Insurance Laws PDF

Powered by ExamFX - Online Training & Assessment Insurance Regulation Up to this point, the concepts that you have covered have been ones that apply to the insurance industry as a whole. Now that you have examined insurance policies and their pr...

Powered by ExamFX - Online Training & Assessment Insurance Regulation Up to this point, the concepts that you have covered have been ones that apply to the insurance industry as a whole. Now that you have examined insurance policies and their provisions, you can turn your attention to regulations and definitions that apply only to this state. You'll learn about a variety of topics, from the duties of the Insurance Department to licensing laws. This chapter is full of definitions and numbers for time limits and dollar amounts. Make sure that you know them for your exam. TERMS TO KNOW A u t h o r i z e d i n s u re r — insurer who has received a Certificate of Authority from the department of insurance to transact insurance in this state C e a s e a n d d e s i s t — to stop or discontinue C o m m i s s i o n — payment to the agent by the insurance company for placing insurance, usually a percentage of the policy premium C o m m i s s i o n e r — the head of the State Department of Insurance D o m i c i l e ( fo r i n s u re r s ) — a state in which an insurer is organized and has its main place of business H o m e of fic e — insurer's headquarters, principal place of business I n d u c e m e n t — an offer that attempts to influence the other party M o r a l t u r p i t u d e — conduct that is contrary to community standards of justice, honesty or good morals R e c i p ro c i t y — a mutual interchange of rights and privileges St a t u te — a formal written law enacted by legislature; insurance statutes can be found in the state Insurance Code A. Licensing A person cannot sell, solicit, or negotiate insurance in this state unless licensed for the appropriate line(s) of authority. The purpose of licensing is to ensure that a producer meets educational and ethical standards required to fulfill producer's responsibilities to the insurer and to the public. Licensing regulations set out the requirements, procedures, and fees relating to the qualification, licensure, and appointment of insurance producers. 1. Requirements Prior to transacting insurance in this state, insurance professionals must be properly licensed for a specific line of authority authority. However, an insurance license is usually not required if a person does not receive any commission for transactions. This category of insurance professionals may include company officers, directors or employees of the insurer who perform the following duties: Only perform executive, administrative, managerial, or clerical activities that are not directly related to the sale, solicitation or negotiation of insurance; Have a function that relates to underwriting, loss control, inspection or the processing, adjusting, investigating or settling of a claim on a contract of insurance; or Are acting in the capacity of a special agent or agency supervisor assisting licensed producers, where activities are limited to providing technical advice and assistance to licensed producers and do not include the sale, solicitation or negotiation of insurance. Insurance producers in this state may transact insurance in one or more of the following lines of authority: Life — coverage on human lives; Variable life and variable annuity products; Health and accident — 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; Personal lines — noncommercial property and/or casualty coverage; Title; Credit — debt insurance (limited line); Travel — coverage for trip cancellation, interruption, baggage, life, sickness and accident, and personal effects limited to a specific trip; Industrial fire; Surety — insurance or bond that covers obligations to pay debts; Bail bonds; Surplus lines; Limited lines; and Any other type of insurance as determined by the Commissioner. 2. Types of Licensees Individual Producer Producers are individuals or business entities that are licensed to sell, solicit, or negotiate insurance. From a legal standpoint, producers represent their respective insurance companies, not their customers. An applicant for an individual producer's license must meet the following qualifications: Is at least 18 years of age; Resides in the state or maintains his/her principal place of business in the state; Has not committed any act that is a ground for denial, suspension, or revocation; Has completed a prelicensing course of study for the lines of authority for which the person has applied;  Has paid the designated licensing fees and submitted an application; Fulfill fingerprinting requirements (if required); and Has successfully passed the examinations for the lines of authority for which the person has applied. Business Entity A business entity is a corporation, association, partnership, limited liability company, limited liability partnership, or other legal entity. Business entities can act as producers, provided that they obtain producer's licenses. If a member or employee of the business entity wants to transact insurance, that person must first register with the Department of Insurance under the business entity's license and obtain an individual producer's license. Resident vs. Nonresident Individuals who do not reside in Louisiana may obtain a nonresident producer license if he or she meets the following qualifications: Currently licensed as a resident and is in good standing in his/her home state; Has requested a license and has paid the licensing fees; Has provided the Commissioner with either a Uniform Application or the same license application that was submitted to his/her home state; and The producer's home state awards nonresident producer licenses to residents of Louisiana on the same basis (known as reciprocity). A nonresident producer who moves from one state to another state or a resident producer who moves from this state to another state must file a change of address form and provide certification from the new resident state within 30 days of the change of legal residence. No fee or license application is required. Temporary A temporary producer's license may be granted under specific circumstances. These licenses last for 180 days; after that, the person needs to take a producer's exam and receive a standard license. A temporary license may be issued to the following individuals: The surviving spouse, next of kin, or employee of a licensed insurance producer who is deceased or disabled (mentally or physically). The temporary license would be granted to allow adequate time for the sale of the insurance business, for the return of the producer to the business, or to provide for the training and licensing of new personnel to operate the business; A member or employee of a business entity licensed as an insurance producer, upon the death or disability of an individual designated in the business entity application or the license; The designee of a licensed insurance producer entering active service in the U.S. Armed Forces; or Any other person deemed fit by the Commissioner. The Commissioner may require temporary licensees to be monitored by a sponsor and may revoke the license at any time. The license automatically expires when the owner disposes of the business. 3. Maintenance and Duration Expiration A producer's license remains in effect unless it's revoked, suspended, or nonrenewed, as long as the producer maintains satisfactory conduct, completes the continuing education requirements, and pays the required fees. Effective January 2018, licenses that end in an even number will expire in even- numbered years years. Likewise, licenses that end in an odd number expire in odd- numbered years years. Renewal Producers need to submit a license renewal application every 2 years. License renewals must be completed by the last day of the producer's birth month. The renewal window begins 90 days before expiration. If the application is received after the stated deadline, then a $25 late fee will be charged. As part of the license renewal process, producers must comply with the state continuing education requirements. Producers who allow their license to lapse may reinstate the same license within 2 years, upon proof of fulfilling all continuing education requirements through the date of reinstatement, and by paying all overdue fees. If a license has been lapsed for more than 2 years, the producer must apply for a new license. Change of Name and Address Every licensee must notify the Commissioner of any changes to the licensee's residential, mailing, business, or e-mail address or phone number within 30 days of the change. The same regulation applies to changes in the licensee's name. Failure to file an address change within the required time will result in a $50 penalty per violation. Assumed Names An insurance producer doing business under any name other than his or her legal name is required to notify the Commissioner prior to using the assumed name. This also applies to trade names, which must be registered. An insurance producer using a name that has not been approved will be subject to a fine up to $250 $250. If the producer continues to use the name for 10 or more days after being notified by the Commissioner to stop using the unapproved name, the producer will be subject to an additional fine of up to $5,000 $5,000. Reporting of Actions An insurance producer must report to the Commissioner any administrative action taken against him/her in another jurisdiction or by another governmental agency in Louisiana within 30 days of the final disposition of the matter. Within 30 days of a conviction in district court, a producer must report the conviction to the Commissioner and provide a copy of the bill of information or indictment. Continuing Education Requirements Continuing education (CE) rules are established to protect the public by maintaining high standards of professional competence in the insurance industry, and to maintain and improve the insurance skills and knowledge of licensed producers. All insurance producers licensed in the state of Louisiana must complete 24 hours of approved continuing education instruction or self-study prior to each license renewal. At least 3 hours must be on ethics ethics. These requirements apply regardless of the line or number of lines of insurance for which the producer is licensed. Producers licensed to write property, casualty, property and casualty, or personal lines insurance must also include 3 credit CE hours on flood insurance insurance. Up to 10 hours of excess CE credits may be carried forward to the next renewal period for producers licensed in any combination of the lines of life, health and accident, property, casualty or personal lines. At the Commissioner's discretion, a licensed agent or broker who is a member of, and actively participates in, a state or national insurance association may be granted 4 CE credits. The following producers may be exempt from CE requirements in this state: A producer is 65 years old or older, and has at least 15 years of experiences as a licensed producer, and who is either no longer actively engaged in the insurance business or who represents a licensed insurer in this state; A producer who is currently serving a term as a member of the legislature; Nonresident producers who have met CE requirements in their home state; and Individuals renewing their resident producer licenses for the first time after initial issuance. Individual producers engaged in the sale of any annuity products must complete a one-time, 4-hour training course. This requirement is separate and distinct from the CE requirements for a licensee, and applies to both resident and nonresident producers. Inactivity Due to Extenuating Circumstances and Inactivity Due to Military Services A licensed insurance producer who is unable to comply with license renewal procedures due to military service or other extenuating circumstance, such as a long-term medical disability, may request a waiver of those procedures. The producer may also request a waiver of any examination requirement or any other fine or sanction imposed for failure to comply with renewal procedures. B. State Regulation 1. Commissioner's General Duties and Powers The Commissioner of Insurance is responsible for making sure that the provisions of the Louisiana Insurance Code are enforced properly. The primary goal of this office is to protect the public welfare where insurance is concerned. To that end, the Commissioner is in charge of the following: Conducting legal hearings regarding suspected violations of the Insurance Code; Issuing cease and desist orders; Examining insurers for solvency; and Issuing, renewing, suspending, and revoking licenses. The Commissioner is elected for a term of 4 years. Examination of Books and Records The Commissioner has the power to examine and investigate the affairs of every person engaged in the business of insurance, in order to determine whether the person has been or is engaged in any unfair trade practices. The purpose of the examination of insurers is to ensure that the companies remain solvent and conduct business of insurance in compliance with state laws and regulations pertaining to licensing, policy forms, rates, claims, and market conduct. The Commissioner can examine insurers for solvency and compliance with the Insurance Code as frequently as deemed necessary, but at least once every 5 years. Newer insurers may be examined more frequently: every 6 months for the first 3 years, and once a year for years 4 through 6. If the Commissioner has received at least 3 complaints about a producer within a 30-day period, the Commissioner will most likely investigate the producer's business practices. The Commissioner can conduct such examinations, however, whenever he/she deems appropriate. Every insurer being examined, its officers, employees, and representatives must be able to provide the Commissioner with all relevant accounts, records, documents, and files. Foreign and alien insurers licensed in Louisiana do not have to be examined by the Commissioner. Instead, the Commissioner may accept an examination report on the company as prepared by the Insurance Department of the company's state of domicile or port-of-entry state, provided that proper protocol is followed. 2. Company Regulation Certificate of Authority Before an insurance company can legally transact insurance, it must first obtain a Certificate of Authority from the Commissioner. This certificate indicates that the Commissioner has examined the business and found it to be financially stable and organized in accordance with the Insurance Code. State of Domicile Any insurer that is organized in another state and admitted to do business in this state, may become a domestic insurer by complying with all of the organization and licensing requirements of a domestic insurer of the same type. The insurer will be required to designate its principal place of business in this state. Any domestic insurer, upon the approval of the Commissioner, may transfer its domicile to any other state in which it is admitted to transact insurance, but upon the transfer will be required to cease to be a domestic insurer and must be re-qualified as a foreign insurer. Any certificates of authority, agent appointments and licenses, rates, and policies that are in existence at the time of insurer's redomestication will continue in effect upon the transfer, as long as the insurer remains fully qualified to transact insurance in Louisiana. Producer Appointment: Insurer's Duties To appoint a producer as its agent, the appointing insurer must file a notice of appointment within 15 days from the date the agency contract is executed. The insurer is also responsible for paying producer appointment fees. The Commissioner, upon receiving this notice, has 30 days to make sure that the producer is suitable for appointment. If the producer is determined to be ineligible for appointment, the Commissioner must notify the insurer within 15 days of making the determination. Appointments remain in effect until the following date of recordation, unless the insurer terminates the appointment or the license of the appointed producer is revoked by the Commissioner. Termination of Appointment If an insurer terminates a producer's appointment, the Commissioner must be notified within 30 days after the effective date of the termination. If, however, the reason for the termination is due to the producer engaging in fraudulent activity, the Commissioner must be notified within 15 days after the effective date of the termination. The insurer then must mail a notice to the producer within 15 days after the notification is sent to the Commissioner. The producer has a right to send comments to the Commissioner regarding the termination within 30 days of receiving the notice. These comments become a part of the Commissioner's file on that person. Unfair Claims Settlement Practices All of the following can be classified as unfair claims settlement practices if they are committed frequently enough to indicate a general business practice: Misrepresenting pertinent facts or insurance policy provisions relating to  coverages at issue; Failing to act reasonably promptly when claims are presented; Refusing to pay claims without conducting a reasonable investigation based upon all available information; 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; Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds; Attempting to settle a claim for less than the amount to which a reasonable person would have believed that he/she was entitled due to advertising material accompanying an application; Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of, the insured; Making claims payments to insureds or beneficiaries not accompanied by statement setting forth the coverage under which the payments are being made; Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration; Delaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information; Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage; Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement; and Failing to provide forms necessary to present claims within 15 calendar days of a request with reasonable explanations regarding their use, if the insurer maintains the forms for that purpose. Policy Forms All policy forms issued in this state must conform to the standards set forth by the Insurance Code, and must clearly identify the following information in the policy: The name of the parties to the contract, and the name of the insurer; The subject of the insurance and the risks insured against; The time the insurance takes effect and is expected to terminate; A statement of the premium, and the premium rate if other than life, annuity, health, or title insurance; and The conditions pertaining to the insurance. Each form, including riders and endorsements, must be identified by a form number in the lower left-hand corner of each page. Each printed portion of the text of the policy and any endorsements must be printed in at least 10-point type. Annual Reports Every authorized insurer must file with the Commissioner annual and quarter statements of their financial condition and transactions. The statement must be on forms required by the Commissioner, including supplementals for additional information required by the Commissioner and verified by at least two of the insurer's principal officers. Statements must also be filed electronically with the National Association of Insurance Commissioners. Annual statements are due before March 1 and show the condition of the company as of Dec. 31 of the previous year. Quarterly reports are due before May 15, Aug. 15, and Nov. 15. The Commissioner may suspend or revoke the certificate of authority of insurers that fail to file annual statements when due or during any granted deadline extension. Advertising Each insurer in Louisiana must maintain at its home or principal office a complete file containing a copy of every advertisement for either 4 years or until the next scheduled examination of the insurer, whichever is the longer period of time. All advertisements must be clearly identified as advertisements, must be accurate and not misleading in form or content. Direct-response advertisements cannot imply that there will be a cost savings to purchasers because there is no agent or commission involved, unless that is true. There are specific disclosure requirements that apply to advertisements for life insurance products distributed in this state: Clearly identify an insurer; Include the words life insurance or annuity in the title or include other language clearly indicating that it is life insurance or an annuity; Identify the source of any statistics used in an advertisement; Advertisements that do not guarantee policy issue but use the terms nonmedical, no medical examination required, or similar terms must also clearly and prominently state that the policy issuance may depend on answers to health questions; For graded or modified policies, prominently display any limitations of benefits; Advertisements for policies with non-level premiums must prominently display premiums changes; Advertisements that use testimonials must ensure that the testimonials are genuine, accurately reproduced and represent the author's current opinion. If the person is compensated, the testimonial must clearly state that it's a paid endorsement; and Advertisements targeting students must not imply or indicate endorsement by a school or college unless that is a fact. Illustrations In Louisiana, life insurance policy illustrations must include the following information: Name and business address of the insurer and the producer; Name, age, and sex of proposed insured; Underwriting or rating classification upon which the illustration is based; Generic name of policy, the insurer product name (if different), and form number; Initial death benefit; and Dividend option election or application of nonguaranteed elements, if applicable. Once a policy is issued with illustrations, insurers must provide each policyowner with an annual report on the status of the policy. Illustration provisions do not apply to the following types of policies: Variable life; Individual and group annuity contracts; Credit life; or Individual life policies with death benefits below $10,000. Prohibitions When using an illustration, insurers or producers may not do any of the following: Represent the policy as anything other than a life insurance policy; Describe nonguaranteed elements in a manner that is misleading; Imply that the payment is guaranteed; Depict policy performance more favorably; Provide an incomplete illustration; Imply that premium payments will not be required for each year of the policy in order to maintain death benefits (unless that is the fact); Use the term vanish or vanishing premium, or any similar term that implies the policy becomes paid up; or Except in cases where policies cannot develop nonforfeiture values, use an illustration that is "lapse-supported," meaning that it fails the test of “self- supporting.” Life and Health Guaranty Association Guaranty Associations are formed to protect policyowners, insureds, beneficiaries, and anyone entitled to payment under an insurance policy from the incompetence and insolvency of insurers. The association will pay covered claims up to certain limits set by state law. The Association is funded by its members through assessment. All authorized insurers, which are required to be the members of the Association, contribute to a fund to provide for the payment of claims for insolvent insurers. Louisiana law requires every life and health insurance policy to contain a clear and conspicuous disclaimer on its face. The disclaimer must contain the following information:  The name and address of the life and health insurance guaranty association and insurance department; The insurer and its agents are prohibited by law from using the existence of the guaranty association for the purpose of sales, solicitation, or inducement to purchase any form of insurance; Emphasize that the policy or contract holder should not rely on coverage under the Life and Health Insurance Guaranty Association when selecting an insurer; Prominently warn the policy or contract holder that the Life and Health Insurance Guaranty Association may not cover the policy or, if coverage is available, it will be subject to substantial limitations, exclusions and conditioned on continued residence in the state; and Provide other information as directed by the Commissioner. Insurers and agents delivering policies in this state must give the policyholder a separate written notice which clearly discloses that the policy is not covered by the Association. It is an unfair trade practice to make any statement that an insurer’s policies are guaranteed by the existence of the Insurance Guaranty Association. Know This! Insurers cannot advertise protection by the Insurance Guaranty Association. 3. Producer Regulation Appointment An insurance producer cannot legally act as an agent of an insurer unless the insurance producer becomes an appointed agent of that insurer. An insurance producer who does not act as an agent of an authorized insurer does not need to become appointed. Commissions, Compensations, Fees No insurance company or agent may pay a commission, service fee, or other valuable consideration to a person for selling, soliciting or negotiating insurance in this state if that person is not properly licensed. No one may accept a commission, service fee, or other valuable consideration for selling, soliciting or negotiating insurance in this state if that person is required to be licensed and is not so licensed. Renewal or other deferred commissions may be paid to a person for selling, soliciting or negotiating insurance in this state if the person was properly licensed at the time of the transaction. If a person working for an insurer does not receive any commissions commissions, compensation, or fees for insurance transactions, that person is not required to hold an insurance license. Usually, the following individuals are NOT required to hold an insurance producer license: Officers, directors or employees of an insurer or producer whose activities are  limited to executive, administrative, managerial, or clerical; The director or employee of a special agent assisting insurance producers by providing technical advice and assistance to licensed insurance producers; A person who secures and furnishes information for group insurance or performs administrative services related to mass-marketed property and casualty insurance; An employer or association engaged in the administration or operation of a program of employee benefits for the employer's or association's own employees; Employees of insurers or organizations engaging in the inspection, rating or classification of risks, or in the supervision of the training of insurance producers and who are not individually engaged in the sale of insurance; A person whose activities are limited to advertising without the intent to solicit insurance; A nonresident who sells, solicits or negotiates a contract of insurance for commercial property and casualty risks to an insured with risks located in more than one state insured under that contract; or A salaried full-time employee who counsels or advises his or her employer relative to the insurance interests of the employer or subsidiaries. Any person who violates the state statutes pertaining to sharing of commissions, upon conviction, may be fined an amount between $1,000 and $5,000, and/or imprisoned for a maximum of 2 years. The producer's license will also be suspended or revoked. The commission paid by each fire, casualty, surety, fidelity, guaranty, and bonding insurer doing business in this state must be uniform and equal as to all classes of producers of sure insurer throughout the state. Payment to Unlicensed Entities If producers or business entities conduct business in Louisiana, but are not properly licensed in this state, it is illegal for them to accept money or commissions related to the insurance that was transacted. Violators of this rule are subject to a fine of between $2,000 and $50,000, and/or imprisonment for a maximum of 3 years. Their licenses may also be suspended or revoked. Violations of regulations pertaining to commissions will result in fines between $1,000 and $5,000, and/or imprisonment for up to 2 years. Producers and business entities that transact insurance in Louisiana but are not properly licensed in this state will be liable for the full amount of any loss that is covered by the contracts that they issue. Controlled Business It is illegal to use a producer's license for the sole purpose of writing controlled business. Controlled business is insurance that covers the producer or the producer's immediate family or employer. If, during any 12-month period period, the aggregate commissions earned from controlled business have exceeded 25% of the aggregate commissions earned on all business written by a producer during the same period, then the Commissioner will determine that the license has been used solely for writing controlled business. Replacement Replacement means any transaction in which new life insurance or a new annuity is purchased and, as a result, the existing life insurance or annuity has been or will be any of the following: Lapsed, forfeited, surrendered, or otherwise terminated; Reissued with any reduction in cash value; Converted to reduced paid-up insurance, continued as extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits or other policy values; Amended so as to affect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid; or Used in a financed purchase. Replacing insurer is the company that issues the new policy. Existing insurer is the company whose policy is being replaced. Duties of the replacing producer: Present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the producer. A copy must be left with the applicant; Obtain a list of all existing life insurance and/or annuity policies to be replaced including policy numbers and the names of all companies being replaced; Leave the applicant with the original or a copy of written or printed communications used for presentation to the applicant; and Submit to the replacing insurance company a copy of the replacement notice with the application. Each producer who initiates the application must submit the following to the insurance company with or as part of each application: A statement signed by the applicant as to whether replacement of existing life insurance or annuity is involved in the transaction; and A signed statement as to whether the producer knows replacement is or may be involved in the transaction. Duties of the replacing insurance company: Require from the producer a list of the applicant’s life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant; and Send each existing insurance company a written communication advising of the proposed replacement within a specified period of time of the date that the application is received in the replacing insurance company’s home or regional office. A policy summary or ledger statement containing policy data on the proposed life insurance or annuity must be included. Louisiana state regulations regarding replacement require for the replacing insurer to notify the existing insurance company of the intent to replace within 5 working days of the date that the application is received. The existing insurer then, within 5 days of receiving the notice, must notify the policyowner of the right to review the existing policy. Once a replacement policy is issued, the insurer must notify the policyowner of the right to receive an unconditional refund of all premiums paid within 30 days from the date of policy delivery. This right is commonly referred to as a free-look period period. A replacing insurer must maintain evidence that all requirements were met during the policy replacement for at least 5 years or until the next schedule examination by the Insurance Department. Disciplinary Actions Hearings Because the Commissioner's role is to enforce insurance laws and to protect the public from unfair trade practices, if the Commissioner suspects that an insurer or its agent has committed a violation or is engaged in an unfair trade practice, the Commissioner may issue a statement of charges and hold a hearing for any purpose deemed necessary (within the scope of the Insurance Code). If a person aggrieved by the alleged violations demands a hearing, the hearing must be conducted within 30 days of the demand. The hearing may be postponed by mutual consent of the parties, but may not be held more than 60 days from the date of the original demand for the hearing unless all parties agree to that. The Commissioner (or a designated representative) has the power to subpoena individuals, administer oaths, and examine the business, conduct, or affairs of any company that is subject to the rules of the Insurance Code. This examination may include interrogation of individuals and the review of any relevant documents. If a person fails to obey the Commissioner's subpoena or fails to produce records as required without reasonable cause, the person will be fined at least $100 and no more than $2,000 at the discretion of the court. A person who fails to appear and testify as ordered by the court is subject to fine and imprisonment. Cease and Desist Order If the Commissioner has determined that a producer is guilty of engaging in an unfair trade practice or other deceptive act, the Commissioner can issue a cease and desist order. This order specifies the practice in violation and legally requires the person to stop committing it. Any person who violates the Commissioner's cease and desist order may be subject to a monetary fine or license suspension or revocation. License Probation, Suspension, Revocation, or Refusal to Issue or Renew The Commissioner has the power to suspend, revoke, or refuse to renew a producer's license. In addition, fines may be imposed upon producers who are found guilty of any of the following: Failure to comply with any prerequisite of state or federal law or regulations for the issuance of such license; The act of providing incorrect, misleading, incomplete, or materially false information in the license or renewal application; Failure to account for or remit any premiums, monies, or properties belonging to another which come into the possession of the applicant in the course of doing insurance business, or improperly withholding, misappropriating, converting, or failing to timely remit any premiums, monies, or properties received in the course of doing insurance business; Using fraudulent, coercive, or dishonest practices; Demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business; Misrepresenting the terms of an actual or proposed insurance contract, binder, rider, plan, or application for insurance, including all forms or documents that are attached to an insurance contract; Having admitted or been found to have committed any insurance unfair trade practice; The conviction or nolo contendere (no contest) plea to any felony, participation in a pretrial diversion program pursuant to a felony charge, or conviction of any misdemeanor involving moral turpitude or public corruption; Obtaining or attempting to obtain a license through misrepresentation or fraud, or improperly using notes or any other reference material to complete an  examination for an insurance license, or otherwise cheating or attempting to cheat on an examination for an insurance license; The adjudication of bankruptcy with debts related to the receipt or transmittal of insurance premiums or other funds to an insurer or insured in any fiduciary capacity of the applicant, or issuance to the Department of Insurance of an insufficient fund or no-fund check; Forging another's name to an application for insurance or to any document related to an insurance transaction; Knowingly accepting insurance business from a person who is not licensed as a producer; The procurement of a license for the purpose of writing controlled business; Having an insurance producer license denied, suspended, or revoked in this or any other state; The violation of any insurance laws of the United States; The refusal to submit physical evidence of identity or the conviction of a felony; The failure to comply with an administrative or court order imposing a child support obligation; The failure to pay state income taxes or comply with any administrative or court order directing payment of state income taxes; The producer has employed or has allowed to associate with his business any person engaged in the business of insurance who has been convicted of a felony in the U.S. or any foreign country; and The conviction of a felony involving dishonesty or breach of trust. Without in any way limiting or affecting any other civil or criminal remedies or consequences, any person who intentionally withholds or intentionally fails to timely remit premium payments, or who knowingly converts to his or her own use or benefit any premiums, monies, or other property belonging to an insurance applicant, policyholder, beneficiary, or any other claimant under or relating to any insurance policy, will be found guilty of the crime of theft if the person had the intent to permanently deprive the rightful owner of the premiums, monies, or other property, or the crime of unauthorized use if the person had no intent to permanently deprive the rightful owner of the premiums, monies, or other property. If a producer commits any of these violations, the Commissioner may impose a fine of no more than $500 for each violation or a total of $10,000 for all violations that occur during a calendar year. If the Commissioner denies any application for a license, the Commissioner must notify the applicant and explain the reasons for the denial. Within 30 days of receiving notification of denial, the applicant may make written demand to the Commissioner for a hearing. Similarly, if the Commissioner decides to suspend or revoke a license, the licensee must be notified in writing writing. The producer can request a hearing on the matter within 30 days of receiving the notice. If a producer license has been revoked, the producer may file another license application within 1 year from the effective date of revocation, or within 5 years from the date of final court order if judicial review of revocation is sought. If a producer commits another violation after the license has been reissued following a revocation, the producer's licensed will be revoked for up to 5 years years. If the license is revoked a second time, the producer cannot apply for a new license during the revocation period. Penalties with or without Suspension of License In addition to issuing a cease and desist order, suspending a license, or revoking a license, the Commissioner may fine a producer no more than $1,000 for every violation or, in the case of multiple violations, a maximum of $100,000 for all violations combined. If, however, the person knew or should have known that he/she was acting illegally, these amounts can be increased to $25,000 per violation and a maximum of $250,000 for all violations that occur within a 6-month period. 4. Unfair Trade Practices Insurers and insurance producers may not engage in any trade practice that is defined as, or determined to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance. It is considered an unfair trade practice to knowingly commit an unfair method of competition or to engage in such actions with enough frequency that the commission of unfair marketing practices indicates a general business practice. If, after a hearing, the Department determines that a producer or an insurer has committed an unfair trade or competition practice, the Department may issue an order requiring the person to cease and desist from engaging in the method of competition, act, or practice, and/or impose penalties for violation of insurance laws. Misrepresentation It is illegal to issue, publish, or circulate any illustration or sales material that is false, misleading, or deceptive as to policy benefits or terms, the payment of dividends, etc. This also refers to oral statements. Committing this illegal act is called misrepresentation misrepresentation. Rebating Rebating is defined as any inducement offered to the insured in the sale of insurance products that is not specified in the policy. Both the offer and acceptance of a rebate are illegal. Rebates may include, but are not limited to, the following: Rebates of premiums payable on the policy; Special favors or services; Advantages in the dividends or other benefits; and Stocks, bonds, securities, and their dividends or profits. Boycott, Coercion, and Intimidation It is illegal to be involved in any activity of boycott, coercion, or intimidation that is intended to restrict fair trade or to create a monopoly. This would include unfair behavior that influences not only clients, but competing agents and brokers. Coercion is to require, as a condition to a loan, that the applicant purchase insurance from a specific insurer. False Advertising Advertising covers a wide scope of communication, from publishing an ad in a newspaper or magazine, to broadcasting a commercial on television or the Internet. Advertisements cannot include any untrue, deceptive, or misleading statements that apply to the business of insurance or anyone who conducts it. The violation of this rule is called false advertising. It is prohibited to advertise or circulate any materials that are untrue, deceptive, or misleading. False or deceptive advertising specifically includes 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; or The true purpose of an assignment or loan against a policy. Representing an insurance policy as a share of stock, or using names or titles that may misrepresent the true nature of a policy also will be considered false advertising. In addition, a person or an entity cannot use a name that deceptively suggests it is an insurer. False Financial Statements False financial statements are those that are intended to deceive public officials or the general public about the financial condition of an insurer. This often occurs when an important fact about the financial status of an insurer is deliberately withheld in order to present the company in a more favorable light. Defamation Defamation occurs when an oral or written statement is made that is intended to injure a person engaged in the insurance business. This also applies to statements that are maliciously critical of the financial condition of any person or a company. Unfair Discrimination Discrimination in rates, premiums, or policy benefits for persons within the same class or with the same life expectancy is illegal. No discrimination may be made on the basis of an individual's marital status, race, national origin, gender identity, sexual orientation, creed, or ancestry unless the distinction is made for a business purpose or required by law. Refusing to Insure Insurers may not refuse to insure or limit the amount of coverage on an individual on the basis of sex, marital status, race, religion or national origin. In addition, insurers may not refuse to insure a person solely on the basis that another insurance company has refused, cancelled or nonrenewed an existing policy. Insurers may use marital status to define eligibility for dependent benefits. They may also cancel excess insurance if an underlying policy on which the coverage depends is not maintained. Unfair Financial Planning Practices When engaged in the sale of insurance policies, producers may not represent themselves to prospective purchasers as financial planners, investment advisers, consultants, financial counselors, or any other specialists engaged in the business of financial planning, investments, real estate, or taxes unless a producer holds any of those designations. Producers may not engage in the business of financial planning without first disclosing to the client the following:  That the producer is also an insurance salesperson; and That a commission for the sale of an insurance product will be received in addition to a fee for financial planning, if that is the case. Insurance producers may charge fees other than commissions for financial planning only if such fees are based upon a written agreement, signed by the party to be charged in advance of the performance of the services. A copy of the agreement must be provided to the customer at the time the agreement is signed, and must specifically state the services, the amount of the fee, and that the customer has no obligation to purchase any insurance product through the insurance producer. Producers are required to retain a copy of this agreement for at least 3 years after completion of services, and make it available to the Commissioner upon request. 5. Insurance Fraud The Commissioner can conduct investigations and background criminal checks on all applicants for a license or Certificate of Authority to transact a business of insurance. If it is determined that there may be a violation of any criminal law, the investigation will be turned over to the Louisiana Department of Justice, the Department of Public Safety and Corrections, public safety services, office of state police, and other appropriate law enforcement and agencies for further investigation, enforcement, or prosecution. The Commissioner may deny a license or Certificate of Authority when the applicant has been convicted of a felony. Fraudulent insurance acts are committed by a person who, with the intention to defraud, does any of the following: Presents or prepares any statement which he knows to contain materially false information concerning any fact material to the following: An application for the issuance of any insurance policy; The rating of any insurance policy; A claim for payment or benefit pursuant to any insurance policy; Premiums paid on any insurance policy; Payments made in accordance with the terms of any insurance policy; An application for Certificate of Authority; and The financial condition of any insurer; Solicits or accepts new or renewal insurance risks by or for an insolvent insurer, reinsurer, or other entity regulated under the insurance laws of this state; Attempts to remove or conceal the assets (or record of assets) and transactions from the place of safekeeping of an insurer and/or attempts to conceal the records from the Insurance Department; Attempts to illegally divert funds of an insurer; and Supplies false or fraudulent material information pertaining to any document or statement required by the Department of Insurance. Nobody who furnishes information to the Department concerning suspected fraud (without malice or bad faith) can be taken to court for providing that information. Any person who suspects that insurance fraud is being committed must report the fraud to the Department's insurance fraud division within 60 days days. Any person who knowingly commits insurance fraud will be guilty of a felony and will be subject to a prison term of up to 5 years or a fine of up to $5,000 for each count. However, if the benefit pursued does not exceed $1,000, the term of imprisonment cannot exceed 6 months or $1,000 for each count. 6. Privacy of Consumer Financial Information This regulation was designed to protect the confidentiality of consumers' personal financial records. It assures consumers that their financial records cannot be accessed without their consent and prevents insurers (or other financial entities) from requiring the release of financial records as a condition of doing business. This regulation also states that customers have a right to access a record of all disclosures. Insurers must provide individuals with a notice about the company's privacy policies and practices when the client relationship is established and on an annual basis. C. Federal Regulation 1. Fair Credit Reporting Act The 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. The law also protects consumers against the circulation of inaccurate or obsolete personal or financial information. The acceptability of a risk is determined by checking the individual risk against many factors directly related to the risk's potential for loss. Besides these factors, an underwriter will sometimes request additional information about a particular risk from an outside source. These reports generally fall into 2 categories: Consumer Reports and Investigative Consumer Reports. Both reports can only be used by someone with a legitimate business purpose, including insurance underwriting, employment screening, and credit transactions. Consumer reports include written and/or oral information 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 are similar to consumer reports in that they also provide information on the consumer's character, reputation, and habits. The primary difference is that the information is obtained through an investigation and interviews with associates, friends and neighbors of the consumer. Unlike consumer reports, these reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested. The consumers must be advised that they have a right to request additional information concerning the report, and the insurer or reporting agency has 5 days to provide the consumer with the additional information. The reporting agency and users of the information are subject to civil action for failure to comply with the provisions of the Fair Credit Reporting Act. A person who knowingly and willfully obtains information on a consumer from a consumer reporting agency under false pretenses may also be fined and/or imprisoned for up to 2 years. An individual who unknowingly violates the Fair Credit Reporting Act is liable in the amount equal to the loss to the consumer, as well as any reasonable attorney fees incurred in the process. An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to $2,500. Under the Fair Credit Reporting Act, if a policy of insurance is declined or modified because of information contained in either a consumer or investigative report, the consumer must be advised and provided with the name and address of the reporting agency. The consumer has the right to know what was in the report report. The consumer also has a right to know the identity of anyone who has received a copy of the report during the past year. If the consumer challenges any of the information in the report, the reporting agency is required to reinvestigate and amend the report, if warranted. If a report is found to be inaccurate and is corrected, the agency must send the corrected information to all parties to which they had reported the inaccurate information within the last 2 years. Consumer reports cannot contain certain types of information if the report is requested in connection with a life insurance policy or credit transaction of less than $150,000. The prohibited information includes bankruptcies more than 10 years old, civil suits, records of arrest or convictions of crimes, or any other negative information that is more than 7 years old. As defined by the Act, negative information includes information regarding a customer's delinquencies, late payments, insolvency or any other form of default. 2. Fraud and False Statements It is considered unlawful insurance fraud for any person engaged in the business of insurance to willfully, and with the intent to deceive, make any oral or written statement that are either false or omit material facts. This includes information and statements made on an application for insurance, renewal of a policy, claims for payment or benefits, premiums paid, and financial condition of an insurer. Anyone engaged in the business of insurance whose activities affect interstate commerce, and who knowingly makes false material statements may be fined, imprisoned for up to 10 years or both. If the activity jeopardized the security of the accompanied insurer, the punishment can be up to 15 years years. Anyone acting as an officer, director, agent or other insurance employee who is convicted of embezzling funds faces the aforementioned fines and imprisonment. However, if the embezzlement was in an amount less than $5,000 $5,000, prison time may be reduced to 1 year. Federal law makes it illegal for any individual convicted of a crime involving dishonesty, breach of trust or a violation of the Violent Crime Control and Law Enforcement Act of 1994 to work in the business of insurance affecting interstate commerce without receiving a letter of written consent from an insurance regulatory official — a 1033 waiver waiver. The consent of the official must specify that it is granted for the purpose of 18 U.S.C. 1033. Anyone convicted of a felony involving dishonesty or breach of trust, who also engages in the business of insurance, will be fined, imprisoned for up to 5 years or both. Section 1034, Civil Penalties and Injunctions for Violations of Section 1033, states that the Attorney General may bring a civil action in the appropriate U.S. district court against any person who engages in conduct that is in violation of Section 1033 of not more than $50,000 for each violation, or the amount of compensation the person received as a result of the prohibited conduct, whichever is greater. 3. Privacy (Gramm-Leach-Bliley Act) The Gramm-Leach-Bliley Act stipulates that in general, an insurance company may not disclose nonpublic personal information to a nonaffiliated third party except for the following reasons: The insurance company clearly and conspicuously discloses to the consumer in writing that information may be disclosed to a third party; The consumer is given the opportunity, before the time that information is initially disclosed, to direct that information not be disclosed to the third party; or The consumer is given an explanation of how the consumer can exercise a nondisclosure option. The Gramm-Leach-Bliley Act requires 2 disclosures to a customer (a consumer who has an ongoing financial relationship with a financial institution): 1. When the customer relationship is established (i.e. a policy is purchased); and 2. Before disclosing protected information. The customer must also receive an annual privacy disclosure, and have the right to opt out, or choose not to have their private information shared with other parties. 4. National Do Not Call List In 2003, the Federal Trade Commission (FTC) and the Federal Communications Commission (FCC) worked together to create the National Do Not Call Registry Registry, allowing consumers to include their telephone numbers on the list to which solicitation calls cannot be made by telemarketers. Insurance companies need to comply with this regulation when making solicitation phone calls. To comply with the telemarketing sales rules, telemarketers must not do any of the following: Call any number on the National Do Not Call Registry or on that seller's Do Not Call list; Deny someone a right to be placed on any Do Not Call Registry; Call outside permissible calling hours (before 8 a.m. and after 9 p.m.); Abandon calls; Fail to transmit caller ID information; Threaten or intimidate a consumer or use obscene language; or Cause any telephone to ring or engage a person in conversation with the intent to annoy, abuse, or harass the person called. Some exceptions to the Do Not Call Registry include the following calls: From or on behalf of organizations which have established a business relationship with the consumer (established business relationships last 18 months from the date of a sale or transaction); For which the consumer has given prior written permission; Not commercial or that do not include unsolicited advertisements; and By or on behalf of tax-exempt nonprofit organizations. To keep in compliance with the Do Not Call rules, organizations must consult the registry every 31 days. Any phone numbers on the registry must be dropped from the organization's call lists. Numbers, Dollars, Days, and Dates In order to perform your best on the state regulations portion of the exam, make sure you memorize these numbers and their definitions. Department of Insurance Regulations: 4 years yearsCommissioner's Commissioner's term of office 5 years yearsCommissioner Commissioner will examine each insurer 30 days daysTo To conduct a hearing Licensing and Appointment Requirements: 18 18Age Age to apply for producer's license 2 years yearsProducer Producer license valid 15 days daysTo To file notice of appointment with Commissioner 30 days daysFor For Commissioner to determine whether producer is suitable for appointment 15 days daysFor For Commissioner to inform insurer that producer is ineligible for appointment 30 days daysTo To notify Commissioner of termination of appointment 180 days daysTemporary Temporary license period Miscellaneous Producer Regulations: 24 hours hoursCE CE required for insurance producers every 2 years 3 hours hoursCE CE that must be about ethics 25% 25%Maximum Maximum amount of business that can be attributed to controlled business 30 days daysTo To report change of home or business address 30 days daysTo To report administrative action or conviction Important Dollar Amounts: $250 $250Fine Fine for using an unapproved name $5,000 $5,000Fine Fine for repeated violations of the approved name regulation $1,000 $1,000Fine Fine for unintentional violations of Insurance Code $100,000 $100,000Aggregate Aggregate fine for unintentional violations of Insurance Code $25,000 $25,000Fine Fine per violation for willful violations of Insurance Code $250,000 $250,000Maximum Maximum fine for all willful violations of Insurance Code within a 6-month period D. Chapter Recap This chapter focused on state-specific regulations for insurers and producers. Let's first recap some of the important requirements and processes, and then review a list of important numbers, days and dates. LICENSING REQUIREMENTS Licensing Complete prelicensing education Process Pass examination Submit application and fees Types of Individuals: resident and nonresident Licenses Business entities Temporary license - valid for 180 days; issued to maintain the existing business Maintenance and Must be renewed every 2 years Duration Continuing education - must be completed every reporting period Disciplinary actions: License denial, suspension, revocation, or nonrenewal Cease and desist order Monetary penalties STATE AND FEDERAL REGULATIONS Commissioner of Elected for 4 years Insurance Regulates the internal affairs of the Department of Insurance Does not write laws Examines all authorized insurers Insurer Must obtain a Certificate of Authority Regulation Responsible for agent appointments Solvency requirements (must be member of the Guaranty Association) Avoid unfair trade practices or unfair claim settlements Agent Regulation Only one license of the same type is allowed per agent Must be licensed in the line of authority for which the agent transacts insurance Must have appointment to represent an insurer Avoid unfair trade practices