Life & Health. Texas State Laws. A.D.Banker&Company

Transcription

1 Life & Health Texas State Laws A.D.Banker&Company

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3 TEXAS STEPS TO GET YOUR LICENSE Texas Department of Insurance (512) (888) Complete a Prelicensing Course Testing Provider (Pearson VUE) If you would like to sell insurance in Texas, you must pass a licensing exam. To prepare for the licensing exam, you should take an insurance course. Insurance prelicensing courses are offered by A.D. Banker & Company in many different formats: classroom, web classes, video lectures, online courses, or self-study. All courses are cross-referenced with the exam content outline. You can view course options for Texas and register at 2. Pass a Licensing Exam Making Exam Reservations Licensing exams are provided by Pearson VUE. An exam fee must be paid at the time of reservation by credit card, debit card, voucher or electronic check. You can make an exam reservation through the following methods: Online: Make an online reservation at at least 24 hours before the desired exam date or 5 days in advance if paying by electronic check Phone: (888) Before calling, you must have the following: Legal name, address, Social Security number, daytime phone number, and date of birth Name of the exam Preferred exam date and test center location What to Bring Two forms of current signature identification: 1. A primary ID (photograph and signature, not expired) such as a Driver s License or Passport 2. A secondary ID (signature, not expired) such as a Debit or Credit card Exam Procedures Report to the test center 30 minutes before the exam to verify identification and be photographed for the score report. No personal items are allowed in the testing room such as cell phones, watches, wallets, or purses. Studying is not allowed in the test center. The test administrator will provide you with materials to make notes or calculations. You may not write on these items before the exam begins or remove these items from the testing room. Calculators are permitted only if they are silent, hand-held, nonprinting, and without an alphabetic keypad. Calculators are not provided by the test center staff. You will have the opportunity to take a tutorial that will not reduce the exam time. A.D.Banker&Company

4 TEXAS STEPS TO GET YOUR LICENSE Exam Format Each major line exam is given in a multiple-choice format. The exam consists of two parts: 1. The general section deals with basic insurance product knowledge 2. The state section deals with insurance laws, rules, and regulations, and practices that are unique to Texas Each exam contains pretest questions that are mixed in with the scored questions and are not identified. Pretest questions may not be covered in your educational materials and do not affect your final score! The passing score required on each exam is 70%. When you complete the exam, you will receive a score report marked pass or fail. Candidates who fail will receive a score report that includes a numeric score, diagnostic and re-testing information. Texas Exam Information Exam Code Exam Name Exam Time Scoreable Questions Pretest Questions Total Questions InsTX-LAH05 General Lines - Life, Accident & Health 2 hrs 30 min InsTC-PC06 General Lines - Property & Casualty 2 hrs 30 min InsTX-Life01 Life Agent 2 hrs InsTX-PersPC55 Personal Lines 2 hrs InsTX-ALAdj16 Adjuster - All Lines 2 hrs 30 min InsTX-PCA81 Adjuster Property & Casualty 2 hrs 30 min Get Fingerprinted Fingerprinting is available at the testing center. You can make an appointment by contacting MorphoTrust, USA at or on the phone at (866) Apply for a License You can apply for your license 24 hours after passing the exam by completing an application at com. The application process must be completed within one year of passing the exam or the exam must be retaken. A.D.Banker&Company

5 TABLE OF CONTENTS Texas State Laws Life & Health Students Life and Health Laws... 3 Life Laws Health Laws Retention Question Answer Key Key Word Index Life Students (Students studying for the Life Only exam must read pages 3-33) Life and Health Laws... 3 Life Laws Retention Question Answer Key Key Word Index Health Students (Students studying for the Health Only exam must read pages 3-21 and 37-50) Life and Health Laws... 3 Health Laws Retention Question Answer Key Key Word Index This edition is valid starting September

6 Copyright 2017 A.D. Banker & Company, L.L.C. All rights reserved. No part of the material protected by this copyright notice may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission from the copyright owner. Disclaimer: This course, seminar, or publication provides general information regarding the subject matter. It is sold with the understanding that the publisher is not engaged in rendering legal or accounting advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The publisher hereby expressly excludes all warranties. To the extent allowed by law, I release A.D. Banker & Company, L.L.C. from any and all liability for my use of course materials and agree to indemnify and hold them harmless for all losses. I acknowledge that any liability of A.D. Banker & Company, L.L.C. not covered by the above release, is limited to the amount paid for this course. 2 A.D.Banker&Company

7 Life and Health Laws OVERVIEW The purpose of this chapter is to acquaint the student with state-specific insurance laws and regulations. Take Note Information in this chapter modifies or amends information from previous content. Commissioner of Insurance The Commissioner is the Chief Executive and Administrative Officer of the Texas Department of Insurance (TDI) and is appointed by the governor, with the advice and consent of the senate, for a two-year term. Qualifications of appointment require the Commissioner to be a competent and experienced administrator, be well informed and qualified in the field of insurance regulation, and have at least 5 years experience in the administration of business or government, which may include former employment with the TDI. General Powers and Duties The Commissioner s powers and duties are granted by the Department and state legislature. In addition to administering insurance regulations in Texas, the powers and duties include: Regulating the business of insurance in this state Executes and enforces, but does not establish, the state s insurance code and other insurance laws Ensuring fair competition within the insurance industry to foster competition Protecting and ensuring the fair treatment of consumers and handling insurance-related consumer complaints Issuing producer licenses and approving, disapproving, or denying applications for a certificate of authority to act as an insurer Examining the records of an insurer to determine financial condition and solvency The Commissioner is empowered to make reasonable rules and regulations to enforce existing laws, conduct investigations of violations of the insurance code, hold hearings, issue subpoenas, administer oaths, take testimony, issue cease and desist orders, and assess penalties. Retention Question 1 Which of the following is not a duty of the Commissioner? a. Enforce state insurance laws b. Make state insurance laws c. Handle insurance-related consumer complaints d. Issue an insurance license for a producer A.D.Banker&Company 3

8 TEXAS STATE INSURANCE LAWS Examination of Records The Commissioner has a duty to examine each insurance carrier that is organized under the laws of Texas and each carrier that is authorized to engage in business in this state. The Commissioner may visit the insurance carrier s principal office for the purpose of investigating the affairs and condition. The Commissioner or appointed examiner must examine the financial condition of an insurer, including its ability to meet its financial obligations and liabilities, as well as its compliance with state law. The primary purpose of an examination is to determine solvency of the insurer. An insurer may be examined whenever it is deemed necessary, but domestic and licensed insurers must be examined by the Commissioner or appointed examiner no less frequently than once every 5 years. The insurer or agent may be required to provide free access to all books and papers that relate to the insurer or agent s business affairs. The Commissioner may summon and examine under oath any of the insurer s officers, agents, and employees in relation to the insurer s affairs and condition. Failing to comply with a request of examination or to provide requested information by the department or appointed examiner will subject the insurer or insurer s agent to disciplinary action. Investigation and Notice of Hearings If the Commissioner determines, upon review and examination of records, that the financial condition of an insurer indicates a condition that might make the insurer s continued operation hazardous to policyholders, creditors, or the public, the Commissioner may, after notice of a hearing, order the insurer to take action to remedy the condition. The impairment of the surplus of an insurance company is prohibited. The Commissioner will order an insurer to correct the impairment by bringing the surplus to an acceptable level specified by the Commissioner or to cease doing business in this state. After issuing the order, the Commissioner will immediately institute any preceding necessary to determine any further action. Retention Question 2 The Commissioner may examine the records of an insurance company for the purpose of: a. Approving claims b. Setting rates c. Determining solvency d. Approving coverages Consumer Complaints If a consumer files a written complaint with the Department, the Department must keep records of all related information on file. The Department must notify each party to an active complaint of its status at least quarterly until disposition, unless the notice would compromise an undercover investigation. 4 A.D.Banker&Company

9 LIFE AND HEALTH LAWS Inquiries The Department may address a reasonable inquiry made to any insurer, agent, or holder of any type of authority to transact business in this state if it pertains to any of the following: That person s business condition Any matter concerning that person s transactions that the Department deems necessary for the public good Any person receiving such an inquiry must respond to it in writing no later than 15 days after receipt unless the person submits a written notice to the Department requesting additional time to respond. A record of all inquiries made by the department must be maintained by the department. Penalties The Commissioner may cancel or revoke any authorization, after giving notice and the opportunity for a hearing, if the holder of a license or certificate of authority has violated or failed to comply with the Texas Insurance Code or any rule of the Commissioner. The Commissioner may also: Suspend the license for up to 1 year Issue a cease and desist order from the activity determined to be a violation Order the licensee to pay an administrative penalty Direct the licensee to make restitution to each Texas resident or insured in the amount, form, and within the period specified by the Commissioner The Commissioner may revoke or modify an insurer s certificate of authority if the insurer does not meet the requirements of law necessary for granting the issuance of a certificate of authority. Before doing so, the Commissioner must provide the insurer with at least 10 days advance written notice before such revocation or modification. The notice must state the reason for the action. Retention Question 3 The Commissioner is authorized to perform all of the following duties, except: a. Suspend insurance licenses for up to 5 years b. Issue cease and desist orders c. Adopt reasonable rules and regulations to enforce insurance laws d. Conduct investigations Insurance Definitions Certificate of Authority In order for an insurance company to transact insurance in Texas, it must submit an application for a Certificate of Authority. If the Department finds the applicant has complied with state law, it will approve the application and issue the Certificate of Authority authorizing the insurer to engage in the business of insurance. The certificate must state the specific kinds of insurance authorized. When issued, a Certificate of Authority is effective until suspended or revoked and must state the specific lines of insurance for which the insurer is authorized to transact business. Authorized insurers are required to file an annual statement with the Department. Failure to file an annual statement as required by law subjects the insurer to suspension or revocation of the certificate of authority. If the Department issues a denial or disapproval of an application for a Certificate of Authority, the applicant may request a hearing. The Commissioner must request a hearing date no later than the 30 days after the applicant s request for the hearing. A.D.Banker&Company 5

10 TEXAS STATE INSURANCE LAWS Transacting Insurance The transaction of insurance involves activities relating to the business of insurance, such as the solicitation and negotiation of insurance, including the execution of an insurance contract and the transaction of matters relating to the contract. The following acts that involve transacting insurance include: Issuing or proposing to issue, as an insurer, an insurance contract Taking or receiving of an insurance application Receiving or collecting any consideration for insurance, including a premium, commission, membership fee, or assessment Issuing or delivering an insurance contract Directly or indirectly acting as an insurance producer or otherwise representing an insurer Insurance Contracts with Unauthorized Insurers An insurance contract effective in this state and entered into by an unauthorized insurer is unenforceable by the insurer. If a loss is sustained, both the unauthorized insurer and any person who assisted, directly or indirectly, in the sale of the contract, are liable to the insured for the amount of a claim or loss under the terms of the contract. If the unauthorized insurer fails to pay the claim or loss, the agent is responsible for the full amount. Foreign, Domestic, and Alien Insurers A domicile is the jurisdiction in which an insurer is formed or incorporated, such as a state or country. A domestic insurer is organized under the laws of this state, whether it is admitted to do business in this state A foreign insurer is organized under the laws of another U.S. jurisdiction (i.e., another state), whether it is admitted to do business in this state An alien insurer is organized under the laws of a jurisdiction outside the United States, whether it is admitted to do business in this state Stock and Mutual Insurers A stock insurer is owned by the company s stockholders or shareholders and issues Nonparticipating policies. Directors and officers of the company manage the company s operations and are elected by the stockholders. When the directors declare the issuance of dividends, which are a taxable return of profit, they are paid to the stockholders. A mutual insurer is owned by the company s policyholders, who may also be referred to as members, and issues Participating policies. The company s board of trustees or directors manages its operations and the board s members are elected by the policyholders. When the directors declare the issuance of dividends, which are a non-taxable return of profit, they are paid to the policyholders. Retention Question 4 A Certificate of Authority is issued to an insurer for which of the following reasons? a. It recognizes the insurer for excellence in handling claims b. It certifies the insurer is authorized to transact insurance in this state c. It certifies the insurer has passed a market conduct exam in this state d. It certifies the agent is authorized to transact insurance in this state 6 A.D.Banker&Company

11 LIFE AND HEALTH LAWS Retention Question 5 Which of the following is NOT transacting insurance? a. Collecting an insurance payment b. Delivering an insurance contract c. Selling stocks, bonds, and mutual funds d. Indirectly acting as an agent Retention Question 6 According to the Texas Insurance Code, an insurance company incorporated in New Mexico is a(n): a. Domestic insurer b. Alien insurer c. Foreign insurer d. Admitted insurer Retention Question 7 Which type of insurance company is owned by its policyholders? a. Mutual insurer b. Stock insurer c. Admitted insurer d. Non-admitted insurer Licensing Requirements Types of Licenses Agent The Department will issue an agent license if the applicant: Is at least 18 years of age Has not committed an act for which a license may be denied Submitted the application, appropriate fees, and any other required information Passed a licensing exam within the past 12 months An agent is a person authorized and licensed to transact insurance on behalf of an insurer, and includes a subagent and any other person who performs the acts of an agent, including selling, soliciting, and negotiating insurance or annuity contracts and collecting such premiums. An agent is NOT: A regular salaried employee or officer who: Devotes substantially all of his/her time to activities other than the solicitation of insurance applications Does not receive a commission or other compensation directly from the sale of insurance Does not solicit or accept insurance applications from the public An employer, employee, or trustee engaged in the administration or operation of an employee benefits plan if not directly compensated by the insurer issuing the contracts. A.D.Banker&Company 7

12 TEXAS STATE INSURANCE LAWS The department may not issue a license as an agent unless it has been determined that the applicant intends to be actively engaged in the soliciting or writing of insurance for the general public and actively engaged in the business if insurance. It is prohibited to license an applicant who has the intent to engage in the business of insurance principally to handle business that the applicant controls only through ownership, mortgage, family relationship, or employment. The applicant must have the intent to engage in business in which, in any calendar year, at least 25% of the total volume of premiums is derived from persons other than the business controlled by the license applicant. Temporary Agent A temporary agent license may be issued by the Department under certain circumstances; it will be valid for 90 days, and in no case, may be issued or renewed to the same applicant more than once in any consecutive six-month period. To be eligible for a temporary license, an individual must submit an application accompanied by: The appropriate nonrefundable fee A certificate signed by an agent, insurer, or HMO stating that: The applicant is being considered for appointment by the agent, insurer, or HMO The agent, insurer, or HMO wants a temporary license to be issued to the applicant The applicant will complete at least 40 hours of supervised training, with at least 10 of those hours completed in a classroom setting, within 14 days from the application date An applicant is not required to pass a written exam to obtain a temporary license; however, a temporary license cannot be issued to an applicant who: Does not intend to apply for a license to sell insurance or memberships to the general public Plans to write controlled business A temporary license holder may not obtain commission on sales made to a person with a family, employment, or business relationship. Life and Health Insurance Counselor A person who: Charges a fee or other compensation to examine a life, accident, or health policy, annuity or pure endowment contract to provide advice or other information regarding: The policy, plan, or contract terms, conditions, benefits, coverage, or premiums. The advisability of changing, exchanging, converting, replacing, surrendering, continuing, or rejecting a policy, plan, or contract from an insurer or health plan issuer. Publicly uses a title (e.g. insurance adviser, analyst, counselor, or specialist; policyholders adviser or counselor) that indicates the person is engaged in the business of giving advice or other information to any person having an interest in a life, accident, or health policy, health benefit plan, or annuity or pure endowment contract. Note A Life and Health Insurance Counselor is prohibited from charging a fee for services IN ADDITION TO earning a commission on the products that he or she recommended to a client. 8 A.D.Banker&Company

13 Issuance of License to a Corporation or Partnership LIFE AND HEALTH LAWS The Department will issue a license to a corporation or partnership if the following has been determined: The corporation or partnership is organized under the laws of a state and authorized under the corporation or partnership to act as an agent At least one officer or one active partner and all persons transacting insurance are individually licensed by the department separate from the entity The corporation or partnership has the ability to pay any amount up to $25,000 it is legally obligated to pay to a customer and was caused by a negligent act, error, or omission The corporation or partnership intends to be actively engaged in the solicitation or writing of insurance for the general public and is actively engaged in the business of insurance Each business location acting under the authority of a license is registered separately with the Department An officer, director, member, manager, partner, or other controlling person of the corporation or partnership has not had a license suspended or revoked, been the subject of a disciplinary action by a regulator of any state, or committed an act for which a license may be denied. Exemptions from Examination The department may not require the passing of a licensing examination if the applicant is: Renewing an unexpired license Renewing a license that expired less than 1 year before the date of the application, as long as the previous license was not denied, revoked, or suspended Applying for a life-only or life, accident and health license and holds a Chartered Life Underwriter (CLU) professional designation Applying for a property and casualty license and holds a Chartered Property and Casualty Underwriter (CPCU) professional designation Retention Question 8 Who is NOT eligible for an agent license in this state? a. A 17-year-old who passed the licensing exam 6 months ago b. An applicant intending to be actively engaged in the business of insurance c. An applicant intending to solicit insurance to the general public d. A 43-year-old who submitted the appropriate application and fees 1 month ago Retention Question 9 Holding which of the following professional designations will exempt a person from taking the life licensing examination? a. Certified Insurance Consultant (CIC) b. Certified Financial Analyst (CFA) c. Chartered Life Underwriter (CLU) d. Chartered Financial Consultant (ChFC) A.D.Banker&Company 9

14 TEXAS STATE INSURANCE LAWS Appointment Licensed agents are not permitted to transact insurance as an agent until they have been appointed by an insurer authorized to transact insurance in this state. An agent may represent and act as an agent for multiple insurers. The agent and the insurer involved must notify the department, on a form prescribed by the department with a nonrefundable fee, no more than 30 days from the effective date of the appointment of any additional appointment authorizing the agent to act as an agent for one or more additional insurers. This means that the agent may act on behalf of the appointing insurer before the department receives the notice filed. An appointment continues in effect without the necessity of renewal. A renewal license issued to an agent authorizes the agent to represent and act for all insurers for which the agent is appointed. Agent appointments remain in force until they are terminated or withdrawn. To terminate an agent s appointment, the insurance company must send notice to the Texas Department of Insurance. License Expiration and Renewal If not renewed, an insurance license will expire on the second anniversary of the date it was issued. An agent may renew a license that has not expired by filing the required renewal application and paying the renewal fee established by the Department. Agents may not renew licenses that have been suspended or revoked. Once issued, an original license remains in effect from the date a renewal application is filed until the renewal license is issued or the Commissioner revokes the license. A person may renew an expired license if the license has been expired for 90 days or less. To obtain a renewal license, the person must file with the Department a renewal application on the appropriate form and make payment for the required renewal fee AND an additional fee equal to one-half the renewal fee. If a license has been expired for more than 90 days, the person may not renew the license and must apply for a new license. Requirements for application of the new license differ based on how long the license has been expired. If a license has been expired for between 90 days to 1 year: Person must file a new application with the Department, along with the license fee and an additional fee equal to one-half the license fee Person is NOT required to take a licensing exam If a license has been expired for 1 year or more: Take a licensing exam, if an exam is required for an original license Comply with other requirements and procedures for obtaining a new license If a licensee fails to maintain the qualifications necessary to obtain a license, the Department will revoke, suspend, or refuse to renew the license. Fees The Department will collect a nonrefundable fee from each agent or insurer for the following: License application fee Appointment fee for each appointment of the agent by an insurer Examination fees License renewal application fees The Department will set the fees in amounts considered reasonable and necessary. 10 A.D.Banker&Company

15 LIFE AND HEALTH LAWS Retention Question 10 A licensed agent is required to obtain which of the following before transacting insurance in Texas? a. An appointment from an insurer b. A CLU designation c. A Certificate of Authority d. An insurance counselor s license Retention Question 11 An agent s appointment: a. Is valid for a maximum of 2 years b. Can only be canceled if the agent fails to write new business c. Remains in force until terminated or withdrawn d. Must be renewed before the license expires Retention Question 12 To terminate an agent s appointment, the insurer must: a. Require the agent to cancel the license with the Texas Department of Insurance b. Notify the Texas Department of Insurance of the termination of appointment c. Notify the Texas Department of insurance to cancel the license d. Request a hearing through the Department of Insurance Licensing Persons with Criminal Backgrounds The Department views the relationship between licensees and the public to be one where the public places its trust in licensees and relies upon them to act legally and ethically with respect to insurance products, which are often complex. Therefore, the Department requires licensees to be honest, trustworthy, and reliable. The Department has developed guidelines that determine what crimes disqualify persons from licensure due to their serious nature: Any offense for which fraud, dishonesty, or deceit is an essential element Any criminal violation of Texas insurance code, state or federal insurance law, or state or federal securities law that pertains to the business of insurance Any felony that involves moral turpitude (an act that violates accepted moral standards) or a breach of fiduciary duty Any offense with the essential elements of criminal homicide, felony assault, arson, robbery, burglary, or theft Kidnapping, public lewdness, indecent exposure, indecency with a child under age 17, prohibited sexual conduct, certain domestic violence crimes in violation of a court order, stalking, and child pornography Commission of a misdemeanor or felony, or engaging in fraudulent or dishonesty activity, relating to the duties associated with the license A.D.Banker&Company 11

16 TEXAS STATE INSURANCE LAWS Retention Question 13 The Texas Department of Insurance requires all licensees to: a. Engage in the business of insurance for the sole purpose of transacting insurance with family members b. Obtain a Certificate of Authority c. Complete 40 hours of prelicensing education d. Be honest, trustworthy, and reliable Continuing Education All licensees must complete continuing education requirements before the expiration date of the license AND at least 50% of the hours must be completed in a classroom, or classroom equivalent, setting. Continuing education hours completed in other professions, or in association with professional designations in insurance-related fields may be accepted by the Department. A licensee must submit a timely written request to the Department to extend the time required to complete continuing education, or to be exempted from some or all of the requirements due to illness, medical disability, or extenuating circumstances beyond the licensee s control. An individual who holds a general life, accident and health, life agent, life and health counselor, adjuster, general property and casualty, or personal lines property and casualty license must complete 24 continuing education hours for all licenses during each two-year license period. Each individual must complete 2 hours of ethics as part of the 24 hours. Retention Question 14 General life, accident, and health agents must complete a minimum of continuing education hours per renewal period. a. 15 b. 20 c. 24 d. 40 Retention Question 15 Which of the following statements about continuing education is true? a. At least 50% of continuing education hours must be completed in a classroom or classroom equivalent setting b. Every licensee must complete 3 continuing education hours on the topic of ethics c. Licensees must complete 24 continuing education hours for each license held d. Continuing education hours must be completed after the expiration date of the license State and National Insurance Association Credit Licensees who hold a national designation certification or are a member in good standing of a state or national insurance association may accumulate up to 2 hours for reviewing that sponsor s or association s educational materials and up to 4 hours for attending its educational presentations. The maximum credit hours earned is four and they may not count toward the ethics requirements. 12 A.D.Banker&Company

17 Extensions and Exemptions LIFE AND HEALTH LAWS If requested by an agent on a timely basis, the department may extend the time for an agent to comply with or exempt the agent for some or all of the continuing education requirements for a licensing period if the agent is unable to comply due to illness, medical disability, or another extenuating circumstance. The Commissioner will determine the criteria for an exemption or extension. Annuity Suitability Agent Training Requirements An agent may not solicit the sale of annuity products without adequate knowledge of the product to make recommendations. Any agent engaging in the sale of annuity products must complete a one-time training course approved by the Texas Department of Insurance as provided by an approved continuing education provider. This training must qualify for at least 4 continuing education credits, but may be longer. Product Specific Training Requirements Licensees who act as an agent with respect to certain products must complete certification courses and continuing education that relate specifically to the following products: LTC Partnership and Medicare-related Products An 8-hour certification course is required before acting as an agent with regard to any of these products 4 hours of certified continuing education, per licensing period, is required if a licensee acts as an agent, or intends to act as an agent, with regard to these products Small Employer Health Benefit Plans An 8-hour certification course is required before a licensee may advertise that he/she is specially trained to serve small employers in the health benefit plan market 5 hours of certified continuing education, per licensing period, is required for a licensee to renew a small employer health benefit plan specialty certification License Denial, Renewal, and Expiration Under certain circumstances, the Department may discipline a licensee or deny a license application if the individual has: Willfully violated a state insurance law Intentionally made a material misstatement in the license application Obtained, or attempted to obtain, a license by fraud or misrepresentation Misappropriated funds, converted funds to the individual s own use, or illegally withheld funds belonging to an insurer, HMO, or insured Engaged in fraudulent or dishonest acts or practices Committed a material misrepresentation of the terms/conditions of an insurance policy Committed a material misrepresentation, or incomplete comparisons, regarding the terms or conditions pertaining to an insurance policy for the purpose of inducing the owner to forfeit, surrender, or lapse the contract and replace it with another insurance policy or contract Been convicted of a felony Offered or given an insurance premium rebate or commission to an insured Has had an existing license revoked Not been actively engaged in soliciting or writing insurance for the general public as required by law (an agent cannot solicit insurance only from family members) Obtained, or attempted to obtain, a license for the primary purpose of writing controlled business A.D.Banker&Company 13

18 TEXAS STATE INSURANCE LAWS The Department may take the following disciplinary action in addition to any other remedy available under Texas Insurance Code, the insurance laws of another state, or any rule of the Commissioner: Deny an application for an original license or a certificate that verifies an agent s qualifications to sell complex insurance products Suspend, revoke, or deny renewal of a license or a certificate that verifies an agent s qualifications to sell complex insurance products Place a licensee on probation if his/her license has been suspended Assess an administrative penalty Reprimand a licensee Require a licensee to qualify or requalify for a certificate to sell a particular insurance product or a complex insurance product line Retention Question 16 An individual may be denied a license or be disciplined by the Department for all of the following reasons, except if the individual has: a. Been convicted of a felony b. Actively engaged in soliciting and writing insurance for the general public c. Obtained a license by fraud or misrepresentation d. Offered a premium rebate to an insured Retention Question 17 A license may be suspended or revoked for which of the following? a. A licensed insurance counselor charges a fee to review a policy and provide advice b. An agent obtains a nonresident license in another state c. A licensee completed 24 continuing education hours, including 2 hours of ethics before the expiration date d. An agent is actively engaged in soliciting insurance only to family members License Termination, Revocation, and Suspension An individual who was denied a license, or whose license was revoked, must wait 5 years before applying for an agent license. This restriction does not apply if the license denial was due to a failure to pass the required written exam or submit a properly completed license application. The Commissioner may deny a license application after the 5-year period if the applicant fails to show good cause for the issuance of a new license. Retention Question 18 An individual who was denied a license must wait to reapply for a license a minimum of: a. 90 days b. 6 months c. 2 years d. 5 years 14 A.D.Banker&Company

19 LIFE AND HEALTH LAWS Marketing Practices Unfair/Prohibited Trade Practices The following acts are unfair methods of competition and/or unfair or deceptive acts or practices. Unfair or Deceptive Claim Methods and Practices It is an unfair method of competition to engage in the following settlement practices regarding a claim made by an insured or beneficiary: Misrepresenting to a claimant a material fact or policy provision relating to coverage at the time of issue Failing to acknowledge within 15 business days, or reasonable promptness, pertinent communications with respect to a claim Failing to adopt and implement reasonable standards for prompt investigation of insurance claims Failing to attempt in good faith to promptly and fairly settle a claim in which the insurer s liability is reasonably clear Failing within a reasonable time to affirm or deny coverage of a claim, or submit a reservation of rights letter, to a policyholder Compelling policyholders to institute a lawsuit to recover amounts due by offering substantially less than the amount ultimately recovered in lawsuits brought by policyholders Failing to maintain complaint records pertaining to all complaints received by the insurer during the 3 preceding years Failing to promptly provide claim forms as stated in the policy when the insurer requires forms as a prerequisite for a claim settlement Failing to attempt in good faith to promptly and fairly settle a claim in which the insurer s liability is reasonably clear under one portion of a policy to influence settlement under another portion of the policy unless payment under one portion of the coverage amounts to evidence of liability under another portion Denying a claim without providing a reasonable explanation of the basis in relationship to the facts or applicable law for the insurer s denial Refusing or unreasonably delaying a settlement offer under first-party coverage because other coverage may be available to the insured or that third-parties are responsible for damages suffered Attempting to enforce a full and final claim release from a policyholder when only a partial payment has been made, unless the payment is a compromise settlement Refusing to pay a claim without conducting a reasonable investigation of the claim Failing to respond promptly to a claimant who requested personal contact about, or a review of, a claim Delaying or refusing settlement of a claim under a Texas personal auto policy solely because another type of insurance is available to satisfy all or part of the loss; claimants have the right to choose under which policy to submit a claim and in what order to receive payment Requiring a claimant, as a condition of claim settlement, to provide federal income tax returns for review by the insurer unless the court orders production of the tax returns or the claim involves a fire loss or loss of profits or income Any other act as determined by rule of the Commissioner to constitute and unfair claim settlement practice A.D.Banker&Company 15

20 TEXAS STATE INSURANCE LAWS Complaint Records, Reporting, and Minimum Standard of Performance A complaint is considered any written communication expressing a grievance. All insurers must maintain a complete record of all complaints received by the insurer during the preceding 3 years or since the last examination by the Department, whichever is shorter. The records must indicate the total number of complaints, classification by line of insurance, nature of each complaint, disposition, and time spent processing each complaint. If, based on complaints of unfair claim settlement practices, the Department finds an insurer should be closely supervised, the Department may require the insurer to file periodic reports as often as deemed necessary. The Department will compile the information received from the insurer and compare the insurer s performance to a minimum standard of performance adopted by the Commissioner. Investigation and Disciplinary Procedures If the Department determines based on the number and types of complaints against an insurer that the insurer does not meet the minimum standards of performance, or that the number and type of complaints are not proportionate to the complaints against other insurers writing similar lines of insurance, the Department will investigate the insurer. The Department will review the findings of the investigation to determines if further action is necessary. If so determined, the Department will set a date for a hearing to review alleged violations further, notify the insurer of the date and the nature of any charges. If the Department finds the insurer is in violation, it will issue a cease and desist order to stop the unlawful practice. If the insurer fails to comply with the cease and desist order, the Department may: Revoke or suspend the insurer s Certificate of Authority Limit, regulate, or control the insurer s business activities with respect to the lines of business written, writing of policies and forms, and volume of business Require the insurer to pay reasonable attorney s fees to the Department Retention Question 19 Which of the following is not a prohibited claims settlement practice? a. Misrepresenting a material fact to a claimant b. Requiring a claimant s income tax return while investigating a fire c. Refusing to pay a claim without reasonably investigating it d. Denying a claim without providing the basis for the denial False Information and Advertising It is an unfair method of competition to make, publish, disseminate, circulate, or place before the public, directly or indirectly, an advertisement, announcement, or statement that is untrue, deceptive, or misleading regarding the business of insurance or a person s conduct in the insurance business. This applies to all advertisements or statements published, circulated, or placed before the public: In a newspaper, magazine, or other publication In a notice, circular, brochure, letter, or poster Over the radio, television, or through the Internet In any other manner 16 A.D.Banker&Company

21 LIFE AND HEALTH LAWS No insurance company advertising may use the word dividends, or similar words, to imply that future dividends will be paid or are guaranteed. The word dividends includes every return of premium and payment to policyholders based on the financial performance or earnings of the insurance company. However, dividends does not include the return of premium under a mandatory policy provision or an endorsement that clearly provides for the use of a rating plan approved by the Department. Retention Question 20 Which of the following is considered false advertising? a. An agent misrepresents a policy provision relating to coverage at the time of issue b. A counselor charges a fee for advice in addition to commission for the sale of a policy c. An insurer exaggerates its dividends in statements published in a newspaper d. An insurance applicant misrepresents material information on an application for a license False Financial Statements It is an unfair method of competition to, with the intent to deceive: File with a public official or to make, publish, disseminate, circulate, deliver, or place before the public a false statement of financial condition of an insurer Make a false entry in an insurer s book, report, or statement or willfully omit to make a true entry of a material fact relating to the insurer s business Misrepresentation Regarding Policy or Insurer A misrepresentation is an untrue or misleading statement, the omission of a pertinent disclosure or a material fact, or a material misstatement of law, whether the misstatement is made verbally or in writing, if it concerns: The terms of a policy The benefits or advantages promised by a policy The dividends, or share of surplus, to be received from a policy The financial condition of an insurer The legal reserve system used by a life insurer The use of a policy type or class that misrepresents the true nature of the policy The use of a misrepresentation to a policyholder to induce the policyholder to lapse, cancel, or surrender an existing policy Defamation Defamation is the publication or circulation of a statement that is false, maliciously critical of, or derogatory to the financial condition of an insurance company if it is intended to injure any individual or organization engaged in the business of insurance. Defamation includes the aiding, abetting, or encouragement of such a statement whether it is made verbally or in writing. Boycott, Coercion, and Intimidation Boycott, coercion, and intimidation are unfair methods of competition defined as forceful actions intended to result in the unreasonable restraint of trade, or the establishment of a monopoly, in the business of insurance. A.D.Banker&Company 17

22 TEXAS STATE INSURANCE LAWS Retention Question 21 Publishing or circulating information that is maliciously derogatory to the financial condition of an insurance company with the intent to injure is known as: a. Defamation b. Misrepresentation c. False advertising d. Boycott, Coercion, and Intimidation Rebating Unless expressly allowed by law and with respect to life insurance, annuities, and accident and health insurance the following acts are prohibited inducements to offer or purchase insurance: Pay, give, or allow (or offer to pay, give, or allow) a: Rebate of policy premiums Special favor or advantage concerning policy dividends or benefits Valuable consideration not stated in the policy Give, sell, or purchase (or offer to give, sell, or purchase): Stocks, bonds, or securities of an insurer Dividends or profits from the stocks, bonds, or securities of an insurer Anything of value not stated in the policy However, an agent is not prohibited from giving, in connection with an offer or sale of an insurance policy or contract, any item that is promotional advertising, educational, or considered a common courtesy extended to consumers and is valued at $25 or less. In addition, an agent may not pay, permit, give or offer to pay, permit, or give any of the following to a person, including an insured purchasing insurance, who does not hold an agent license: A commission, a rebate of premium, a contract for service, or any other valuable consideration or inducement not contained in the insurance policy A fee or other valuable consideration for referring a customer who seeks to purchase insurance or insurance advice if it is based on the customer s purchase of insurance. Retention Question 22 What prohibited trade practice is committed if an agent provides misleading information regarding guaranteed dividends, terms, advantages, or disadvantages of a policy? a. Rebating b. Misrepresentation c. Defamation d. False advertising Discrimination Unfair discrimination in the terms and conditions of insurance policies, including during the processes of underwriting and rating, is prohibited and includes discrimination based on gender or marital status. These prohibitions apply to all insurance policies issued in this state. Specifically, no policy benefits, terms, or conditions may be restricted, modified, excluded, or reduced. If premium rates differ based on gender or marital status, they must be based upon actuarial assumptions and approved by the Commissioner. 18 A.D.Banker&Company

23 Deceptive Name, Word, Symbol, Device, or Slogan LIFE AND HEALTH LAWS It is an unfair or deceptive practice in the business of insurance to display or use in any way a name, word, symbol, device, or slogan, including titles, designations, character names, and distinctive features that are deceptively similar to those used by any other insurance entity authorized to engage in business under the laws of this state. Fraud A fraudulent insurance act is an act that violates a penal law and is committed while engaging in the insurance business, as part of an insurance transaction, or as a part of an attempt to defraud an insurer. Examples of fraudulent acts include accepting premiums for coverage that will knowingly not be provided, submitting a false claim or altered bill to an insurance company, or filing false statements with the intent to deceive. Reporting Fraudulent Insurance Acts If any person discovers or reasonably suspects that a fraudulent insurance act has been committed, or will be committed, the person: Must file a written report with the Department s insurance fraud unit or the National Association of Insurance Commissioners (NAIC) May also file a report to any authorized government agency The report must be filed within 30 days after determining that insurance fraud has been, or will be, committed. A person reporting any type of fraudulent act is granted immunity from civil action if the report is made to an authorized government agency, the Department, a law enforcement officer, the National Association of Insurance Commissioners or its employee, a state or federal anti-fraud agency, or an insurance regulatory agency. Immunity is only granted if the person filing the report is not acting maliciously, with fraudulent intent, or in bad faith. An insurance company must provide information on fraudulent claims if requested by law enforcement agencies, the Commissioner, or the Attorney General. The insured does not have the right to request such information. Insurance Fraud Unit The Department s insurance fraud unit was created to enforce laws pertaining to fraudulent insurance acts. The insurance fraud unit may receive, review, and investigate anti-fraud reports and must provide written annual reports to the Commissioner that contain the number of completed cases and its recommendations for response to those cases. An insurer is not required to complete a fraud investigation before requesting that the Commissioner conduct an investigation. Confidentiality Information received by the Department that relates to an investigation by the insurance fraud unit is considered confidential and not a public record during the period of investigation, when protecting a person under investigation from unwarranted injury, or to serve the best interests of the public. Penalties The department may examine and investigate any person engaged in the business of insurance to determine if an unfair method of competition, deceptive act or prohibited practice has occurred. If proceeding by the department regarding any charges of violation is in the interest of the public, the department will issue and serve a statement of the charges and a notice of the hearing on these charges, including the time and place for the hearing. The department may not hold the hearing before the 6th day after the date the notice is served. A.D.Banker&Company 19