United States (Rhode Island)

Transcription

1 United States (Rhode Island) LOCKE LORD Aaron Igdalsky 1. Insurance intermediation activities 1.1 Is the distribution of insurance products (hereinafter referred to as insurance intermediation activities or insurance intermediation ) limited to insurance intermediaries in your country? Insurance producing is reserved for licensed insurance producers. It is unlawful to act as an insurance producer without being properly licensed. 1.2 What does the term insurance intermediation include? Is there any definition set forth by statutory or case law? In any case, please indicate which activities/services are included in the above definition, for example, presentation or proposal of insurance products, assistance or consultancy aimed at drafting the agreement. Are collaboration activities that relate to the administration or execution of the contracts drafted, even in the case of accidents, included in the definition? Does the drafting of contracts or insurance agreements in a collective form on behalf of insured individuals also form part of insurance intermediation activities? Under Rhode Island (RI) law, insurance producer or producer means a person required to be licensed to sell, solicit or negotiate insurance (RI Insurance Regulation 36). 1.3 Are insurance intermediation activities allowed as ancillary activities to other professional activities (eg travel or rent-a-car services, etc) and to what extent? Furthermore, are there exceptions that allow actors, other than insurance intermediaries, to carry out insurance intermediation activities? Is it a matter related, for example, to the risk covered, the duration or the cost of the policy premium, etc? In Rhode Island, entities that offer insurance options for car rentals must be duly licensed; otherwise, they would be violating state law that prohibits the unauthorised sale/production of insurance. (For example, RI General Laws section creates a special self-insurance programme for certain car rental companies owning more than 400 vehicles). 2. Insurance intermediaries requirements 2.1 In order to act as an insurance intermediary, is there need for an authorisation and/or to be enrolled in a register? If yes, what are the requirements to be authorised/enrolled in the register as an insurance intermediary (individual or legal entities, integrity and/or professional requirements, etc)? Briefly explain how it works. Yes. In Rhode Island: (i) an application must be submitted; (ii) an examination must be passed (involving questions about different fields of insurance and depending on the type of license sought); (iii) ethical/professional responsibility standards must be satisfied (including, but not limited to, demonstrating that the candidate has not been convicted of

2 (iv) certain offences involving a lack of integrity that may have a bearing on his or her fitness to take and hold client funds); and criminal background checks are required. 2.2 In what form can anyone access and verify the registration/authorisation or verify the fact that the insurance intermediary is a professional (eg, via the web)? This information can be verified online and/or with the appropriate state regulatory department. 2.3 Are insurance intermediaries with a registered office in another country allowed to operate in your country and how (eg, under the right of establishment or freedom to provide services in your country, as in the EU)? If yes, under what conditions? In such a case, are they bound by the same obligations as the insurance intermediaries with a registered office in your country? Please describe. Yes. Although residents of other states are often allowed certain limited privileges and/or expedited or special application procedures, there do not appear to be special provisions for non-us entities to register under Rhode Island law or regulation. As such, they would have to establish an office in the US and follow the same registration requirements described above. 3. Different types of insurance intermediaries 3.1 Please list the different types of insurance intermediaries acting in your country such as agents, brokers, banks, financial intermediaries or financial advisers. In Rhode Island, types of insurance intermediaries include agents, brokers, banks, reinsurance intermediaries and financial advisers (who may dually advise clients about how to protect and grow their wealth, and sell various insurance products). 3.2 Do insurance intermediaries need to enter into a written contract with the insurers (or receive a mandate from the insurers)? Yes. This is referred to as appointment. Producers must be properly appointed by insurers. 3.3 Can an insurance intermediary enter into a contract with the insurers (or receive a mandate from the insurer) and in turn enter into one or more agreements with other insurance intermediaries (the so-called horizontal distribution)? Producers can enter into either exclusive producing arrangements with insurers (whereby they only act as an agent or broker for one insurer on an exclusive basis) or, alternatively, they can act on behalf of multiple insurers. 3.4 The insurance intermediaries more in detail: The agent Does the role of insurance agent exist in your country? If yes, describe the agent s functions. Yes. An agent s job is to act as an insurance producer for an insurer; they act on the insurer s behalf to secure business.

3 In particular, does an agent act on behalf of the insurer or the insured? Who pays the agent s remuneration? To what kind of remuneration is the agent entitled? An agent acts on behalf of an insurer and is entitled to a commission If an agent acts on behalf of the insurer, describe the type of work relationship with the insurer (eg, subordinate, para-subordinate or freelance, self-employed etc). Does the principal agent model exist, that is, is one appointed by the insurer to manage a particular branch or subsidiary? Although some insurance companies in Rhode Island technically employ their own agents, agents are typically employees of an agency. Thus, an agent may be a subordinate (employee), freelance (though operating under an appointment) or self-employed (perhaps an agent employs themselves at their own agency). Of course, agents can be captive (an agent of one insurer) or independent (an agent of two or more insurers) What type of organisation does the agent have? Can he have staff working for him (eg, sub-agents)? Typically, an agency employs one or more agents to perform the functions of the agency relating to selling insurance on behalf of an insurer Is the relationship between the insurer and the agent regulated by a collective bargaining agreement? If yes, what does it mainly cover? Can the relationship be exclusive to a particular area? Is the remuneration established by the collective bargaining agreement? Can the provisions be waived by the parties mutual agreement? Almost never Does the termination of the work relationship between the agent and insurer provide for the agent s obligation to return the portfolio of contracts? In such a case, would the agent be entitled to an indemnity? This question would best be addressed by the agent appointment letter, as it would be negotiable. However, it would be unusual for an agent employed by an independent insurance agency to be prohibited from bringing his customers elsewhere. For example, it is very often the case that a consumer will approach an independent agent for a quote, the agent will provide a quote and place the consumer with one insurer ( Insurer A ), only to later place the consumer with another insurer ( Insurer B ) after determining that Insurer B has a more attractive product or cost than Insurer A The broker Please describe the broker s services. In general terms, do the services consist of intermediation or are they similar to consultancy/advisory activities? Is the broker an independent actor? Broker services are very similar to those of an agent (as described above). However, a broker s duty is typically to the consumer, as opposed to an agent, whose principal is the insurer.

4 Who pays for the broker s remuneration (please specify case by case for the different services, if any)? Is the broker allowed to retrocede a portion of his remuneration to the insurer or to the insured? It depends. Although an insurer may pay the remuneration of a broker, a consumer may also pay a fee directly to the broker. In such a case, the fee is broken out from the rest of the quote. Presumably, a broker would need to disclose its compensation structure to the extent that it is representing that it is an independent broker to the consumer Banks, financial intermediaries, financial advisers and others allowed to act as insurance intermediaries Can banks, financial intermediaries and/or financial advisers act as insurance intermediaries? RI General Laws section provides that any insurance transaction conducted by a bank or other financial institution must be conducted by a Rhode Island licensed producer representing an authorised insurer. Rhode Island statute further provides that insurance solicitation by a financial institution must be conducted only by persons whose responsibilities do not include loan or other credit transactions (RI General Laws section ). Rhode Island allows the sale of insurance by financial planners, subject to customary licensure requirements and other regulations imposed by the Department of Insurance, Rhode Island statute and regulation Please define a financial intermediary. Are there particular requisites for the profession of financial intermediary? Does the financial intermediary have to be enrolled in another register (eg, a register of financial intermediaries)? Rhode Island defines a securities intermediary as a clearing corporation or person, including a bank or broker, that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity. Section 6A (14) of the RI General Laws (drawn from the Uniform Commercial Code (UCC) concerns the context of life insurance investments. Securities intermediaries wishing to sell insurance products must be appropriately licensed to sell such products; selling insurance products without a licence is a violation of RI General Laws Please define a financial adviser. Are there particular requisites for the profession of financial adviser? Does the financial adviser have to be enrolled in another register (eg, a register of financial advisers)? Section (11) of the RI General Laws defines an investment adviser as a person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities. Investment adviser does not include: a) an investment adviser representative; b) a trust company or other institution; c) a lawyer, accountant, engineer or teacher whose performance of investment advisory services is solely incidental to the practice of the person's profession; d) a broker-dealer or its agent whose performance of investment advisory services is solely incidental to the conduct of business as a broker-dealer and who receives no special compensation for the investment advisory services;

5 e) a publisher of any bona fide newspaper, news column, newsletter, news magazine, or business or financial publication or service, whether communicated in hard copy form, or by electronic means, or otherwise, that does not consist of the rendering of advice on the basis of the specific investment situation of each client; f) a person whose advice, analyses or reports relate only to securities exempt under section (1) of the RI General Laws; g) any person who the director, by rule or order, designates; and h) a person who is a federal covered adviser. There are licensing requirements that an investment adviser must satisfy Can financial intermediaries and/or financial advisers distribute any insurance and/or financial products? If yes, under what conditions or with what limitations? Financial advisers can distribute insurance and/or financial products to the extent that they are appropriately licensed as insurance producers, as described above With reference to insurance intermediaries other than agents, brokers, banks, financial intermediaries and financial advisers, as indicated under question 2.1 above (if any), please describe what kind of products they can distribute and under what conditions. Although traditional insurance intermediaries typically do not require additional licensure beyond an ordinary producers licence, some states require reinsurance intermediaries to be specially licensed as such. 4. Rules of conduct and responsibilities 4.1 Are there rules of conduct that insurance intermediaries should comply with (eg, duties in relation to the obligation of utmost care, correctness, utmost good faith, information, adequacy, transparency, conflict of interests, filing of documentation, separate accounting or other accounting obligations)? Please describe the above duties, specifying if they apply to all types of insurance intermediary (eg, agents, brokers, banks, financial intermediaries, financial advisers, etc.) and whether the content differs with particular reference to responsibility according to the type of actor/activity and person (insurer or insured) receiving the activity. A review of Rhode Island s insurance code did not reveal any specific standards of conduct applicable to producers. 4.2 Does the insurance intermediary represent the insurer? By way of example, is the agent also the insurer s representative vis-à-vis the customer, and if so, does this also apply during trial before a court?) Is there a matter of imputation of knowledge? What happens when a broker has information on matters relevant to the insurer's decision to insure which the broker fails to disclose to the insurer? Is the insured deemed to have breached its duty of disclosure in such circumstances? In which cases? Can the insurance intermediary be accountable for the contracts he executed on behalf of the insurer? Agents represent insurers; brokers represent the insured and potential insured. The issue of the extent to which an agent has an obligation to disclose information to the potential insured is currently a hotly-debated topic and is the subject of ongoing litigation in many states. American courts have been split on the extent to which there may be a dual agency basis for imputing an obligation on agents to make certain disclosures to the insured (for example, one such topic is the extent to which an agent

6 must disclose the availability of life settlement options to an insured who is considering surrendering a life policy). 4.3 Is the insurer jointly liable for damages caused by the insurance intermediary, appointed by the same, when executing intermediary activities? Who is liable vis-à-vis the insured person? Is it always the intermediary or the insurer? Research did not reveal examples of this in Rhode Island. 4.4 Are there particular regulations or specific forms of compensation for damages caused to the insured person? No such special regulations or forms of compensation were located in Rhode Island s laws or regulations. 5. Supervision and sanctions 5.1 Regardless of the requirement of an authorisation and/or enrolment, are insurance intermediaries subject to the control of supervisory bodies? Does the supervisory body have powers/duties of prudential supervision on the insurance intermediary s activities, and if so, in what way does it act? Insurance intermediaries are subject to the supervision of the Rhode Island Department of Insurance, which has the power to impose administrative penalties for non-compliance. 5.2 Are there fines for violations of the insurance intermediaries obligations? If yes, please describe. Yes. Failure to comply may result in the levying of fines for non-compliance. The fines vary depending on the offence, and can range from hundreds of dollars to millions of dollars for certain particularly egregious offences. 5.3 Do sanctions also apply to foreign intermediaries who operate in your country? Yes. 5.4 Is there a consultation procedure with the insurance intermediary before the fine is applied? There is almost always an opportunity for a hearing before a fine is applied. 5.5 Could the application of more fines, or the breach of particular regulations, result in the revocation of the authorisation or in the intermediary being struck off the register (if any), or in the prohibition to act as an insurance intermediary? If yes, what are the most relevant circumstances? Yes. Failure to comply with applicable producer laws and regulations may result in suspension or revocation of an insurance producer s licence. Though this is less common than the imposition of a fine, it is not rare either. Typically, violations involving dishonesty and/or inappropriate allocation or use of insurer or consumer money are the basis for suspension or revocation of a licence.

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