1 State Regulations
Insurance Company Regulations
Classification by Organization
Stock Company
Operated for profit, owned by stockholders. Profits belong to stockholders who share in profits.
Mutual Company
Operated not for profit, owned by policyholders. Policyholders may share in dividends.
Classification by Place of Organization
Domestic Insurer
Formed under the laws of the state in which it operates (NJ company in NJ).
Foreign Insurer
Formed in another state, but doing business in this state (PA company in NJ).
Alien Insurer
Formed in another country, but doing business in this state (UK company in NJ).
Producer Regulation
| Type | Represents | Key Points |
|---|---|---|
| Agent | Insurer | Sells, solicits, negotiates insurance. Appointed by insurer through contract. |
| Broker | Client | Represents the insured's best interest. Must first have a producer license. |
| Consultant | Client | Provides advice for a fee. Not licensed to solicit or sell insurance. |
State Regulatory Jurisdiction
Key Principle: States have primary responsibility for regulating insurance - not the federal government.
Paul vs Virginia
Insurance is NOT interstate commerce = States regulate
SEUA Decision
Reversed! Insurance IS interstate commerce = Feds could regulate
McCarran-Ferguson Act
Congress returns regulation to states as long as states adequately regulate
Insurance Guaranty Association
Purpose: Protects policyholders when insurance companies become insolvent (unable to pay claims).
How it works:
- - All insurers must participate
- - Members assessed based on premium volume
- - Pays covered claims when insurer fails
Coverage Limits:
Up to $300,000 per claim for covered claims.
2 Licensing Requirements
Licensing Process
Step 1
Be 18+ years old
Step 2
Complete 20 hrs prelicensing
Step 3
Pass state exam (70%)
Step 4
Submit application
Types of Licenses
Individual License
Issued to a natural person who has met licensing requirements.
Business Entity License
Issued to corporations, LLCs, partnerships. Must have licensed individuals.
Maintenance and Duration
2
Years per license term
24
Hours CE every 2 years
3
Hours Ethics required
Ethics
Producer ethics refer to the standards and conduct expected of insurance professionals.
Responsibilities to:
- - The insurer (honesty, duty to insurer)
- - Policyowners (fiduciary duty, disclosure)
- - The public (fair dealing)
- - The state (compliance with laws)
Unethical Practices:
- - Misrepresentation
- - Twisting (replacement for commission)
- - Churning (excessive replacements)
- - Rebating (returning premium)
3 Key Numbers to Memorize
18
Minimum age
20
Prelicensing hours
70%
Passing score
2 yrs
License term
24
CE hours/2 yrs
3
Ethics hours req.
$20
Application fee
$100
Biennial renewal
30
Days to notify (address)
$300K
Guaranty limit
Exam Trap Alerts
Stock vs Mutual
Stock = Stockholders own it, Mutual = Policyholders own it. Don't confuse who receives dividends!
Agent vs Broker
Agents represent the INSURER. Brokers represent the CLIENT. This is a common trick question!
Foreign vs Alien
Foreign = another US STATE. Alien = another COUNTRY. Don't mix these up!
McCarran-Ferguson Act (1945)
This is the act that RETURNS regulation to states. Remember: Congress gave power BACK to states.
Twisting vs Churning
Twisting = ONE bad replacement for commission. Churning = REPEATED/excessive replacements. Both are unethical!
24 Hours CE = Includes 3 Hours Ethics
The 3 ethics hours are PART OF the 24 total hours, not in addition to them.
Quick Reference Summary
| Topic | Key Points |
|---|---|
| Insurer Types | Stock (stockholders), Mutual (policyholders), Domestic/Foreign/Alien |
| Producer Types | Agent (represents insurer), Broker (represents client), Consultant (advice only) |
| State Regulation | McCarran-Ferguson (1945) gives states primary authority |
| License Requirements | 18 years, 20 hrs prelicensing, 70% passing, $20 fee |
| License Maintenance | 2-year term, 24 hrs CE (incl. 3 ethics), $100 renewal |
| Ethics | Duties to insurer, client, public, state. Avoid twisting, churning, rebating |