Insurance License Section 2

• federal regulation
• state regulation
• self-regulation
  

• applies to individuals or companies whose activities affect interstate commerce, which includes most insurance activity
• primarily used as a means to oversee areas not covered by state regulation of the industry
  

established that the transaction of insurance across state lines was not interstate commerce and therefore should not be regulated by local law

overturned Paul v. Virginia and stated that insurance transacted across state lines was interstate commerce

• enacted in 1945
• stated that the federal gov't had the right to regulate the business of insurance, but only to the extent that such business is not regulated by state law
• main intent of the law was to exempt the insurance industry from most of the provisions of the federal antitrust laws
  

• producer must explain the various resources from which the insurer will obtain info regarding applicant's insurability
• applicants must be given advance written notice of an insurer's practices regarding the collection and use of info
• written disclosure forms must state who can disclose info, the kind of info, the reason it's being collected, and how it will be used
• auth is good only for a certain period of time
  

• $10k fine or up to 1 year in jail for obtaining info about a client without having a legit reason to receive it
• Fair Credit Reporting Act - regards info obtained from a 3rd party
  

• must be issued to all applicants for life or heath insurance coverage
• informs applicant that a report will be ordered concerning their past credit history and any other life or health insurance for which they have previously applied
• agent must leave this notice with the applicant along with the receipt
  

max penatly for obtaining consumer info reports under false pretenses is $5000, one year in prison, or both

include written, oral, and other forms of communication that a consumer reporting agency has regarding a consumer's credit, character, reputation, or habits and are used or collected to determine whether a consumer is eligible for credit, insurance, employment, or other purposes (may be issued only to persons who have a legit business need for the info)

• includes info on a consumer's character, general reputation, personal habits, and mode of living that is obtained thru investigation (interviews with friends, neighbors, etc)
• may not be made unless the consumer is clearly and accurately told about the report in writing
• consumer is allowed to request an accurate disclosure of the report
  

• an interview whereby a person, in an attempt to obtain info about another person, pretends to be someone else, misrepresents the true purpose of the interview, or refuses to properly identify himself
• generally prohibited, but may be conducted if there is evidence of criminal activity or fraud
  

• prepare and provide the reports
• may operate for profit (Experian or Equifax)
• may be nonprofit (Medical Info Bureau or a credit union)
• a consumer may choose to request exclusion of their info

• punishable by a fine, prison sentence, or both
• can't make any false statements that overvalue something
• can't write anything false with intent to deceive
• no embezzling
• no corruption or impeding the due and proper admin of the law
  

• removes Depression-era barriers between commercial banking, investment banking, and insurance
• allows financial holding companies to engage in any activities that are financial in nature
• regulatory auth is based on what activity is occurring, rather than on what type of company is engaging in the activity
• also establishes a minimum federal standard for financial privacy
• requires that technical, administrative, and physical safeguard be established
  

anyone about whom a company collects info

a consumer who has an ongoing relationship with the financial institution

• GLBA requires that a company make two primary disclosures to customers
• one is at the time the relationship is established, the other is before the company discloses protected info
• first one is about policies and procedures for customer privacy
• customer must get an annual notice as well
• second one explains the right to opt out of info sharing
  

• state level insurance regulation
• statutes: the body of law developed by the legislative branch of gov't. They outline the duties of the Commissioner and the activities of the Dept of Insurance
• Rules and regulations
• establishes dept of insurance to administer and enforce the insurance laws
  

• public official that heads the dept of insurance
• has broad powers to supervise and regulate the insurance affairs within the state
• does NOT make insurance laws
• makes sure all insurance ops in the state are compliant
  

• the state Insurance Code prescribes the procedures that must be followed for an insurance company to be formed
• specifies the manner in which the company must be organized, the requirements for incorporation, and the amounts for minimum capital and surplus
  

• insurance insolvency regulations attempt to ensure that insurance agencies won't go under

• insurers can only invest in high quality assets to prevent insolvency
• life insurance companies may invest funds in concerns that are fairly stable in value
• muni bonds, corporate bonds, real estate mortgages, policy loans

• rated after an analysis of claims experience, investment performance, management, and other factors
• ex: Standard and Poor's Insurance Rating Services, Moody's Investor Service, Duff and Phelps, Weiss Research, AM Best Company
  
• each firm uses different criteria
  

• AM Best: A++ to F
• Weiss: A+ to F-
• S&P/D&P: AAA to D
• Moody's : Aaa to C3
  

• Commissioner of Insurance may examine the insurer's records as often as necessary but at least once every 3 to 5 years
• proper market conduct means conducting insurance business fairly and responsibly
  

• rehabilitation efforts are undertaken if the Dept believes that an impaired insurer has a chance of restoring solvency
• liquidation if it has no chance
  

• organized to protect claimants, policyholders, annuitants, and creditors of financially impaired or insolvent insurers by providing funds for the pmt of claims and other related policy benefits
• composed of insurers authorized to transact in the state
• excludes fraternal orgs an nonprofit companies
• members pay to cover the association's operating expenses
• if insolvency occurs, each member pays additional fees to cover the insolvency
  

• must be accurate
  
• must keep a file of all advertisements to be examined for a min # of years (usually 2 or 3)

doc providing basic info about insurance policies, delivery is required by many states at time of policy delivery

written statement describing the elements of the policy being sold (must include name and address of agent and insurer, and generic name of policy and each rider)

• majority of states allow for reciprocity in nonresident licensing (mutual exchange of privileges, recognition of two states of the validity of licenses or privileges granted by the other)
• a producer who moves to another state must file a change of address and provide certification from the new resident state within 30 days of the move (has 90 days to become a resident licensee)
  

may be issued for up to 180 days to:

• surviving spouse or court appointed rep of a licensed producer who dies to maintain their biz
• the designee of a licensed producer entering the military
  

must provide written notice to the head of the Dept within 30 days

must notify Commissioner before use

every resident producer must have an office open to the public and display his licenses there and keep records there

an insurer needs to file a notice of appointment within 15 days from the date the agency contract is executed or the first insurance app is submitted in order to appoint an agent

insurer must give prompt written notice of the termination of an agent and the date to the Dept of Insurance and file a statement of facts and reasons for it (if it's because of something the agent did that they might lose their license for, must notify Commissioner within 30 days)

coverage written on a producer's own life of health and on the lives or health of such persons as the producer's relatives or business associates (prohibited!)

• unfair marketing practices
• unfair claims practices
  

occurs when a producer convinces a policyowner to lapse or surrender a present policy in order to sell him another one, usually from a different company

• practice of using misrepresentation to induce replacement of a policy issued by the insurer the producer is representing, rather than the policy of a competitor
• done to allow the producer to collect a large first-year commission on a new policy
  

• any inducement in the sale of insurance that is not specified in the insurance contract
• an offer to share commissions with the insurance applicant
• splitting a commission with a prospect
• prohibited in almost every state!
  

disciplinary action in which an insurance company or agent agrees to discontinue a particular practice (usually an unfair trade or claims practice) through a written agreement with the Dept

• no legal auth as a group
• imposes strong influence in the industry's self-regulation
• has done the most to standardize law between the states
  

the nonfinancial regulartory activities of an insurance dept fall under this broad heading