchase of
another
 SLIDING - adding coverages to policy without insured’s
approval
 TWISTING - replacing insured’s policy with yours when not
in his/her best interest
 CHURNING - replacing current policy with another in the
same company when not in insured’s best interest

UNFAIR PRACTICES Cont’d
 LOWBALLING
- quoting a lower premium than will actually
be charged in order to obtain business
 BLACKLISTING - refusing insurance solely because another
carrier has refused or canceled
 FALSE FINANCIAL STATEMENTS - publishing or filing a
false statement of insurer’s condition
UNFAIR CLAIM SETTLEMENT
PRACTICES - a laundry list of things a company may
 Misrepresent
not do when settling claims
coverage
 Fail to attempt a prompt, fair, equitable settlement
 Fail to settle one claim to influence settlement of another
claim
 Fail to provide reasonable explanation of claim denial
UNFAIR CLAIMS PRACTICES
 Fail
to confirm or deny coverage in reasonable time
 Unreasonable delay in settling 1st party claim on the basis
that 3rd party or other coverage may be available
 Attempt to obtain a final claim release after only partial
payment made
UNFAIR CLAIMS PRACTICES
Refuse to pay a claim without reasonable investigation
 Delay paying PIP or UM claim because other coverage is
available
 Require claimant to provide copy of IRS return except in
specifically defined cases (EX: loss of income)

ETHICAL PRACTICES
 Texas
Insurance Code and Texas Administrative Code give
us guidelines as to what is legally acceptable/unacceptable in
the conduct of insurance business
 One goal of agents is to avoid doing what is “wrong” - a
legal decision
 Another goal should be to try to do what is “right” - this is
where ethics applies - a moral decision
Defining Ethical Behavior
 Root
is Greek “proper modes of conduct” in a culture. Current
meaning; “conforming to accepted professional standards of
conduct”
 Not a response to legal restrictions or threat of punishment
 An internal, personal decision implying freedom & authority to
make individual judgements
 Often defined in relation to what is unethical - no concrete
answers
FACTORS AFFECTING
ETHICAL DECISIONS
 Desire
to make money
 Compensation system a person works under
 Economic forces of competition
 Moral and religious beliefs
 Family expectations
 Emotional problems
 Expectations of bosses and clients
 Financial troubles
FACTORS AFFECTING
DECISIONS CONT’D
 SHORT
TERM GOALS
Increase sales and income
Grow the business - increase client base
Save time - yours and the client’s - be efficient
Don’t make mistakes
Look good to clients
FACTORS AFFECTING
DECISIONS CONT’D
 LONG
TERM GOALS
Be a true professional
Build self-respect
Earn clients’ trust
Earn others’ respect, good reputation
Build profitable business
Ethical Decision Making
 Decide
if the problem has legal or ethical considerations
– Is it only legal or ethical or does it have both components?
– Is the decision necessary?
 Gather
all pertinent information
– How did the problem occur?
– Who has “rights” in this situation that should be protected?
– Who has obligations in the situation?
DECISION -MAKING Cont’d.
 Identify
–
–
–
–
and evaluate alternatives
What is the min./max. obligation owed?
What are the conflicts of interest?
What would be the short term result?
What would be the long term result?
 Make
the decision based on:
– How you would defend your choice publicly
– How ___________ would have acted
– How well you can live with your choice
CODE OF ETHICS
 “Establishes
minimum standards of expected behavior for
those to whom the code applies.”
 Insurance industry organizations each have own
 Some codes are principles only with no penalties for nonadherence
 Other codes hold members accountable and may expel or
sanction those who do not meet standards
ETHICAL PROBLEMS
A LAST WORD
PRACTICE
WHAT YOU PREACH
FOLLOW THE GOLDEN RULE