WASHINGTON STATE LAWS AND RULES Washington Administrative Code (WAC) Title 284 Revised Code of Washington (RCW) Title 48

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1 WASHINGTON STATE LAWS AND RULES Washington Administrative Code (WAC) Title 284 Revised Code of Washington (RCW) Title The Commissioner is elected every four years by the voters of the State of Washington. The Commissioner must supply a $25,000 Surety Bond conditioned upon the faithful performance of the duties of his office, and also may require any of his deputies or employees to post the same bond. Washington s current commissioner is Mike Kreidler. 1. Broad Powers and Duties of the Commissioner: Administer and enforce the provisions of the Insurance Code. Make reasonable rules and regulations for effectuating any provision of the Insurance Code. Conduct investigations to determine whether any person or company has violated any provision of the Insurance Code. Take action against an insurance company or health care service contractor by revocation or suspension of its Certificate of Authority. A certificate of authority is a company s license to transact insurance in our state. Fine insurance companies. Revoke or suspend licenses of insurance licensees (i.e., agents and brokers), or fine them. Investigate grievances filed against any insurance company or producer. The Commissioner does not make the Code or develop insurance policies. The Commissioner does not legislate how many agents a company may hire. The Commissioner does not put insurance policies together. The Commissioner does not decide on the constitutionality of the Codes (Regulations). The Commissioner does not endorse any insurance company. 1

2 2. Examination of Records The Commissioner must establish the Examinations Department headed by a Chief Examiner who has the responsibility for monitoring the Insurers' financial status. The Examiner must examine each authorized insurer at least every five years but may examine at any time. Rates and Forms Washington is a prior approval state. Every insurer must file with the Insurance Commissioner, before using, every policy, manual, form, rule, rate, and effective date, utilized in classifications. The Insurer must also stipulate why the classifications, premiums, rules, etc., are needed. The Insurance Commissioner is responsible for the regulation of rates and forms. The Commissioner s approval of a form may be withdrawn at any time and may order that the form no longer be used. 3. Penalties: If the Commissioner believes any person is violating or is about to violate insurance law, he may issue a cease and desist order or bring an action in court to enjoin the person from continuing the violation. If the Commissioner believes any person has violated any provision of the Insurance Code or laws, he must certify the facts of the violation to the public prosecutor of the jurisdiction in which the offense was committed. The Attorney General and prosecuting attorneys throughout the state will prosecute or defend all proceedings brought under this Code when requested by the Commissioner. Terms and Concepts: 1. Business entity: a corporation, association, partnership, limited liability company, limited partnership or other legal entity. 2. Home state: the District of Columbia and any state or territory of the United States, or province of Canada in which an insurance producer maintains the insurance producer s principal place of residence or principal place of business and is licensed to act as an insurance producer. 3. Insurance: A formal social device for transferring risk to an Insurance Company. Funds to cover losses are raised by collecting small amounts of money, a.k.a. premiums, from a broad base of buyers. 4. Insurance Producer: means a person required to be licensed under the laws of this state to sell, solicit or negotiate insurance. An individual who sells Credit insurance is an insurance producer even though they have a Limited Line Credit Insurance license. 2

3 5. Insurance Transactions include: Solicitation - offering to sell insurance Negotiation - quoting, selling and any needs analysis Execution - putting the policy in force, signing any documents, etc. Transactions after the sale such as adding or changing coverages, etc. Any act of insuring (anyone who performs a transaction must be licensed). 6. Insurers - An insurer is a company that takes on the responsibility of transferring risk from the general public to itself. Classifications of Insurance Companies (Insurers): Domestic companies are insurers formed under the laws of the State of Washington (a.k.a. domiciled). Examples are Safeco and Pemco. Foreign companies are formed in the United States other than in the State of Washington. Examples are Farmers Insurance, State Farm, Allstate and many others. Alien companies are formed under the laws of a nation other than the United States. An example is Sun Life of Canada. Mutual Insurance Companies are owned by the policy owners. Policy owners vote for a board of directors which directs the affairs of the company. The board is also responsible for electing how much of a dividend (profits) to pay to the members. There are no stockholders. A Stock Insurance Company is an incorporated business organization organized as a profit making entity and is owned by the stockholders. Dividends are paid to the stockholders. A Fraternal, a.k.a. Fraternal Benefit Society, is an incorporated society which is a nonprofit organization that operates on the basis of lodge, with a representative form of government. It is formed solely for the benefit of its members. Examples include Knights of Columbus and Sons of Norway. 7. License: a document issued by the commissioner authorizing a person to act as an insurance producer for the lines of authority specified in the document. 8. Limited line credit insurance includes credit life, credit disability, credit property and casualty, credit unemployment, involuntary unemployment, mortgage life, mortgage guaranty, mortgage disability, automobile dealer gap insurance, and any other form of insurance offered in connection with an extension of credit. 9. Negotiate: the act of conferring directly with or offering advice to a purchaser or prospective purchaser of insurance. 10. Sell: to exchange a contract of insurance by any means, for money or its equivalent, on behalf of an insurer. 3

4 11. Solicit: attempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a particular insurer. 12. Uniform business entity application: the current version of the NAIC uniform application for business entity insurance license or registration for resident and nonresident business entities. 13. Uniform application: the current version of the NAIC uniform application for individual insurance producer for resident and nonresident insurance producer licensing. 14. Washington Insurance Guaranty Association - The purpose of the guarantee associations is the creation of funds arising from a premium tax asses sment on all insurers authorized to transact insurance business in Washington. The funds are used to assure claim payments from an insurer should the insurer become insolvent. Coverage limit is a maximum of $500,000 per person for Life and Disability insurance (including Credit Life and Disability contracts). Coverage limit is a maximum of $300,000 per claim for Property and Casualty insurance. Producers and insurers may not advertise or mention this Association to the public for the purpose of solicitation, sale or inducement of insurance. Licensing - No one may act as or claim to be a producer, limited lines insurance agent or adjuster in Washington unless properly licensed, nor shall any person solicit, procure, take applications for or place for others any kind of insurance for which he or she is not licensed. Producers A Producer Can Be an Agent or Broker, or Both: An Agent is a producer who is appointed by an insurance company to solicit applications for insurance on its behalf, and when authorized to do so, collect premiums for the insurance policy, and essentially effectuate (put into effect) the insurance coverage. An agent can be an individual, partnership or corporation. An agent may be given binding authority, and represents the insurance company he is appointed with at all times. No bond is required for an agent because the agent is a legal extension of the insurer and the insurer guarantees its agent financially. Charges for Extra Services by an Agent: With prior authorization from the Commissioner, reasonable fees for performing services beyond the scope of selling insurance are allowed. The client or prospect must be given written notice in advance of what the fixed charge will be, or the basis for determining the charge. 4

5 Insurance Producer as Insurer's Agent - Compensation Disclosure Unless the agency-insurer agreement provides to the contrary, an insurance producer may receive the following compensation: 1) A commission paid by the insurer 2) A fee paid by the insured 3) A combination of commission paid by the insurer and a fee paid by the insured from which an insurance producer may offset or reimburse the insured for all or part of the fee. If the compensation received by an insurance producer who is dealing directly with the insured includes a fee, for each policy, the insurance producer must disclose in writing to the insured: 1) The full amount of the fee paid by the insured. 2) The full amount of any commission paid to the insurance producer by the insurance company and the full name of the insurance company that paid the commission. 3) An explanation of any offset or reimbursement of fees or commissions. Written disclosure of compensation as required by this section must be provided by the insurance producer to the insured prior to the sale of the policy. Written disclosure as required by this section must be signed by the insurance producer and the insured, and the writing must be retained by the producer for five years. Compensation for Limited Lines Licensees A limited lines credit agent may charge a fee or commission; however the rate of compensation (commission) cannot be excessive. Anything beyond 40% commission is deemed excessive. All licensees must respond to any inquiries from the Commissioner's office promptly and it must be in writing. Promptly means within 15 business days from receipt of the inquiry from the commissioner. Sending written notice means transmitting the required information in writing on forms designated by the commissioner via mail, commercial delivery company, electronic telefacsimile transmission or . 5

6 Limited-Line License - A limited license means the producer can sell only one type of product. No pre-license education or continuing education is required, however, an initial state insurance exam is still required. Limited Licenses include: Credit Insurance (Credit Life, Credit Disability and Credit Property and Casualty must pass the Credit exam) 1) Credit Life will pay off a loan if the insured dies. 2) Credit Disability will make the loan payments for the insured should they become disabled. 3) Credit Property & Casualty is a license for those who sell insurance covering mortgaged property (such as motor vehicles). This is also known as collateral protection coverage or vendor single-interest insurance. Surety license allows the licensee to sell bonds. Travel license issued to travel agents. Appointments - An agent must be appointed by an authorized insurer before she can sell for that insurer. The insurer must notify the Commissioner in writing of the appointment and pay a $20.00 appointment fee. Appointments renew every two years. The burden of determining whether authorization exists with the entity issuing the coverage is with the producer who is soliciting, negotiating or procuring an application for the insurance in this state. A producer acting as an agent may be appointed by: Only one company or insurer. These individuals may be called a captive agent or a direct writer. A captive agent does not own his accounts. More than one company (a.k.a. an independent agent). An independent agent is an independent contractor who owns a right to his accounts, policy records and renewals. A producer s office must be accessible (open) to the public. Licensees whose personal residence is shown on their licenses may obscure their residence addresses as long as the licensee s name can be seen clearly by the public. A producer must advise the Commissioner's Office of any change in the person s residence, mailing, business or address within 30 days. 6

7 UNFAIR TRADE PRACTICES The Unfair Trade Practices Act is divided into two parts: Unfair Marketing Practices and Unfair Claims Practices. Statutes (laws) define and prohibit certain trade and claims practices which are unfair, misleading and deceptive. No person or insurer engaged in the business of insurance may engage in unfair methods of competition or in unfair or deceptive acts or practices whether expressly written in the State Code or found by the commissioner to be unfair or deceptive. Penalties for Non-Compliance Suspension The Commissioner can take the license away temporarily for a maximum of one year and it is returned without the producer having to retake an exam. Revocation The Commissioner can take the license away for a maximum of one year. The person must reapply for the license but it may not be approved. However, if the Commissioner does approve the application, pre-license education is required and the proper license exam must be passed again. Immediate revocation (without a hearing) of any insurance license is allowed upon the sentencing of the licensee for conviction of a felony, but only if the facts of the conviction demonstrate the licensee to be untrustworthy to maintain a license. The Commissioner may suspend, revoke or refuse to renew a license with not less than 15-days written notice. The Commissioner may suspend a license with not less than three-day written notice upon finding that the public safety requires this emergency action. Fines The Commissioner can fine a maximum of $1,000, per offense, for a violation of the insurance code. o Fines and penalties must be paid in not less than 15 days nor more than 30 days after the receipt of the order to pay. Failure to pay will result in revocation of the insurance license and the fine recovered in a civil action through the courts on behalf of the Insurance Commissioner. Fines are paid to the State Treasurer for deposit in the general fund. Appeal The licensee has the legal right to appeal fines, penalties, suspensions and revocations levied by the State Commissioner. The licensee can appeal any decision of the Commissioner or any deputy, assistant or examiner of the Commissioner. o The licensee has 90 days in which to appeal. 7

8 A license and/or appointment agreement may be taken away for: Lying on the license application (new licenses and renewals), or obtaining a license through misrepresentation or fraudulent means. Illegal Dealings in Premium No one can collect money as premium for insurance if insurance coverage is not provided or the premium for insurance is in excess of the amount actually due. o A person must return any overpayment of money collected as premium, in a reasonable length of time, to the person who paid the premium. o Each violation of this section which does not amount to a felony constitutes a misdemeanor. Illegal Inducement It is unlawful for insurance personnel to provide or promise in a policy anything valued at more than an aggregate of $25.00 per year, to any one prospective or current policyholder. No producer can induce a prospective or current policyholder to provide for, offer, buy, sell, give, allow or promise in any manner a gift or service that is worth more than $25.00 per year to any one prospective or current policyholder. o Offering any special advisory board contract, agreement or understanding of any kind, providing for or promising any profits or returns, is illegal inducement. Paying $26 for an individual s lunch at the time of procuring insurance is illegal inducement. Rebating It is unlawful for a producer or insurance company to give any valuable consideration such as a rebate (money back), discount, reduction of premium, shares of stock, etc., to induce a person to buy insurance. Usually deals with money or cash. o The insured is subject to a $200 fine for accepting a rebate. o Guaranteeing to pay future dividends is an example of rebating. Misrepresentation Telling a lie or deceiving anyone about any aspect of insurance is a misrepresentation. Examples of material misrepresentations include: o Twisting No person can, by misrepresentations or misleading comparisons, induce or tend to induce, any insured to lapse, terminate, forfeit, surrender, retain, or convert any insurance policy. For example, this can occur when a producer wants a prospective customer to cancel and switch his/her current insurance policy over to the producer s company, and does so by giving misleading facts. o Defamation of Insurer No person can make, publish or circulate any information or statement which is false or maliciously critical if designed to injure the reputation or business of any authorized insurance company (insurer). 8

9 Illegal Dealings in Commission A producer of insurance may not compensate any person other than another producer for procuring applications or placing insurance in this state. It is illegal to share commissions with anyone who is not licensed in the same line of insurance in which the insurance was procured (written). For example, a life-only producer may not share commissions with a property and casualty producer. This does not affect salaries paid to unlicensed persons, as long as the salaries are not contingent on the volume of business transacted. Additional reasons for non-renewal, suspension or revocation of an insurance license: Misappropriation or conversion to personal use Illegal withholding of monies required to be held in a fiduciary capacity Incompetence or failing to serve in the public's best interest Willful violation of any insurance law or order of the Commissioner Violation of Advertising Laws A producer may not commit false advertising in regard to an insurer's financial condition. The producer must not use unfair or deceptive practices in the sale, advertising or marketing of any type of ins urance product. All advertising must be clear and understandable and contain the name and address of the insurance company. This includes mailings and brochures. Renewal of a Producer s License Licenses expire every two years at midnight on the licensee s birth date. To renew a license, a renewal application must be submitted by the producer and the fee (currently $20) must be paid to the Commissioner's office by midnight of the licensee's birth date. All renewals are done electronically! Late fees apply if the renewal fee is not paid when due: 1 to 30 days late = an additional 50% surcharge penalty of the license renewal fee. 31 to 60 days late = an additional 100% penalty of the license renewal fee. 61 days to twelve months late = 200% surcharge penalty of the license renewal fee. The license must be reinstated from 61 days - twelve months late. After 60 days from the expiration date, all associated appointments and affiliations are terminated. This means that the agent will need to secure a new appointment agreement with any insurance company he wishes to transact business through. If over one year, the producer will have to begin the entire licensing process again, including re-taking all applicable licensing exams, new fingerprint card and re-apply with the state. 9

10 New licenses will expire on the applicant s date of birth, plus one year, and every two years thereafter. For example: If Susie received her initial license on May 1 and her birthday is on June 25, she will have about 14 months before her first renewal is due (2 months plus 1 year). If Doug received his initial license on May 1 and his birthday is on March 25, he will have about 23 months before his first renewal is due (11 months plus 1 year). New Licenses: License candidates have 180 days to apply for a license after passing their exam. A new licensee who acts as an agent cannot sell insurance until they have an appointment or affiliation but there is no time limit for the appointment or affiliation. A Temporary License can be granted by the Commissioner on an emergency basis for up to a maximum of 180 days without passing an exam. The granted party must be legally representing the interests of the licensed producer that is disabled or deceased. This might be a spouse, executor, lawyer, employee, or person with power of attorney. A temporary license may not be granted to a new prospective licensee. Licensee s (Producer s) Responsibilities Public Interest - The business of insurance is affected by public interest, which requires that all persons act honestly, fairly, and abstain from deception in insurance matters. All parties are responsible for the integrity, good faith and trustworthiness of the insurance transaction. Producers always act in the public s best interest (a.k.a. acting in the Utmost of Good Faith). Failure to Issue Proper Receipts - Premium Receipts for any and all insurance premiums received by the licensee must be delivered or mailed no later than the next working day. o The receipt must include the date, signature and address of the producer, name of the insured, amount collected, description of coverage and the insurance company. Policy Delivery A producer must make actual physical delivery (mailing is acceptable) of a policy within a reasonable period of time after its issuance. Premium Accountability - Funds representing premiums received by a Producer must be deposited in an identifiable separate accounts, which may accumulate interest (an interestbearing account). Willful violation of this Separate Account regulation is a misdemeanor. o Funds representing premiums must be promptly paid to the insured or insurer as entitled. Anyone misappropriating funds received in a fiduciary capacity to his or her own use is guilty of larceny by embezzlement and subject to criminal punishment. 10

11 Compensation of Limited Lines Licensees A limited lines agent may charge a fee or commission; however the rate of compensation (commission) cannot be excessive. Anything beyond 40% commission is deemed excessive. Prohibited Transactions - The following practices, when engaged in by insurers in connection, either directly or indirectly, with a credit life or credit disability insurance program whether on a group or an individual basis, are defined to be unfair methods of competition, and unfair and deceptive practices in the conduct of the business of insurance. 1) The offering by the insurer to a creditor of any special advantage or any service not set out in either the group insurance contract or in the agency contract. 2) Agreement by an insurer to deposit with a bank or financial institution money or securities of the insurer with the intent that the money shall offset a deposit of money which otherwise would be required by the bank as an offsetting deposit for a loan or advancement. 3) Deposit by an insurer with a creditor bank or financial institution, of money or securities without interest or at less rate of interest than is currently being paid by the creditor bank or financial institution to other depositors of like amounts. 4) Any other practice which is followed by an insurer when such practice involves use of the financial resources of the insurer for the principal benefit of the credit institution. Unlicensed Activities A person may not act as or hold himself or herself out to be a producer or adjuster in this state unless licensed by the commissioner. A producer may not solicit or take applications for, procure or place for others, any kind of insurance for which he or she is not then licensed. For the purpose of this section, an act is committed in this state if it is committed, in whole or in part, in the state of Washington, or affects persons or property within the state and relates to or involves an insurance contract. Any person who knowingly violates this section is guilty of a class B felony. The commissioner may issue and enforce a cease and desist order, suspend or revoke a license and/or assess a civil penalty of not more than $25,000 for each violation. Upon failure to pay a civil penalty when due, the attorney general may bring a civil action on behalf of the commissioner to recover the unpaid penalty. Any amounts collected by the commissioner must be paid to the state treasurer for the account of the general fund. 11