Start Here: 6 Things You MUST Know
Rebating: Offering ANY inducement not in the policy to get someone to buy. ILLEGAL (both offering AND accepting).
$100 Exception: Promotional items under $100 are allowed and NOT considered rebating.
5 Business Days: Premiums must be remitted to insurer AND claims reported to insurer within 5 business days.
10 Calendar Days: Policies must be delivered to insured within 10 calendar days of receipt.
30 Days: Must report change of address to Department within 30 days.
5 Years: Keep all financial records for 5 years after termination of coverage.
1. Prohibited Practices
It is considered an unfair trade practice to knowingly engage in unfair competition or deceptive acts with enough frequency that it indicates a general business practice.
Misrepresentation
What it means: Issuing, publishing, or circulating any illustration, sales material, or verbal statement that is FALSE, MISLEADING, or DECEPTIVE about policy benefits, terms, or dividends.
Real-World Example:
The Setup: Agent tells customer "This policy covers flood damage" when it actually excludes flood.
What Happens: Customer's basement floods. Claim denied. Customer discovers they were misled.
Result: Agent faces disciplinary action for misrepresentation. Possible license revocation, fines, and customer lawsuit.
False Advertising
What it means: Any advertising (print, TV, internet, radio, brochures) that contains untrue, deceptive, or misleading statements.
Specifically includes misrepresenting:
- • Terms, benefits, conditions, or advantages of any policy
- • Dividends to be received or previously paid
- • Financial condition of any person or company
- • True purpose of an assignment or loan against a policy
Also prohibited:
- • Representing a policy as "stock" or shares
- • Using names that misrepresent true nature of policy
- • Using a name that deceptively suggests you're an insurer
Real-World Example:
The Setup: Agency runs Facebook ads claiming "GUARANTEED approval for all homeowners - no inspections, no questions asked!"
What Happens: Customer applies based on the ad, but underwriting rejects them due to roof condition and claims history.
Why It's Wrong: The ad falsely promised "guaranteed approval." No insurer guarantees approval without underwriting. This is false advertising that could result in fines and license action.
Rebating and Inducement
What it means: Offering ANY inducement to purchase insurance that is NOT specified in the policy.
Both OFFERING and ACCEPTING rebates are ILLEGAL!
Examples of PROHIBITED Rebates:
- • Cash or cash equivalents over $100
- • Concert/event tickets worth over $100
- • Premium rebates
- • Special favors or services
- • Stocks, bonds, securities
- • Special dividend advantages
ALLOWED (Not Considered Rebating):
- • Promotional items under $100
- • Gifts of merchandise under $100
- • Branded pens, calendars, etc.
Real-World Example:
The Setup: Agent tells customer "Buy this policy and I'll give you $150 cash back from my commission."
Why It's Wrong: This is rebating - offering something NOT in the policy to induce purchase.
VERSUS: Agent giving customer a $50 branded umbrella? ALLOWED - under $100 promotional item.
Boycott, Coercion, Intimidation
What it means: Any activity intended to restrict fair trade or create a monopoly.
Coercion specifically means:
Requiring someone to buy insurance from a SPECIFIC insurer as a condition of getting a loan.
Real-World Example:
The Setup: Bank officer tells mortgage applicant: "I'll only approve your loan if you buy homeowners insurance from my brother's agency."
Why It's Wrong: This is coercion. The bank can require insurance, but cannot dictate which specific insurer you use.
False Financial Statements
What it means: Statements intended to deceive about an insurer's financial condition. Often involves hiding facts to make the company look better.
Real-World Example:
The Setup: Agent knows that XYZ Insurance Company recently had their credit rating downgraded and is under regulatory scrutiny for insufficient reserves.
What Happens: A customer asks if XYZ is financially stable. Agent says, "Oh absolutely! They're one of the strongest companies in the industry. Rock solid."
Why It's Wrong: The agent made false statements about the insurer's financial condition. The agent should have directed the customer to independent rating agencies (AM Best, S&P) for accurate financial information.
Defamation
What it means: Making oral or written statements intended to injure another person in the insurance business, or maliciously criticizing their financial condition.
Real-World Example:
The Setup: Agent Tom is competing with Agent Sarah for a large commercial account.
What Happens: Tom tells the prospect: "Don't use Sarah - she's been investigated for fraud multiple times and her clients' claims never get paid. She's basically a scam artist."
Why It's Wrong: Tom is making false, malicious statements to injure Sarah's business reputation. Even if Tom genuinely believes these things, making such statements without proof is defamation and a prohibited trade practice.
Unfair Discrimination
What it means: Discrimination in rates or benefits for people in the same class or risk. Cannot discriminate based on marital status, race, national origin, gender identity, sexual orientation, creed, or ancestry (unless for legitimate business purpose or required by law).
VIOLATION Example:
Setup: Two homeowners apply for the same HO-3 policy. Both have similar homes, same neighborhood, identical claims history and credit scores.
What Happens: Agent quotes Mr. Johnson (single) $1,200/year but quotes Mr. Rodriguez (also single, same risk profile) $1,800/year based solely on his Hispanic surname.
Result: This is unfair discrimination based on national origin - illegal.
ACCEPTABLE Difference:
Setup: Same two homeowners apply, but Mr. Johnson has a new roof and updated electrical, while Mr. Smith has a 30-year-old roof and knob-and-tube wiring.
What Happens: Mr. Smith is quoted a higher premium due to the increased risk from outdated systems.
Result: This is legitimate underwriting based on actual risk factors - perfectly legal.
Stock Operations
What it means: Cannot issue company stock, securities, or promises of profits as an inducement to buy insurance.
Real-World Example:
The Setup: Agent is trying to sell a large life insurance policy to a wealthy prospect.
What Happens: Agent says: "If you buy this $1 million policy, I can get you 100 shares of the insurance company's stock at a special insider price. You'll make a fortune when the stock goes up!"
Why It's Wrong: Offering securities or profit-sharing arrangements as an inducement to purchase insurance is prohibited. Insurance must stand on its own merits.
Failure to Maintain Complaint Handling Procedures
Insurers MUST maintain complete records of all complaints since their last examination. Records must include:
- • Total number of complaints
- • Line of insurance and nature of each complaint
- • Action taken and time to process each
Note: "Complaint" = any WRITTEN communication expressing a grievance
2. Unfair Claim Settlement Practices
These are unfair practices if done openly and in conscious disregard of rules, OR if done with such frequency as to indicate a general business practice.
1. Misrepresenting Coverage
Misrepresenting pertinent facts or policy provisions relating to coverages.
Example: Homeowner files a water damage claim. Adjuster tells them "Your policy doesn't cover any water damage" when in fact it covers sudden/accidental discharge from plumbing - just not flood. The adjuster misrepresented what was actually covered.
2. Failing to Act Promptly
Failing to acknowledge and act reasonably promptly on communications regarding claims.
Example: Insured calls to report a car accident on Monday. They call again Wednesday, Friday, and the following week. No one returns calls. After 3 weeks with no response, they still haven't received a claim number or been assigned an adjuster.
3. Inadequate Investigation
Failing to adopt reasonable standards for prompt investigation of claims.
Example: Insured reports roof damage from a storm. Company never sends an adjuster to inspect, never requests photos, and takes 4 months just to review paperwork that was submitted in week one.
4. Refusing Without Investigation
Refusing to pay claims without conducting reasonable investigation.
Example: Insured files theft claim for stolen jewelry. Within 24 hours, company sends denial letter saying "claim denied - insufficient evidence." No adjuster ever contacted the insured, no police report was requested, no investigation was done.
5. Delayed Coverage Decision
Failing to affirm or deny coverage within reasonable time after proof of loss.
Example: After a house fire, insured submits complete proof of loss with all documentation. Six months pass with no word from the company - no approval, no denial, no explanation. The insured is left in limbo, unable to rebuild or move forward.
6. Not Settling in Good Faith
Not attempting in good faith to promptly and fairly settle claims where liability is reasonably clear.
Example: Clear liability auto accident - insured rear-ended another car at a red light. The other driver has $5,000 in documented medical bills and repair estimates. Company drags feet for months hoping the claimant will give up or accept a lowball offer.
7. Lowballing to Force Litigation
Offering substantially less than what's due, compelling insureds to sue to recover proper amounts.
Example: Contractor estimates show $45,000 to repair fire damage. Company offers $12,000, knowing full well this won't cover repairs. They're betting the insured can't afford a lawyer and will accept the lowball offer rather than fight.
8. Appealing All Arbitration Awards
Making a policy of appealing arbitration awards to force lower settlements.
Example: Company has internal policy: "Appeal every arbitration award over $10,000 automatically." They do this not because the awards are wrong, but to exhaust claimants into accepting less money just to end the process.
9. Requiring Duplicate Submissions
Requiring preliminary claim report THEN formal proof of loss with the same information.
Example: Insured fills out 10-page claim form with full details. Company then requires them to fill out another "official" form with the exact same questions. Then requests a third "sworn statement" with identical information. This is designed to frustrate claimants into giving up.
10. No Explanation for Denial
Failing to promptly explain the policy basis for denying a claim.
Example: Insured receives letter: "Your claim has been denied." That's it. No explanation of which policy provision applies, no reference to any exclusion, no description of why the damage isn't covered. The insured has no idea what to do next.
3. Licensee Responsibilities
30
days to report address change
15
days to reply to Commissioner inquiry
10
days to deliver policy to insured
5
business days to report claims
Address & Business Names
Change of Address
Must notify Department of changes to business address, residence address, phone number, and email within 30 days. Keep proof on file for 5 years.
Business Names
- • Cannot use name other than legal name unless filed with and approved by Department
- • Must notify Commissioner BEFORE using an assumed name
- • Name cannot be misleading or deceptive
- • Cannot be identical/confusingly similar to another licensed producer
- • Cannot imply government or nonprofit affiliation
- • If using "insurance" in name, must add "agency" or "brokerage" to distinguish from insurer
Branch Offices
- • Must register with Commissioner to get branch office certificate
- • File registration form within 30 days BEFORE starting business there
- • Certificate expires same time as producer's license
- • Must notify Department within 30 days of closing a branch office
- • At least ONE licensed producer must be assigned to each branch
- • Hours must be posted; must be open to provide public access
- • Cannot conduct insurance business unless licensed producer is present
Marketing Standards
Disclosure of Information
PROHIBITED from disclosing personal or privileged information received in connection with an insurance transaction
Policy Delivery
Deliver/mail to insured within 10 calendar days of receipt. Can only keep longer if insured agrees in writing.
Replies to Commissioner
Must reply IN WRITING within 15 calendar days to any Department inquiry
Reporting Claims
Report to insurer within 5 business days after receiving notice of claim
4. Management of Funds
Commingling of Funds - PROHIBITED!
All premiums collected must be held in a fiduciary capacity. They CANNOT be:
- • Misappropriated
- • Illegally withheld
- • Improperly converted to producer's own funds
Real-World Example:
The Setup: Agent Mike collects $5,000 in premiums from various clients during the week.
What Happens: Instead of depositing into a separate trust account, Mike deposits the checks into his personal checking account. He uses $2,000 to pay his rent, planning to "replace it later" before sending premiums to the insurer.
Why It's Wrong: This is commingling - mixing client premiums with personal funds. Even if Mike intended to pay it back, the premiums were held in fiduciary capacity and must NEVER be mixed with personal money. This is grounds for license revocation and possible criminal charges.
Remittance Standards
5 Business Days
To remit premiums TO insurer
5 Business Days
To pay/credit premiums due TO insured
Trust Account Required When:
- •Producer holds premiums for more than 5 business days before remitting
- •Producer deposits premiums into a financial institution account, even if remitting within 5 days
Record Maintenance
- • Must issue receipt for EVERY premium payment/deposit/installment
- • Keep copy of each receipt issued
- • Completed receipt books: retain 5 years from completion
- • All other books/records: maintain for 5 years after termination of coverage
Commissions and Compensation Rules
- !NO company/agent may pay commission to a person who is NOT properly licensed
- !NO one may accept commission if required to be licensed but isn't
- !RENEWAL commissions may be paid to someone who WAS licensed at the time of the original sale
Administrative Procedures
If a producer violates Standards of Conduct, the Department may impose penalties. The notice must be sent by certified mail or personal delivery and include:
- • Reference to statute/rule violated
- • Brief statement of facts
- • Statement of administrative penalty
- • Notice of right to hearing and how to request one
20 Calendar Days
Producer has 20 days from service of notice to request a hearing IN WRITING
Failure to Respond
Failure to respond = admission of all allegations. No further proceeding required before final order imposing penalty.
Cheat Sheet: Trade Practices
Print for quick reference$100
Max value for promotional items (not rebating)
5 business days
Remit premiums to insurer
5 business days
Report claims to insurer
10 calendar days
Deliver policy to insured
15 calendar days
Reply to Commissioner inquiry
20 calendar days
Request hearing after notice
30 days
Report address change / branch office opening/closing
5 years
Keep financial records after coverage ends
Fiduciary
Premiums must be held in fiduciary capacity
Exam Trap Alerts
1. Both Offering AND Accepting Rebates = Illegal
Don't think only the agent gets in trouble. If you ACCEPT a rebate as a customer, you've also violated the law.
2. $100 is the Magic Number
Promotional items UNDER $100 are OK. At $100 or more, it's rebating. Questions may try to trick with "$99" (OK) vs "$101" (not OK).
3. Business Days vs Calendar Days
Premium remittance and claims = 5 BUSINESS days. Policy delivery = 10 CALENDAR days. Commissioner reply = 15 CALENDAR days. Pay attention!
4. "General Business Practice"
Unfair trade practice requires "frequency indicating a general business practice." One mistake might not be a violation, but a pattern of behavior is.
5. Coercion = Specific Insurer Requirement
A bank CAN require you to have insurance as a loan condition. A bank CANNOT require you to buy from a SPECIFIC insurer. That's coercion.
6. Renewal Commissions Are OK
Even if someone is no longer licensed, they CAN receive renewal commissions for policies they sold when they WERE licensed. That's not a violation.
Quick Reference Summary
Rebating
Offering inducements not in policy. Both parties violate. Under $100 promotional OK.
Coercion
Requiring purchase from specific insurer as loan condition
Premiums
Fiduciary capacity, remit within 5 business days, trust account if holding longer
Policy Delivery
10 calendar days from receipt
Claims
Report to insurer within 5 business days
Records
Keep 5 years after coverage terminates