INSURANCE INSURANCE REGULATION AND REGULATION AND

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TEXAS INSURANCE CODETEXAS INSURANCE CODE T.I.C. is Texas’ code of laws

responsible for governing the insurance business

Subject to change (amendment) by the State legislature

Identified by ARTICLE numbers

TEXAS ADMINISTRATIVE TEXAS ADMINISTRATIVE CODECODE

Texas Department of Insurance (T.D.I.) rules which interpret State laws as written in the insurance code.

Exercises T.D.I.’s authority over the insurance business as conducted in this state - implements/enforces laws

Identified by the letters TAC

TEXAS DEPARTMENT OF TEXAS DEPARTMENT OF INSURANCEINSURANCE

PURPOSE - to protect citizens of Texas – From illegal, unfair insurance

practices– From failure to pay claims– To make sure that insurance is

available to meet consumers’ needs at a fair price and sold in a non-discriminatory manner

TEXAS DEPARTMENT OF TEXAS DEPARTMENT OF INSURANCEINSURANCE

SCOPE OF AUTHORITY• Set /review pricing for some insurance lines• Determine forms and content of many types of

insurance policies• Authorize insurers to operate in Texas -

including oversight of financial solvency License agents

• Disciplinary actions - cease & desist orders, suspend/revoke licenses, impose fines & administrative penalties up to $25,000

TEXAS INSURANCE TEXAS INSURANCE COMMISSIONERCOMMISSIONER

Head of T.D.I. who makes policy and renders decisions regarding rules, rates, hearings, appeals, disciplinary actions, formal orders and regulations

Appointed by the Governor; approved by the Senate

2 year term

AGENT / COMPANY AGENT / COMPANY RELATIONS IN TEXASRELATIONS IN TEXAS

DUTIES/OBLIGATIONS OF AGENTS TO COMPANIES• FIDUCIARY RELATIONSHIP - agent owes

principal an accounting for money/property belonging to principal

• LAW OF AGENCY (Common Law) Agent must not exceed authority granted by

principal Agent Informs principal of all material facts Agent must protect principal’s interests

AGENT / COMPANY AGENT / COMPANY RELATIONS IN TEXASRELATIONS IN TEXAS

DUTIES/OBLIGATIONS OF COMPANIES TO AGENTS– Enable agent to do business/perform contract -

partial termination OK– Protect agent during contract cancellation

6 mos. notice of intent; then 6 mos. renewals No new business/ increased limits without company consent U/W rules or commissions can’t be changed solely because of

termination (i.e. for only 1 agent)

– Withdrawal plan - file to pull out of markets

LRA LICENSE LRA LICENSE REQUIREMENTSREQUIREMENTS

Be at least 18 and a Texas resident Be appointed by an insurer as an agency

owner/principal Obtain a “clearance letter” if any other state

licenses held within past 5 years Pass state exam for Emergency or Temp.

license Take 80 hours instruction and pass exam for

Permanent license within 1 yr.

SOLICITOR REQUIREMENTSSOLICITOR REQUIREMENTS Be at least 18 and Texas resident Obtain clearance letter if necessary Pass state solicitor exam Be appointed by an LRA; salary and/or

commission compensation Be active as a solicitor with no more than 75%

controlled business Work inside or outside agent’s office May not sign/execute policies; can bind

ISR REQUIREMENTSISR REQUIREMENTS

Be at least 18 and Texas resident Obtain clearance letter if necessary Pass state ISR exam Be appointed by a Local Recording Agent Work only inside agent’s office/salary

compensation May not sign or execute policies, but can

bind

RISK MANAGERRISK MANAGER

“A person who presents him or herself to the public and who for compensation examines, assesses or evaluates risks for and provides advice for reduction of risks to a person who seeks to obtain or renew property and casualty insurance coverage in Texas.”

RISK MANAGER RISK MANAGER REQUIREMENTSREQUIREMENTS

Be at least 18 with a place of business in Texas

Meet application requirements Pass state exam; pay licensing fees If employed by insurance company or

a single corporate employer, no RM license required; must have if acts as independent consultant on a fee basis

MANAGING GENERAL MANAGING GENERAL AGENTAGENT

A person, firm or corporation having supervisory responsibility for the local agency & field operations of an insurance company within the state or who is authorized by a company to accept or process insurance policies produced and sold by other agents

MGA REQUIREMENTSMGA REQUIREMENTS Have company appointment and accept

referral business that equals 50% or more of the agency’s total business or $500,000 premium.

Be at least 18 and a Texas resident Provide $100,000 proof of financial

responsibility Pass state exam Pay licensing fees

SURPLUS LINES AGENTSURPLUS LINES AGENT Be a resident of Texas (unless licensed

as non-resident acting on behalf of a purchasing group) and office in Texas

Hold either an LRA or MGA license Provide $50,000 proof of financial

responsibility Pass licensing exam Pay licensing fees

SURPLUS LINES AGENT SURPLUS LINES AGENT Have facilities to accumulate/preserve records Have facilities to collect, maintain, report and

remit premium taxes Have knowledge and experience in insurance

placement to determine eligibility for surplus lines

Have knowledge/experience to collect and analyze financial and other data to determine eligibility (i.e. financial condition) of surplus lines carrier

DUE DILIGENCEDUE DILIGENCE Reasonable care owed by LRAs to public

when placing standard business Higher standard of care owed by retail

and surplus lines agents when placing non-standard business

Make reasonable effort to determine financial condition of a non-standard lines insurer– Check the insurer’s financial rating.– If rating is low, advise insured in writing and get

a signed authorization

SURPLUS LINES MARKETSSURPLUS LINES MARKETS Standard (admitted carriers) authorized by

State which has direct financial monitoring responsibility for them (audits every 1-3 years)

Nonstandard (non-admitted) carriers licensed by State but not audited for financial soundness.

TIC prohibits the “export of coverage to non-admitted market unless a “diligent effort” has been made to locate an admitted carrier to write the coverage”

GROUP I (LIFE & HEALTH) GROUP I (LIFE & HEALTH) AGENTSAGENTS

Be at least 18 and a Texas resident Temporary license - 90 days without

exam Complete 40 hour pre-licensing

education program Pass state exam to get permanent

license Includes those selling HMO related

services

OTHER LICENSESOTHER LICENSES

Adjuster - investigates & settles losses on behalf of an insurer or self-insurer

Variable contract agent - sells contracts which pay variable benefits depending on investment experience

Third Party Administrator - provide administrative services or handle funds for insurance companies

OTHER LICENSES CONT’D.OTHER LICENSES CONT’D.

Premium Finance Company - makes loans by entering into finance contracts with insureds

Life Insurance Counselor - charges fee to examine life/annuity contracts; make recommendations to public

CORPORATE & CORPORATE & PARTNERSHIP LICENSESPARTNERSHIP LICENSES

Each principal must hold individual license Partnership or corporation must also hold

same license(s) as principals Financial responsibility (E & O of at least

$100,000) Exception is bank agency in a town under

5000 - only 1 officer required to hold license(s)

NON-RESIDENT LICENSESNON-RESIDENT LICENSES Any agent who sells or services P & C

insurance outside residence state must be licensed in other state(s) before company can legally pay commission

Each state has different laws, procedures, licenses, restrictions, continuing education requirements, etc.

Generally requires letter of good standing from “home” state

EXEMPTIONS FROM EXEMPTIONS FROM LICENSINGLICENSING

Farm Mutual insurance company employees and agents

Salaried clerical employees Home office solicitors of

companies licensed in Texas Rental car companies and

employees (limited license)

CONTINUING EDUCATIONCONTINUING EDUCATION

LRA, Solicitor, ISR, Group I, Adjuster and MGA all must complete 30 hours approved CE every 2 years (to coincide with license renewals)

Certificates must be kept in file for 4 years (agent’s responsibility)

Ethics certificates must be kept 6 years Agent licensed continuously 20 years or more is

exempt by filing affidavit of history of license(s) held

SUSPENSION/REVOCATIONSUSPENSION/REVOCATION Willful violation of insurance laws Intentional material misrepresentation on

license application Misappropriation or conversion of insured’s

or insurer’s money Conviction of fraud or dishonest acts Felony conviction Writing more than 75% controlled business

SUSPENSION/REVOCATIONSUSPENSION/REVOCATION Discrimination between insureds based

on race, color, national origin, religion, age, gender, marital status, geographical location, disability or any other criteria not based on sound actuarial principles

Misrepresenting the terms of a contract to induce insured to cancel or surrender the policy and replace it with another

CHARGING FEESCHARGING FEES PERMISSIBLE FEES

Printing,reproduction, electronic mail or phone Special delivery & other postal Order MVRs Property photos and inspections

(reimbursement) Agent fees (in addition to or in lieu of

commission) DISCLOSURE STATEMENT - signed by

insured - maintain records for 5 years

FAIR CREDIT REPORTING FAIR CREDIT REPORTING ACTACT

Protects consumers subject to adverse action based on a credit report

Requires permission from consumer prior to obtaining credit information

Requires user of adverse credit information to provide written notice of adverse action name, address and phone of agency furnishing report information to obtain free copy of report

TEXAS GUARANTEE FUNDTEXAS GUARANTEE FUND Provides protection in the event that an

authorized insurer (standard/admitted company) becomes insolvent

Court places company into liquidation: any claims must be filed with the Fund or appointed receiver

All admitted carriers assessed a pro rata share $100,000 cap except workers comp May NEVER be used as a sales benefit

REFERRAL BUSINESSREFERRAL BUSINESS “Brokering” between 2 LRAs: agent

who has a company appointment accepts business from agent who doesn’t - commissions are shared

Producing agent prepares application, collects premium and services policy

Placing agent binds coverage, executes policies and provides evidence that insurance is in force

COMMISSION SHARINGCOMMISSION SHARING Illegal to share commission with

ANY unlicensed person - including payment of “bonuses”, “finders fees”, “referral fees” or “incentives” (any valuable consideration)

Solicitor may not “broker” business to or accept commission from any LRA except the appointing agent

CHANGESCHANGES All agency names must be registered with TDI

(file LDTL certificate) All changes of ownership/principals must be

filed with TDI Every LRA and Group I appointment by a

company must be approved by TDI TDI must be notified of agency address change ISR or Solicitor must file agency change with TDI

UNFAIR COMPETITION AND UNFAIR COMPETITION AND TRADE PRACTICESTRADE PRACTICES

MISREPRESENTATION - an untrue statement or omission of a material fact or law or making a statement in a way that would lead a reasonable person to a false conclusion. Also inaccurate or incomplete comparisons of insurance companies or contracts

UNFAIR PRACTICES Cont’d.UNFAIR PRACTICES Cont’d.

FALSE ADVERTISING - printed or published literature intended for public distribution which is untruthful in fact or implication. Includes:– Print or visual ads and billboards– sales and form letters– prepared sales presentations/proposals– materials included with policy when

delivered

UNFAIR PRACTICES Cont’d.UNFAIR PRACTICES Cont’d. DEFAMATION - false or malicious

statement about financial condition of insurer: also distributing false or derogatory information about others in the insurance business

COERCION - forcing someone to do business with you

BOYCOTT - 2 or more agents jointly refusing to place business with a carrier

UNFAIR PRACTICES Cont’d.UNFAIR PRACTICES Cont’d. REDLINING - refusing to write insurance

based on location UNFAIR DISCRIMINATION - refusing

to write insurance based on other than underwriting decision

REBATING - providing ANY valuable consideration outside the insurance contract as an inducement to purchase

UNFAIR PRACTICES Cont’d.UNFAIR PRACTICES Cont’d. TIE IN SALES - making availability of one policy

conditional on purchase of another SLIDING - adding coverages to policy

without insured’s approval TWISTING - replacing insured’s policy with

yours when not in his/her best interest CHURNING - replacing current policy with

another in the same company when not in insured’s best interest

UNFAIR PRACTICES Cont’dUNFAIR PRACTICES Cont’d LOWBALLING - quoting a lower

premium than will actually be charged in order to obtain business

BLACKLISTING - refusing insurance solely because another carrier has refused or canceled

FALSE FINANCIAL STATEMENTS - publishing or filing a false statement of insurer’s condition

UNFAIR CLAIM UNFAIR CLAIM SETTLEMENT PRACTICESSETTLEMENT PRACTICES - - a laundry list of things a company a laundry list of things a company may may

not donot do when settling claims when settling claims Misrepresent coverage Fail to attempt a prompt, fair,

equitable settlement Fail to settle one claim to

influence settlement of another claim

Fail to provide reasonable explanation of claim denial

UNFAIR CLAIMS UNFAIR CLAIMS PRACTICESPRACTICES

Fail to confirm or deny coverage in reasonable time

Unreasonable delay in settling 1st party claim on the basis that 3rd party or other coverage may be available

Attempt to obtain a final claim release after only partial payment made

UNFAIR CLAIMS UNFAIR CLAIMS PRACTICESPRACTICES

Refuse to pay a claim without reasonable investigation

Delay paying PIP or UM claim because other coverage is available

Require claimant to provide copy of IRS return except in specifically defined cases (EX: loss of income)

ETHICAL PRACTICESETHICAL PRACTICES Texas Insurance Code and Texas

Administrative Code give us guidelines as to what is legally acceptable/unacceptable in the conduct of insurance business

One goal of agents is to avoid doing what is “wrong” - a legal decision

Another goal should be to try to do what is “right” - this is where ethics applies - a moral decision

Defining Ethical Defining Ethical BehaviorBehavior

Root is Greek “proper modes of conduct” in a culture. Current meaning; “conforming to accepted professional standards of conduct”

Not a response to legal restrictions or threat of punishment

An internal, personal decision implying freedom & authority to make individual judgements

Often defined in relation to what is unethical - no concrete answers

FACTORS AFFECTING FACTORS AFFECTING ETHICAL DECISIONSETHICAL DECISIONS

Desire to make money Compensation system a person works under Economic forces of competition Moral and religious beliefs Family expectations Emotional problems Expectations of bosses and clients Financial troubles

FACTORS AFFECTING FACTORS AFFECTING DECISIONS CONT’DDECISIONS CONT’D

SHORT TERM GOALS Increase sales and income Grow the business - increase client

base Save time - yours and the client’s - be

efficient Don’t make mistakes Look good to clients

FACTORS AFFECTING FACTORS AFFECTING DECISIONS CONT’DDECISIONS CONT’D

LONG TERM GOALS Be a true professional Build self-respect Earn clients’ trust Earn others’ respect, good reputation Build profitable business

Ethical Decision Ethical Decision MakingMaking Decide if the problem has legal or

ethical considerations– Is it only legal or ethical or does it have both

components?– Is the decision necessary?

Gather all pertinent information– How did the problem occur?– Who has “rights” in this situation that should

be protected?– Who has obligations in the situation?

DECISION -MAKING Cont’d.DECISION -MAKING Cont’d. Identify and evaluate alternatives

– What is the min./max. obligation owed?– What are the conflicts of interest?– What would be the short term result?– What would be the long term result?

Make the decision based on:– How you would defend your choice publicly– How ___________ would have acted– How well you can live with your choice

CODE OF ETHICSCODE OF ETHICS “Establishes minimum standards of

expected behavior for those to whom the code applies.”

Insurance industry organizations each have own

Some codes are principles only with no penalties for non-adherence

Other codes hold members accountable and may expel or sanction those who do not meet standards

ETHICAL PROBLEMSETHICAL PROBLEMS

A LAST WORDA LAST WORD

PRACTICE WHAT YOU PREACH

FOLLOW THE GOLDEN RULE