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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.

Appointment - the authority given by an insurer to an agent to transact insurance or adjust claims on the insurer's
behalf
Cease and desist – to stop or discontinue
Commission - payment to the agent by the insurance company for placing insurance, usually a percentage of the
policy premium
Commissioner - the head of the State Department of Insurance
Exempt – not subject to an obligation
Fiduciary - a person in a position of trust, someone who handles funds in a trust capacity
Inducement – an offer that attempts to influence the other party
Insolvent – unable to meet financial obligations
Statute – a formal written law enacted by legislature; insurance statutes can be found in the state Insurance Code
Surplus lines insurance - insurance that is not available from admitted insurers

A. Licensing
1. Purpose

Insurance professionals must be properly licensed for a specific line of authority in order to
transact insurance. 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.

As defined by the state law, the purpose of insurance licensing in this state is to do the following:

Promote the professional competence of insurance producers, brokers, and consultants;

Provide maximum freedom of marketing methods for insurance, consistent with the interests of
the public;
Preserve and encourage competition at the consumer level;
Regulate insurance marketing practices in conformity with the Insurance Code; and
Govern the qualifications and procedures for the licensing of insurance producers.

2. Process

It is illegal to act as a producer or agency without a license. A contract produced through

a producer or broker who is not properly licensed will be invalid.

The Commissioner will issue or renew a license to a natural person who wishes to act as a
producer, broker, or consultant if the person meets the following requirements:

Is at least 18 years of age;

Satisfies any applicable education, examination and training requirements;
Pays applicable fees;
Has not committed an act that is grounds for license denial, suspension or revocation; and
Is deemed competent and trustworthy.
The Department may require a person applying for a license to submit to a criminal background
check as a condition of receiving a license. If so required, the applicant will need to submit a
fingerprint card and consent to a fingerprint background check by the Utah Bureau of Criminal
Identification, and the FBI.

3. Types of Licensees

Producers

A producer is a representative of at least one insurance company. Producers must maintain at

least one current appointment from an insurer and have complied with any applicable continuing
education requirement.

Life and health producers are authorized to solicit, receive, and forward applications for
insurance to their companies, but they generally do not have the authority to bind coverage or to
alter or modify coverage. Property and casualty producers can usually bind coverage for their
clients.

A producer license type includes the following lines of authority:

Life insurance;
Variable contracts;
Accident and health insurance;
Property insurance;
Casualty insurance, including surety and other bonds;
Title insurance; and
Personal lines.

A limited license classification includes

Limited line credit insurance;

Travel insurance;
Motor club insurance;
Car rental-related insurance;
Legal expense insurance;
Bail bond agent; and
Customer service representative.

Insurance producers may add the surplus lines of authority to their existing license if they
have been insurance producers in Utah or another state in substantially the same license class
for at least 3 years of the 4 years immediately before applying to add surplus lines, or have been
regularly employed for that period by an insurer doing a job that would prepare him or her to act
as an insurance broker.

Licensees may not act as consultants, producers or brokers unless they have complied with the
disclosure of conflict of interest provision. This means:

Before performing the consulting services, the consultant must disclose to the client,
prominently and in writing, the consultant's interest as a producer or broker, or the relationship to
an insurer, producer, or broker, and that as a result of those interests, the consultant's
recommendations should be scrutinized;
The consultant's fee is agreed upon in writing before performing the consulting services; and
Any report resulting from consulting services contains a copy of the disclosure mentioned
above.
When a person applies for insurance coverage through a broker, the broker must disclose to the
applicant, in writing, that the broker is not the producer of the potential insurer. This disclosure
must also inform the applicant that the applicant likely does not have the benefit of an insurer
being financially responsible for the broker's conduct.

Nonresidents

A person who is not a legal resident of Utah may be licensed as a nonresident producer without
taking a written examination if that person:
 Is licensed as a resident producer in his or her home state at the time of the nonresident license
application;
Applied to the Commissioner for a nonresident producer license;
Submitted the application for licensure to the applicant’s home state, as well as a completed
uniform application and the applicable fees; and
Has a license in good standing in his or her home state, and the applicant’s home state awards
nonresident producer licenses to residents to Utah on the same basis as Utah awards licenses to
residents of that home state (known as reciprocity).

Consultants

Insurance consultants offer advice to the public about the benefits, advantages and
disadvantages of insurance policies for a fee. A consultant license classification includes the
same lines of authority as a producer license.

A person is eligible to become a consultant only if he or she has done work leading to the
application that would prepare him or her to work as an insurance consultant for at least 3 out of
the 4 years prior to the application.

Adjusters

Insurance adjusting means directing the investigation, negotiation, or settlement of a claim

under an insurance policy. Adjusters engage in insurance adjusting on behalf of an insurer,
policyholder, or a claimant. An independent adjuster or public adjuster license may be issued to a
person who satisfied education, examination, and character requirements set forth by the
Insurance Code for adjusters.

4. Maintenance and Duration

Renewal

An insurance producer license remains in effect unless suspended or revoked, as long as it is

properly renewed. A producer's license must be renewed biennially. In order to renew, the
producer must submit proper renewal forms, any required fees and proof of completion of
continuing education. The renewal window begins 90 days before the expiration of a license.

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, brokers, and adjusters must successfully complete a minimum of 24
hours of continuing education (CE) every 2 years, prior to license renewal, as follows:

At least 3 hours of the total 24 hours must be in ethics training;

The licensee must complete at least 12 of the required hours (one half) through classroom
courses;
The hours not completed through classroom hours may be obtained through home study, video
recording, experience credit, or other approved method; and
The licensee may obtain CE hours at any time during the 2-year period.
Continuing education credits do not carry over from one licensing period to another. A licensee
may repeat a course for credit, but will not be permitted to take a course for credit more than
once in one license continuation period.

Reinstatement

A producer's license that has lapsed or was voluntarily surrendered may be reinstated within 1
year of the day on which it became inactive. 

A license will lapse if the licensee fails to do any of the following:

Pay fees when due;

Complete CE requirements before submitting the license renewal application;
 Submit a completed renewal application as required;
Submit additional documentation required to complete the licensing process as related to a
specific license type; or
Maintain an active license in his or her resident state if the licensee has a nonresident license.
If a license lapses due to military service or some other extenuating circumstances such as long-
term medical disability, the licensee may request reinstatement of the license, no later than 1
year after the day on which the license lapsed. The licensee may also request a waiver of any
fees imposed for failing to comply with renewal procedures, examination requirements, or other
sanctions imposed for failing to comply with renewal procedures.

Assumed Name

Any licensee doing business under a name other than their legal name must notify the
Commissioner before using the assumed name in this state.

Change of Address or Telephone Number

Every producer or broker licensed in Utah must notify the Commissioner in writing, within 30
days, of any change in his or her residence address, business address or telephone number.

Reporting of Actions

Licensed producers and applicants for a producer's license must report to the Commissioner
any administrative action taken against the person in another jurisdiction or by another
regulatory agency in this state, and any criminal prosecution of the producer in any jurisdiction.

This report must be filed at the time the person files the application for an individual or agency
license, or within 30 days of the initiation of an action or prosecution. The report must include a
copy of the complaint or other relevant legal documents related to the action or prosecution.

B. State Regulation
1. Commissioner's General Duties and Powers

The Insurance Commissioner is the chief officer of the Department of Insurance (DOI). The
Commissioner exercises all powers given to, and performs all duties imposed on, the Insurance
Department.

The Commissioner is appointed by the governor with the consent of the Senate. If the
Commissioner dies, resigns, or is removed, a successor may be appointed. If the Legislature is
not in session at the time, the successor may serve as acting Commissioner without consent
until the Senate has an opportunity to consent to the successor.

The Commissioner is also subject to removal by the governor. When the office of the
Commissioner is vacant, or when the Commissioner is unable to perform the duties of the office,
the governor will fill the position.

The Commissioner has the following broad powers and duties:

Regulate the internal affairs of the Department of Insurance;

 Enforce the state insurance laws, and make reasonable rules and regulations to help carry out
the provisions of the Insurance Code;
Control and supervise all insurance business transacted in this state:
Issue licenses and certificates of authority, as well as suspend, revoke, or deny licensing;
Conduct examinations and investigations of insurers;
Issue orders and notices regarding insurance matters; and
Review and approve policy and contract forms, and insurance rates.
Note that the Commissioner does NOT set premium rates or establish fines and penalties (those
are defined by state law).

Examination of Records

The Commissioner regulates insurance companies authorized to do business in this state. The
purpose of the examination of insurers' books and records is to ensure that the companies
remain solvent and conduct business in compliance with state laws and regulations pertaining to
licensing, policy forms, rates, claims, and market conduct.

The Commissioner may examine any authorized insurer at any time, but must examine domestic
and foreign insurers at least once every 5 years. For foreign insurers, the Commissioner may
accept a report of an examination from the Insurance Department of another state, or another
government agency in Utah, the federal government or another state. The costs of the
examination are paid by the company being examined.

Licensees must keep separate records of all transactions. The records must be organized and
available to the Commissioner for inspection upon reasonable notice, and include the following:

A record of each insurance contract procured by or issued through the licensee, with the names
of insurers and insureds, the amount of premium and commissions or other compensation, and
the subject of the insurance;
The names of any other producers or brokers from whom business is accepted, and of persons
to whom commissions or allowances of any kind are promised or paid; and
A record of all consumer complaints forwarded to the licensee by an insurance regulator.
The records must be available for the Commissioner to inspect during all business hours for at
least the current calendar year plus 3 years.

2. Company Regulation

Solvency

An insurer is solvent if it has the assets to meet its financial obligations. If at any time an insurer
becomes unable to meet financial obligations, it is considered insolvent. The Commissioner and
the Department of Insurance are charged with monitoring the financial strength and integrity of
insurers authorized to conduct business in this state in order to determine whether the
continued operation of any insurer might be financially hazardous to policyholders, creditors, or
to the public in general.

Regulation and monitoring by the Commissioner and DOI includes the following:

Standards for the development and approval of underwriting and marketing methods that are
efficient and competitive;
Limitations on the cooperation permitted among contracted insurers, the circumstances under
which such cooperation may occur, and the nature of the information that may be shared for
purposes of developing underwriting and marketing methods;
Reporting requirements;
Limitations on unfair marketing methods and practices; and
The financial stability of alliances and their contracted insurers regarding:
Financial solvency, maintenance of trust accounts, risk sharing methods, and other matters
relating to financial reporting and solvency, and the articles of incorporation and by-laws of
alliances.

Domestic and foreign insurers must maintain a deposit in the amount of the insurer's required
capital for stock insurers, and minimum permanent surplus for mutual insurers. The
Commissioner will not issue or renew a certificate of authority until an insurer complies with this
regulation.

Rates

The purpose of rate regulation is to promote the public welfare by regulating insurance rates in
order to assure that they are not excessive, inadequate, or unfairly discriminatory, and to
authorize and regulate cooperative action among insurers in rate-making. The Utah Insurance
Code requires insurers to file their premium rates with the Commissioner. All rate filings are
subject to a 30-day waiting period before they become effective.

Rate filings must be accompanied by supporting information used to establish a rate. If the
supporting information is not sufficient enough to make a decision, the Commissioner may
request additional information from the insurer.

If the insurer does not provide the supporting information within 45 days of the Commissioner's
mailed notice, the rate filing will be

Considered incomplete and unfiled; and

Returned to the insurer as not filed and unavailable for use.
If a rate filing is returned to an insurer, the insurer may not use the rate filing for any policy
issued or renewed on or after 60 days of the filing’s return.

Insurers may apply to use a higher rate than usually applies to a specific risk. If the rate is filed,
but not disapproved within 10 days, the higher rate may be applied.

Policy Forms

The Commissioner may prohibit the use of certain forms. If this action is taken, the form must be
discontinued within 15 days. After a form is no longer in use, insurers must maintain a record of
its use for 5 years from the last day the form was used, or from the last day that any policy
issued using that form is in effect.

Producer Appointment

An insurance producer cannot act as an agent of an insurer unless the producer becomes
appointed by that insurer. An insurance producer who is not acting as an agent of an insurer is
not required to become appointed.

To appoint a producer as its agent, the appointing insurer must electronically file a notice of
appointment that identifies the effective date of appointment within 15 days of the
appointment.

Termination of Appointment
An insurer or authorized representative of the insurer that terminates the appointment,
employment, contract or other insurance business relationship with a producer for any reason
must electronically submit the termination to the Department of Insurance within 30 days of the
identified date of termination.

If the termination is for cause, the terminating insurer must also send to the Department by
facsimile or as a PDF attachment to an e-mail that the termination was for cause and the
specific circumstances surrounding the termination.

Unfair Claims Settlement Practices

The following are unfair claims settlement practices if committed openly and in conscious
disregard of rules and regulations, or if committed with such frequency as to indicate a general
business practice:

Misrepresenting pertinent facts or insurance policy provisions relating to coverages;

Failing to acknowledge and act reasonably promptly upon communications with respect to
claims;
Failing to adopt and implement reasonable standards for the prompt investigation of claims;
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 such
insureds;
Attempting to settle a claim for less than the amount to which a reasonable person would have
believed that such person was entitled by reference to written or printed advertising material
accompanying or made part of 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 a statement setting
forth the coverage under which 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; or
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.

3. Producer Regulation

Fiduciary and Trust Account Responsibilities

Producers who collect premiums from insureds must act as trustees for money received or
collected for forwarding to insurers or insureds. The producer holds the premiums they have
collected in a fiduciary capacity, and must properly account for these funds until they are sent to
the appropriate payee.

The funds cannot be commingled with the licensee's own money or the money held in any other
capacity. This doesn't apply to money needed to pay bank charges or money that belongs to the
licensee as part of a fee or commissions.

Funds collected must be deposited in a federally insured trust account in a depository institution
that

Has an office in Utah;

Has federal deposit insurance; or
Is authorized to engage in trust business.
Funds may also be deposited in some other account that provides safety comparable to
federally insured trust accounts, as approved by the Commissioner.

Place of Business and Records Maintenance

All licensees must register with the Commissioner the address and telephone numbers of their
principal place of business. Licensees who are individuals must also provide their residential
address and telephone number. The licensee must notify the Commissioner within 30 days of
any change of address or telephone number.

A producer must maintain records of all transactions at their place of business. These records
must be made available to the Commissioner for examination on request. The Commissioner
need not give prior notice of examination.

Controlled Business

Controlled business is any coverage written on a producer's own life, health or property, and/or
that of the producer's immediate family or business associates. The Commissioner will not issue
a license to a person whose primary purpose for licensing is to write controlled business.

Producers may not receive compensation for controlled business from an insurer unless, during
the previous 12 months, the producer's aggregate premiums collected for general business
exceeds the aggregate premiums collected for controlled business.

Shared Commissions

Licensees and insurers may pay consideration only to licensed producers, consultants,
managing general agents or reinsurance intermediaries.

Consultants may not pay or receive a commission or other compensation that is directly or
indirectly the result of an insurance transaction. However, they can share any fee received for
consulting services with another licensed consultant, but only to the extent that the other
consultant contributed to the services.

Disciplinary Actions
License Termination, Suspension, or Revocation

The Commissioner has the authority to revoke, suspend (for up to 12 months) or limit a license
or certificate of authority for any of the following reasons:

Providing incorrect, misleading, incomplete, or partially untrue information in the license

application;
Violating an insurance law, regulation, or order of the Commissioner;
Obtaining or attempting to obtain a license through misrepresentation or fraud;
Misappropriating, converting, or improperly withholding money or property received in the
course of the business of insurance;
Intentionally misrepresenting the terms of an actual or proposed contract of or application for
insurance;
 Having been convicted of a felony;
Admitting or being found to have committed an unfair trade practice or fraud;
Using fraudulent, coercive, or dishonest practices, or demonstrated incompetence,
untrustworthiness, or financial irresponsibility in the conduct of business in this state or
elsewhere;
Having a producer license denied, suspended, or revoked in any other state, territory, or province;
Forging another’s name to an application for insurance or any other document relating to the
transaction of insurance;
Improperly using notes or other reference material to complete an examination for a license
related to insurance;
Knowingly accepting business related to insurance from an unlicensed person;
Failing to comply with an administrative or judicial order imposing an obligation of child support;
Failing to pay income taxes;
Violating or permitting others to violate the federal Violent Crime Control and Law Enforcement
Act; or
Engaging in a method or practice in the conduct of business that endangers the legitimate
interests of customers and the public.

An order revoking a license may specify a time period, not to exceed 5 years, within which
the former licensee may not apply for a new license.

A person who knowingly and intentionally violates the Insurance Code regulations pertaining to
licensing, transacting business through unauthorized insurers, or Insurance Fraud Act is guilty of
a felony as provided in the Insurance Code of this state.

Probation

In any circumstances that would justify a suspension, after a formal adjudicative proceeding, the
Commissioner may put the licensee on probation for no longer than 24 months. The probation
order must state reasonable conditions for retention of the license. Any violation of the
probation is grounds for revocation.

Monetary Forfeiture (Fines)

If the Commissioner finds after a hearing that any person has violated any insurance laws or
regulations, the Commissioner may order any of the following:

For each separate violation, a penalty in an amount of $2,500 for producers or adjusters, or
$5,000 for any other person;
Revocation or suspension of the producer's license; and/or
The managing general producer to reimburse the insurer, the rehabilitator, or liquidator of the
insurer for any losses incurred by the insurer caused by the managing general producer's
violation.
Unless a specific criminal penalty is provided, the following penalties may be leveled: $10,000
(for corporations), and $5,000 (for individuals). The Commissioner may still impose any other
penalties as provided when deemed necessary.

4. Unfair Marketing 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.

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.

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 or 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.

Illegal Inducements

It is illegal to make, permit, or offer to make any insurance contract or annuity with terms other
than those stated in the contract. It is unlawful to pay, allow, give, offer, or promise, as an
inducement to buy insurance, any of the following:

Any special favor or advantage in dividends or benefits;

Any stocks, bonds, securities, or accrued dividends or profits; or
Anything of value not specified in the insurance contract.
Under the Utah law, small, de minimis gifts or meals under $100 per individual are not
considered inducements, as long as the gift is a social courtesy not conditioned on a quote or
purchase of a particular insurance product. A de minimis gift or meal that does not exceed $10
may be conditioned on receipt of a quote of a particular insurance product. An insurer is also not
prohibited from giving promotional gifts that are generally available to the public.

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.

5. Privacy of Consumer Information Regulation

In addition to the federal Fair Credit Reporting Act, information handling and disclosure
procedures are regulated by the Insurance Information and Privacy Protection Act, a model law
developed by the National Association of Insurance Commissioners and recommended to the
states for adoption.

Insurance institutions and agents must provide notice of their information practices to
applicants and policyholders, no later than the time the policy is delivered. All notices must be in
writing or, if the customer agrees, provided electronically. The notice must provide consumers
the option to opt out, meaning a directive by the customer not to disclose nonpublic personal
financial information to a nonaffiliated third party, other than as permitted by the regulation.

The following privacy conditions are set by the Utah Insurance Code:

Upon written request by an insurer to an authorized agency, the authorized agency may release
to the insurer information or evidence that is relevant to any suspected insurance fraud;
Upon written request by an authorized agency to an insurer, the insurer or a producer authorized
by the insurer to act on the insurer's behalf must release to the authorized agency information or
evidence that is relevant to any suspected insurance fraud;
Any information or evidence furnished to an authorized agency under this section may be
classified as a protected record;
Any information or evidence furnished to an insurer under this regulation is not subject to
discovery in a civil proceeding unless, after reasonable notice to any insurer, producer, or any
authorized agency that has an interest in the information and subsequent hearing, a court
determines that the public interest and any ongoing criminal investigation will not be jeopardized
by the disclosure; and
An insurer must report to the department agency terminations based upon a violation of this
regulation.

6. Insurance Fraud Regulation

The following would be considered fraudulent insurance acts if an insurer, a producer, or

another entity knowingly does any of the following:

Presents to an insurer any oral or written statement or representation knowing that it contains
false, incomplete, or misleading information concerning any fact material to an application for
the issuance or renewal of an insurance policy, certificate, or contract;
Presents to an insurer any oral or written statement or representation as part of, or in support of,
a claim for payment or other benefit pursuant to an insurance policy, or in connection with any
civil claim asserted for recovery of damages for personal or bodily injuries or property damage,
knowing that the statement or representation contains false, incomplete, or misleading
information material to the claim;
Accepts a benefit from the proceeds derived from a fraudulent insurance act;
Assists, abets, solicits, or conspires with another to commit a fraudulent insurance act; or
Supplies false or fraudulent material information in any document or statement required by the
Department.

An insurer or service provider is not liable for any fraudulent insurance act committed by an
employee without the authority of the insurer or service provider unless the insurer or service
provider knew or should have known of the fraudulent insurance act.

7. Personal Liability for Unpaid Claims

Contracts issued by unauthorized insurers would be deemed illegal, and therefore,

unenforceable by the insurer. Such contracts may still be enforceable if an action is brought up
against the insurer. If the policyowner entered an illegal contract without knowing it was illegal,
the contract can be voided. Any person who assisted in the procurement of an illegal contract,
and who knew or should have known the transaction was illegal, is liable to the insured for the
full amount of a claim or loss payable under the contract, if the insurer does not pay it.
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. 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.

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, 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. 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. 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, 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 8am and after 9pm);
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:

5 yearsExamination of insurers
30 daysApproval period for policy rates
Licensing and Appointment Requirements:
18 yearsMinimum age to apply for a producer license
2 yearsProducer licensing period
1 yearTo reinstate voluntarily surrendered or lapsed license
15 daysInsurer must file a notice of producer appointment
30 daysTo file notice of termination of producer appointment
24 monthsMaximum time of license probation
5 yearsMaximum term of revocation before person can reapply for license
Miscellaneous Producer Regulations:
30 daysTo report change of address or phone number
30 daysTo report administrative action or criminal prosecution against producer
24 hoursCE required every 2 years
3 hoursCE credits required in ethics
12 hoursCE required in a classroom setting (half of the total CE hours)
3 yearsProducers must keep records of all insurance transactions
Important Dollar Amounts:
$100The maximum allowed value of a gift to a customer to avoid engaging in an unfair trade practice of illegal
inducement
$2,500Fine for violations of insurance laws or regulations by a producer
$5,000Fine for violations of insurance laws by any other person
$2,500Fine for willful noncompliance with Fair Credit Reporting Act
$50,000Civil fine for violating regulations of interstate commerce

D. Chapter Recap
This chapter focused on state-specific regulations for insurers and producers. Let's recap some
of the important requirements and processes.

LICENSING REQUIREMENTS

Licensing Process Minimum age requirement (18 years old)

Complete required prelicensing education and pass examination
Submit application and fees
Be of good character, competent, and trustworthy
Have not committed any violations that are grounds for license denial
Types of Licenses Individual producer: resident, nonresident
Limited Lines producer
Adjuster: investigates, negotiates, and settles the claims under a policy
Consultant: advises the public about insurance policies for a fee
Must be renewed every 2 years 
Maintenance and Continuing education - must be completed every licensing period
Duration Report changes of address, phone number, and administrative actions
 License is not required if a person does not receive commissions
Disciplinary actions:
License denial, suspension, revocation or refusal to renew
Monetary fines and/or imprisonment
STATE REGULATIONS

Commissioner of Appointed by the state Governor

Insurance Supervises operations of the Department of Insurance
Enforces Insurance Code
Examines all authorized insurers (every 5 years)
Issues, renews, suspends and revokes licenses
Producer Regulation Must be licensed in the line of authority for which the agent transacts
insurance
Must be appointed by insurer to transact on the insurer's behalf
Commissions and compensation: may only be paid to or shared with
properly licensed producers
Fiduciary duties: act in a trust capacity in handling of premiums
Controlled business: commissions cannot exceed commissions from all
other business in 12 months
Must avoid unfair trade practices
Insurer Regulation Must obtain Certificate of Authority
Responsible for agent appointments
Must meet solvency requirements
Avoid unfair trade practices or unfair claim settlements
FEDERAL REGULATION

Fair Credit Protects consumers from circulation of inaccurate and

Reporting Act obsolete information
Consumer reports and investigative consumer reports
Insurance Act of fraud: willfully, and with the intent to deceive, making false statements or
Fraud omitting material facts
Fines and imprisonment for fraud that affects interstate commerce
1033 waiver - written consent from an insurance regulatory official to allow someone
convicted of a crime involving dishonesty to work in the business of insurance
Privacy: Gramm-Leach- Rules regarding disclosure of nonpublic personal information to
Bliley Act nonaffiliated third parties
Do Not Call List National Do Not Call Registry
Strict telemarketing rules
Insurers must consult the current registry every 31 days