Regulation of Insurance Producers

Licensing Laws

To function legally as an insurance agent, a producer must be licensed by state or states in which he or she wishes to sell insurance. These laws vary by state and change periodically. Some states have several different licenses including license for agents, brokers and solicitors.

Some states such as California, has separate license for solicitors who work for and are representatives of agents or brokers, often has office employees, and who have more limited authority than agents. Generally, solicitors can solicit prospects but cannot bind insurance coverage. In other states, the solicitors are often called customer service representatives or customer service agents who must secure an agent’s license.

Licensed producers are required to adhere to all laws regulating insurance sales in the state or states in which they conduct insurance business.

Unfair Trade Practices Laws

These are State Laws that specify certain prohibited business practices. These laws typically prohibit various unfair trade practices such as

· Misrepresentation and false advertising

· Tie-in-Sales

· Rebating

· Other deceptive practices

Misrepresentation and false advertising

It is an unfair trade practice for insurance agents to make issue or circulate information that does any of the following: -

· Misrepresents the benefits, advantages, conditions or terms of any insurance policy.

· Misrepresents the dividends to be received on any insurance policy.

· Makes false or misleading statements about dividends previously paid on any insurance policy.

· Uses a name or title of insurance policies that misrepresents the true nature of policies.

Tie – In – Sales

It is unfair trade practice for a producer to require that the purchase of insurance be tied to some other sale or financial arrangement, i.e., a practice referred to as tie – in – sales.

Rebating

Rebating is offering anything other than the insurance itself to an applicant as an inducement to buy or maintain insurance.

Other deceptive practices

Other than above, unfair trade practices laws prohibit other practices of insurers that are deceptive or unfair to applicants and insureds like prohibiting an insurer and its agents from making a false statement about the financial condition of another insurer.

It is also an unfair trade practice, to put false information on an insurance application to earn a commission from an insurance sale.

CHAPTER 4 - MARKETING