r gulations al general insurance laws & regulations...r gulations 1 al general insurance laws...

AL- General Insurance Laws & Regulations

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AL General Insurance Laws & Regulations

1. OVERVIEWRegulation of the insurance industry takes place at the federal, state, and individual (self-regulation) levels, but the primary responsibility for insurance regulation is at the state level. By using all three levels of regulation, insurance company solvency and financial integrity can be closely monitored and controlled in an effort to provide the most protection for consumers. As such, the Alabama Department of Insurance (DOI) is charged with the responsibility of enforcing the insurance laws passed by the Alabama Legislature, the legislative branch of the state government.

The DOI is part of the executive branch of Alabama state government, and therefore cannot pass insurance laws. However, the DOI can issue and enforce rules and regulations that insurance producers must follow. Enforcement is achieved through court hearings, penalties, license revocation, and more.

2. NOTICE AND HEARINGThere are two important terms that you should become familiar with: notice and hearing. These terms are used to help ensure that you have due process under the law. For example, the laws protect you from unlawful government seizure of your property without due process. As an insurance producer, this protects you from unlawful seizure of your insurance license if the DOI believes that you have violated an insurance law. DOI must give you notice and inform you of your right to a hearing.

3. COMPLIANCE AND PENALTIES No person can legally transact the business of insurance in the state of Alabama without being in compliance with the laws, rules and regulations of the state. While most violations of insurance law carry a specific penalty, any willful violation can be considered a misdemeanor and upon conviction is punishable by:

• A fine of not more than $1,000;

• Imprisonment in the county jail, or sentenced to hard labor, for not longer than one year; or

• Both a fine and imprisonment. (27-1-5 and 27-1-12)1

1 Unless otherwise noted, all material in this lesson, annotated or duplicated, references Title 27, Code of Alabama 1975.


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4. INSURANCE COMMISSIONERIn Alabama, the Commissioner is the chief executive officer of the DOI. The Commissioner is appointed by the Governor and serves a term concurrent with that of the Governor. During the Commissioner’s term in office, he or she may not be a candidate for or hold any other public office of trust nor be a member of any political committee. If the Commissioner becomes a candidate for public office, the office as Commissioner must be vacated. (27-2-2)

A. POWERS AND DUTIES

The Commissioner may legally:

• Organize, supervise, and administer the DOI so that it performs its lawful functions efficiently and effectively;

• Enforce the insurance laws, rules and regulations of Alabama;

• Execute the duties imposed by law;

• Have the powers and duties conferred on him or her;

• Sign and execute in the name of the state, by “the state Department of Insurance,” all contracts or agreements with the federal government or its agencies, other states or political subdivisions thereof, political subdivisions of this state or with private persons;

• Conduct examinations and investigations of insurance matters, persons, or companies;

• Invoke any legal, equitable, or special remedy for enforcement of orders;

• Institute any action required to enforce the provisions of the insurance laws of the state;

• Make any reasonable rules or regulations necessary to carry out the insurance laws of Alabama;

• The Commissioner may delegate to any deputy, assistant, examiner, or employee of the department the exercise or discharge in the Commissioner’s name of any power, duty, or function. (27-2-7, 8 and 19)

B. INVESTIGATIONS

If the Commissioner has reason to believe that any person has violated or is violating insurance laws, the Commissioner may examine all documents pertaining to the insurance business of any:

• General agent, agent, broker, surplus line broker, solicitor, or adjuster;

• Person having a contract providing the exclusive or dominant right to control an insurance company;

• Person involved in the formation or promotion of a domestic company. (27-2-20)


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C. HEARINGS

The Commissioner may hold hearings for any purpose within the scope of the duties that he or she deems necessary.

The Commissioner may hold a hearing upon written demand by a person aggrieved by any act, threatened act or failure of the Commissioner to act, or by any report, rule, regulation, or order of the Commissioner. The demand must specify the grounds to be relied on as a basis for the relief to be demanded at the hearing. Unless postponed by mutual consent, the hearing must be held within 30 days after receipt of the demand.

Pending a hearing, the Commissioner may suspend or postpone the effective date of the previous action. (27-2-28)

5. AUTHORIZED COMPANIES

A. CERTIFICATE OF AUTHORITY

A person may not act as an insurer, and an insurer may not transact business in Alabama, unless authorized by a certificate of authority issued to it by the Commissioner.

An insurer may not solicit insurance applications or transact business in another state or country from within Alabama, unless it holds a certificate of authority authorizing it to transact the same kind(s) of insurance in Alabama. (27-3-1)

B. EXCEPTIONS

A certificate of authority may not be required of an insurer for transactions:

• Relative to its policies lawfully written in Alabama or liquidation of assets and liabilities other than collection of new premiums, all resulting from its former authorized operations in Alabama;

• Subsequent to issuance of a policy covering only subjects of insurance not resident, located, or expressly to be performed in Alabama at the time of issuance and lawfully solicited, written, or delivered outside Alabama; or

• For surplus line coverages.

C. INSURER’S QUALIFICATIONS

To qualify and hold authority to transact insurance in Alabama, an insurer must comply with Alabama insurance laws and be an incorporated stock insurer, an incorporated mutual insurer, or a reciprocal insurer formed as a domestic insurer under this title.

An insurer may not be authorized to transact insurance if it has or uses a name similar to that of another authorized insurer where that name may mislead the public.


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D. SEEKING ADMISSION

To apply for a certificate of authority, an insurer must file its application, fees, and additional information such as:

• A copy of its corporate charter, articles of incorporation, or other charter documents with all amendments;

• If a mutual insurer, a copy of its certified by-laws;

• If a foreign reciprocal, copies of the power of attorney or its subscriber’s agreement;

• A copy of its financial statement as of December 31 of the preceding year sworn to by at least two executive officers of the insurer or certified by the public insurance official of the insurer’s state of domicile;

• A copy of the report of the last examination;

• Appointment of the Commissioner as its attorney to receive service of legal process;

• If a foreign or alien insurer, a certificate of a public official having supervision in its state of entry into the United States or country of domicile showing that it is legally organized and authorized to transact the kinds of insurance proposed to be transacted in Alabama;

• If an alien insurer, a copy of the appointment and authority of its US manager, certified by its officer having custody of its records;

• Evidence of any deposit required;

If other than a life insurer, the affidavit of the insurer’s president or chief officer that it has not violated any provisions during the preceding 12 months and an agreement that the insurer accepts all terms and obligations to transact insurance in Alabama. (27-3-17)

E. CERTIFICATE ISSUANCE OR REFUSAL

If after submitting the application for a certificate of authority the Commissioner finds that the insurer has met all of the applicable the requirements, he will issue to the insurer a proper certificate of authority. If he finds that the requirements have not been met, he will refuse to issue a certificate. The certificate is at all times the property of the State of Alabama.

The certificate, once issued, will state the kinds of insurance to be solicited. Upon expiration, suspension, or termination, the insurer must return the certificate to the Commissioner. (27-3-18)


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F. CERTIFICATE CONTINUANCE AND EXPIRATION

A certificate of authority continues in force as long as the insurer is entitled to hold it or until it is suspended, revoked, or terminated at the request of the insurer, subject to:

• Payment of the continuation fee prior to March 1 of each year; and

• Due filing of the insurer’s annual statement for the preceding calendar year.

If not continued by the insurer, a certificate of authority expires at midnight on the next May 31 following the insurer’s failure to continue it in force. A certificate of authority may be reinstated if the insurer has inadvertently permitted it to expire.

The Commissioner may amend the certificate of authority at any time to take into consideration changes in the insurer’s charter or insuring powers. (27-3-19)

G. CERTIFICATE SUSPENSION OR REVOCATION

An insurer’s certificate of authority may be suspended or revoked if:

• Such action is required by law;

• The company no longer meets the requirements;

• The company’s authority to do business in its home state is revoked. (27-3-20)

Except for insolvency or impairment or required capital or surplus, or suspension or revocation by another state, the Commissioner must give the company 10 days’ notice of any revocation or suspension and the company has the right to request a hearing. The action is stayed until after the hearing.


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6. LICENSING REQUIREMENTS

A. LINES OF AUTHORITY

No person may sell, solicit or negotiate for any type of insurance unless the person is licensed for that line of authority. Additionally, a company may not accept applications from an unlicensed person.

A insurance producer may be licensed in any one or more of the following lines:

• Life Insurance coverage on human lives, including endowment and annuities. It also may include benefits for accidental death or dismemberment and disability income;

• Accident and Health or Sickness coverage, which is commonly known as disability insurance, for sickness, bodily injury, or accidental death. It also may provide benefits for disability income;

• Variable Life and Variable Annuity products is coverage provided under variable life and variable annuity contracts;

• Property insurance is coverage for the direct or consequential loss or damage to property of every kind;

• Casualty insurance is coverage against legal liability, including that for death, injury, or disability or damage to real or personal property and surety;

• Personal Lines insurance is property and casualty insurance coverage sold to individuals and fami-lies for primarily noncommercial purposes;

• Automobile insurance is property and casualty coverage for automobiles and similar vehicles;

• Limited Lines Credit insurance and rental insurance;

• Bail Bond Surety coverage for bail;

• Industrial Fire Insurance sold through a debit agency system; also known as debit fire . (27-7-4(a), 27-7-14.1 and 27-3-27)

B. PAYMENT OF COMMISSION TO PERSON NOT LICENSED

An insurance company or insurance producer cannot pay, nor can a person receive, a commission or other compensation for selling insurance in Alabama if that person is not a licensed producer.

Renewal or other deferred commissions may be paid to a person for selling insurance if the person was properly licensed at the time the policies were sold.

Any insurer or producer violating this law will be liable for a fine not to exceed three times the amount of the commission paid. Failure to pay the fine may result in an insurer’s certificate of authority being revoked or the producer’s license revoked, or both. (27-7-35.1)


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C. LICENSES-QUALIFICATIONS

To become a resident insurance producer in Alabama, a person must apply to the Commissioner on the Uniform Application declaring under penalty of refusal, revocation or suspension that the statements on the application are true, correct, and complete to the best of their knowledge.

Before approving the application, the Commissioner must find that the individual has satisfied all of the following:

•Beatleast18yearsofage;

•Notcommittedanyactwhichisgroundsfordenial,suspensionorrevocationofalicense;

•Completeanapprovedprelicensingcourseconsistingof20classroomhoursperlineofauthority;

•Successfullypassedtheexaminationforthelinesofauthorityforwhichtheindividualhasapplied;

•Paytherequiredfees.[Ref.27-7-5(a)]

D. PRELICENSING COURSE

Before someone can take a state insurance exam, they must complete an approved prelicensing course of study for the lines of authority for which they will apply for. The course will consist of 20 classroom hours per line of authority, or equivalent individual instruction (approved online or self-study), on the general principles of insurance for that line of authority.

For example, to meet the pre-licensing requirements for a life and health insurance license, they would need to take a course that offers 20 hours for life insurance and 20 hours for health insurance, totaling 40 hours. The same holds true for property and casualty insurance. They would need to take a course that offers 20 hours for property and 20 hours for casualty, even though they could take a combined course that offers the needed 40 hours.

While there are various types of study materials are available to help someone prepare for the state exam, they must select a course taught by an educational provider who is approved by the Commissioner to issue certificates of completion.

After successfully completing the course, and prior to taking the state exam, they must receive a certificate of completion from the course provider for the line(s) of insurance they will be examined for. They must also furnish the certificate of completion at the testing facility to be allowed to sit for the stateexam.[Ref.27-7-5(a)(3)]

Those exempt from the prelicensing course requirements include:

•ApplicantsforanIndustrialFireLicense

•ApplicantsforaLimitedLicense

•ApplicantsforaLifeLineslicensewhoholdaCharteredLifeUnderwriter(CLU)designation

•ApplicantsforaPropertyLineslicensewhoholdaCharteredPropertyCasualtyUnderwriter(CPCU)orCertified Insurance Counselor (CIC) designation.


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E. EXAMINATION

A resident individual applying for an insurance producer license must pass a state insurance examination for the lines of authority they want to be licensed for. The examination will test their basic insurance knowledge of these lines of insurance, the duties and responsibilities of an insurance producer, and the Alabama insurance laws and regulations.

At the time someone registers for an exam, they must pay a nonrefundable fee, which the amount may vary from year to year. If they fail to appear for the exam as scheduled or fail to pass the exam, they can reapply and pay for another exam on a different date.

If they fail the state exam on their first attempt, a second exam may be scheduled immediately. If they fail the state exam twice for the same lines of insurance, they will not be allowed take another exam for the same lines of insurance for 3 months. If they fail the state exam for the same lines 2 additional times, then they will not be allowed to take the state exam for the same lines of insurance for 6 additional months. They will be required to pay an examination fee for each and every examination attempt.

They would be exempt from the exam requirement if they were:

•anapplicantforalimitedlineslicense;

•anapplicantforalifelineslicenseandhadearnedaCharteredLifeUnderwriter(CLU)designation;

•anapplicantforapropertylineslicenseandhadearnedaCharteredPropertyCasualtyUnderwriter(CPCU) or Certified Insurance Counselor (CIC) designation. (Ref. 27-7-5(a)(4) and 27-7-4.3)

F. EXEMPTIONS FOR INDIVIDUALS LICENSED IN OTHER STATE

Alabama provides certain exemptions for the pre-licensing course and state examination. As an example, suppose that “Joe Agent” is licensed in Indiana and decides to move to Alabama for warmer weather and better football. He will not be required to complete any pre-licensing education or take a state exam for the same lines of authority he is licensed for in Indiana. This exemption is only available if Joe is currently licensed in Indiana or if the application is received within 90 days of the cancellation of Joe’s previous license in Indiana. Also, Indiana will need to issue a certification that, at the time of cancellation, Joe was in good standing in that state.

As an alternative to Indiana providing this certification, Joe may be found in the National Association of Insurance Commissioners (NAIC) electronic producer database that maintains producer records for all states. If the NAIC producer database shows that Joe is or was licensed in good standing for the line of authority requested, that would be a sufficient substitute for a certificate of good standing issued directly by the state of Indiana.

After Joe moves to Alabama, he has 90 days to make application to become a resident licensee. (Ref. 27-7-29.1)


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G. NONRESIDENT AGENTS OR BROKERS

To continue the example, if Joe decides to continue living in the snow for many months each year instead of moving to Alabama, he could still visit Alabama a few times each year and write insurance for some of his old friends that moved there from Indiana. If this is what Joe decides to do, then he will need a different type of license as an Alabama non-resident insurance producer.

Alabama will waive the requirements for a pre-licensing course and state examination if all of the following conditions are met:

• Joe completes the uniform application and pays the required fees;

• Indiana must award nonresident producer licenses to residents of Alabama on the same basis;

• Joe must provide satisfactory evidence that he is an agent in good standing in Indiana.

In the future, if Joe decides to move from Indiana to another state other than Alabama, he will need to provide to Alabama the change of address and provide certification from the new resident state within 30 days of the change of legal residence. No fee or license application is required. (Ref. 27-7-28)

H. PROTECTION AGAINST DISCRIMINATION

To continue the example, if Indiana works with Alabama agents that move to Indiana in the same way that Alabama would work with Joe if he decided to become a resident, then that would be considered an equitable reciprocity arrangement. However, if Indiana decided to make the process more difficult and require Alabama resident producers to pay a large application fee and take a state exam before granting them an Indiana producer license, then Alabama reserves the right to require the same procedures for Indiana residents moving to Alabama.

In reality, most states have a reciprocity agreement in place, so this would rarely become a problem. (Ref. 27-3-29)

I. BUSINESS ENTITY (AGENCY) LICENSE

A business entity acting as an insurance producer is required to obtain an insurance producer license. This is typically, but not always, an insurance agency. Individual producers in the agency or business would still be required to hold an individual producer license.

The business would need to apply for the license using the Uniform Business Entity Application. Before approving the application, the Commissioner requires that the business entity has satisfied all of the following:

1. A licensed individual producer has been designated responsible for the business entity’s compliance with the insurance laws, rules, and regulations of this state.

2.Thebusinessentityhaspaidtherequiredfees.[Ref.27-7-5(b)]


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J. TEMPORARY LICENSE

The Commissoner may issue a temporary producer license without requiring an exam or prelicensing course if he or she believes that the temporary license is necessary for the servicing of an insurance business in any of the following cases:

• A licensed producer who dies or becomes mentally or physically disabled;

• A temporary license issued to the surviving spouse or court-appointed personal representative of a licensed producer would allow adequate time for the sale of the insurance business owned by the deceased producer;

• If the producer is disabled, it would allow time for the recovery or return of the producer to the business or to provide for the training and licensing of new personnel to operate the producer’s business;

• If the individual designated for a licensed business entity dies or becomes disabled, the temporary license is issued to a member or employee of a business entity;

• If a licensed producer enters active service in the Armed Forces of the United States, the temporary license will be issued to a to the person that the producer designates (designee);

• The Commissioner decides that the public interest will be best served;

• The Commissioner can also issue a temporary license in any other circumstance he deems that the public interest will best be served by the issuance of this license.

The license is granted for 6 months and can be renewed one time in the event of the producer’s continued disability. An individual is only allowed a temporary license in any one line of insurance once in a lifetime.

The Commissioner may issue a temporary producer license to an applicant who is qualified for the license, but has not yet taken and passed the state exam. The applicant must be actively engaged in a course of study, instruction, and field training approved by the Commissioner. The applicant must be under the supervision of the insurer who is responsible for all acts and omissions of the applicant while under the temporary license and within the scope of his or her employment or appointment.

The temporary license is valid for up to 6 months. Before the temporary license expires, the applicant must sit for the state exam for a regular producer’s license and for such further time until the Commissioner has notified the applicant of the result of the examination. (Ref. 27-7-23 and 24)


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K. LICENSES - PENALTIES A license may be refused, suspended or revoked and a person can be fined up to $10,000 per violation for any of the following:

• Any cause for which issuance of the license could have been refused had it then existed and been known to the Commissioner;

• Providing incorrect, misleading, incomplete, or materially untrue information in any application or in any communication to the Commissioner;

• Obtaining a license through misrepresentation or fraud;

• Intentionally misrepresenting the terms of any actual or proposed insurance contract or application for insurance;

• Having admitted or been found to have committed any insurance unfair trade practice or fraud;

• Twisting or churning of policies;

• Using fraudulent, coercive, or dishonest practices, or demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business under a license in Alabama or elsewhere;

• Improperly withholding, misappropriating, or converting any monies or properties belonging to the insurers, the insured, or others received by the licensee in the exercise of his or her license

• Violating insurance laws or violating any valid order, subpoena, rule, or regulation issued by the Commissioner or issued by another state’s insurance commissioner;

• Having been convicted of a felony;

• Having an insurance producer license, or its equivalent, denied, suspended, or revoked in any other state, province, district, or territory;

• Forgery;

• Cheating on the state exam;

• Knowingly accepting business from an unlicensed person;

• Failing to comply with a child support order;

• Failing to pay state income taxes;

The license of a business entity can be suspended or revoked if the Commissioner finds after a hearing that an individual licensee’s violation was known or should have been known by one or more of the business owners, and the violation was not reported to the Commissioner in a timely manner, nor was corrective action taken.


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The Commissioner has full authority to enforce the provisions of the Insurance Code and impose the sanctions provided even if the individual or entity in question has surrendered the license or allowed it to lapse. (Ref. 27-7-19)

L. LICENSE RENEWAL OR REINSTATEMENT

As long as the required renewal fees are paid and any continuing education requirements are completed, there is no specific time period limitation for the license to remain in effect.

If a license is allowed to lapse (terminate) and more than 12 months has passed since its renewal date, a person must take a new pre-licensing course and pass a new state exam, just as for a new agent.

If it has been less than 12 months since the last license renewal, a person can avoid the pre-licensing class and state exam by paying a penalty of double the existing renewal fee and completing any continuing education requirements.

If someone cannot comply with the renewal procedures due to military service or other extenuating circumstances,theymayapplyforawaiver.[Ref.27-7-14.1(c-e)]

M. NOTIFICATION OF ASSUMED NAME

If a producer decides to do business under any name other than their own, they must notify the Commissioner prior to using the assumed name. For example, if the producer license shows the name as “Cella Polisee”, then she cannot operate her business under the name of “Sell-A-Policy” without informing the Commissioner first.

Also if the legal name or personal/business address is changed, the Commissioner must be informed, by any means acceptable to the Commissioner, within 30 days of the change. Failure to inform the Commissioner of a change in legal name or address on a timely basis will result in a penalty of $50. [Ref.27-7-29.2and27-7-17(b)]

N. RECORDS

A producer must maintain complete records related to transactions under their producer license at their place of business for at least 3 years, or 2 years under limited lines credit insurance authority.

A person must be able to furnish the Commissioner a copy of these records on request. Also, at the client’s request, they must also be able to show the client any records pertaining to his/her policies during regular business hours. (27-7-33)

M. REPORTING OF ADMINISTRATIVE ACTION

A person must report any administrative action taken against them in another jurisdiction or by another governmental agency in this state within 30 days of its final disposition.


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If they are being criminally prosecuted in any jurisdiction, they must report this action to the Commissioner within 30 days of the initial pretrial hearing. The report must include a copy of the initial complaint filed, the order resulting from the hearing, and any other relevant legal documents. (27-7-39)

7. CONTINUING EDUCATION

A. REQUIREMENTS

Continuing Education (CE) is required in Alabama to maintain eligibility to renew a producer license, unless specifically exempt from this requirement. CE requirements can be completed by classroom, self-study, online instruction, and/or seminar obtained from an approved provider. Credits are given for CE upon successfully completing an approved course given by an approved provider.

A person must satisfactorily complete the minimum number of 24 hours per biennial (every two years) reporting period, of which 3 of the 24 hours must be on the topic of producer ethics. A person cannot receive credit for a course more than once in any reporting period.

If a person is licensed in multiple lines of insurance, such as Life and Health as well as Property and Casualty, they will have the same 24-hour requirement. They do not have to take 12 hours for the life license and 12 hours for the property license. A Life and Health producer can take 24 hours of Property and Casualty and vice versa. Alternatively, a person can take half of one and half of another. In other words, they may take any approved course without regard to the type of license held.

Individuals licensed for less than 12 months at the time of their first renewal are not required to complete the educational requirements, but must claim the CE exemption during renewal through the National Insurance Producer Registry (NIPR). However, they cannot count the pre-licensing course they are taking now toward their CE requirements.

A person may decide to take more than the required 24 hours of CE. They can carry over up to 24 credit hours earned in the previous biennial renewal period into the next reporting period.

If a licensed producer or service representative employed by another producer, and working strictly in an agency office, a person need only complete 12 hours of CE every two years, of which 1.5 hours of the 12 hours must be on the topic of producer ethics. This reduction in hours is only available as long as they do not hold a nonresident license in any other jurisdiction. (Ref. 27-8A-1)

B. CE FOR NONRESIDENT AGENTS OR BROKERS

Continuing education has inter-state reciprocity. For example, when Joe meets Indiana’s (his home state) CE requirements for licensed insurance producers, this will also meet Alabama’s CE requirements. Remember, that is as long as Indiana will honor the same deal for Alabama producers who maintain a nonresidentIndianaproducerlicense(reciprocity).[Ref.27-7-28(f)]


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C. CERTIFYING COMPLIANCE

When a person renews their license each year, they will be asked if they have met the state’s continuing education requirements. By signing the application, they are certifying the answer is “yes” or “no” as being a correct statement.

The Commissioner may request that a written certification of the courses, programs, or seminars of instruction that they completed to meet the state’s CE requirements from the person, their employer, and the CE course provider.

If a person fails to meet the CE requirement and knowingly submits a false response on their renewal application, it can result in license suspension. No further license will be granted until all requirements are met. The Commissioner takes this very seriously. A person must not state that they have completed their CE unless they have actually completed it and have their certificates to prove it. (Ref. 27-8A-6 through 8)

D. FAILURE TO COMPLY; EXTENSIONS.

The Commissioner may grant a 3 month extension to allow extra time to complete a person’s continuing education requirement. To receive an extension, they must file a request with the Commissioner on an approved form. After they file a request for an extension, their license will remain in effect until the Commissioner makes a decision on the request. If the Commissioner denies their request, then they must complete the continuing education requirements within 30 days after the Commissioner’s notification. (Ref. 27-8A-2)


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8. PRODUCER APPOINTMENT AND TERMINATION

A. PLACING OF INSURANCE BY PRODUCER NOT APPOINTED

After receiving their producer license, a person must first be appointed by an insurance company to act as an agent on their behalf. Then a person can only be appointed for the lines of insurance for which they are licensed for. For example, they cannot be appointed to sell homeowners insurance with a life insurance license.

There is an exception to the rule, but it must be read carefully to avoid any confusion. Occasionally, a person may place (broker) insurance with an insurer that they are not appointed with, as long as they place the insurance through a producer that is appointed with the company for the type of insurance being placed. To do this, a person must be licensed for the lines of insurance they are placing through the other appointed producer.

For example, a person is appointed to sell property and casualty insurance and write mostly personal lines policies such as homeowners and personal auto. One of their clients that owns a business asks them to write a commercial general liability (CGL) coverage for its business. While they are licensed to write that type of coverage, they are not appointed with a company that offers this type of policy. Furthermore, they are not comfortable making a recommendation to their client since they know very little about this type of coverage. To solve the problem, they ask another producer that specializes in commercial insurance to assist in placing coverage for their client. The producer helps them place the coverage for their client.

This scenario works fine if there is an occasional need to place policies through another producer. Occasionally is defined by Alabama regulations as not more than 10 policies per month. If that number is exceeded in any one calendar month, they will be required to become appointed to represent the company that they are placing business through. Failure to do so will be interpreted as violating Alabama provisions.Theirproducerlicensemaybesuspendedorrevokedforuptooneyear.[Ref.27-7-34]

B. SHARING OF COMMISSIONS

A person cannot share commissions earned from their producer license with anyone who is not licensed for the same kinds of insurance they are licensed for. If they violate this provision, their producer license maybesuspendedorrevokedforuptooneyear.[Ref.27-7-34]

C. APPOINTMENT OF PRODUCER

The process for an insurer to appoint a producer to represent the company in Alabama takes several days to complete.


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First, the company must file with the Commissioner a notice of appointment within 15 days from the date the agency contract is executed, or when the first insurance application is submitted, whichever occurs first. If the insurer owns more than one company approved to do business in Alabama, the insurer may use a single appointment request for a person to represent more than one company.

Next, after the Commissioner receives the appointment notice, he or she will verify within 30 days if the person is eligible for appointment. If it is determined that they are not eligible for appointment, the Commissioner will notify the insurer within 5 days of the determination.

If they are eligible for appointment, the insurer must pay an appointment fee to the Commissioner.

D. TERMINATION OF APPOINTMENT

An insurer may terminate a producer’s appointment at any time. The insurer must give notice of the termination with 30 days to the Commissioner.

Upon written request of the Commissioner, the insurer must file with the Commissioner a statement of thereasonforterminationandanyfactsrelativetothetermination.[Ref.27-7-30(a-d)]

9. UNFAIR TRADE PRACTICES LAW

A. PURPOSE

The purpose of this section is to regulate any insurance business trade practices in Alabama that consist of unfair methods of competition or unfair or deceptive acts or practices. These unfair trade practices are prohibited in this state. (Ref. 27-12-1 and 2)

B. TWISTING

A person cannot make or issue any statement misrepresenting an insurance policy for the purpose of inducing a policyholder to lapse, forfeit, surrender, retain, exchange or convert any insurance policy.

This practice of twisting occurs when a producer replaces an existing policy with another policy, primarily for the purpose of generating a commission to the producer.

Some have defined twisting as simply telling a lie to replace a policy. (Ref. 27-12-6)

C. FALSE STATEMENTS AND ENTRIES

This provision prohibits a person from making any false statement about the financial condition of an insurer with intent to deceive. This practice does occur with unscrupulous agents. For example, they cannot tell a client or a potential client that a particular company has a poor financial rating or is about to declare bankruptcy, especially if it is not true.


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Also, an insurer cannot falsify its books with the intent to deceive an insurance examiner. Any insurer or individual willfully making a false annual or other statement will be punished by a fine in an amount of $500.00 to $5,000.00. (Ref. 27-12-7)

D. BOYCOTT, COERCION AND INTIMIDATION

You cannot enter into any agreement to commit any act of boycott, coercion, or intimidation resulting in unreasonable restraint of, or monopoly in, the business of insurance. An example would be a mortgage company requiring someone to purchase life insurance from them as a condition of the mortgage loan. (Ref. 27-12-8)

E. MALICIOUS STATEMENTS ON FINANCIAL CONDITION

A person cannot not make any false, maliciously critical, or derogatory statements about the financial condition of an insurance company for the purpose of causing harm or injury. This provision is similar to the False Statements and Entries (27-12-7) provision. (Ref. 27-12-9)

F. FINANCIAL INDUCEMENTS TO PURCHASE INSURANCE

A person cannot promise an applicant of client anything of value not specified in the insurance contract as an inducement to purchase insurance.

No life insurance policy or annuity contract issued in Alabama can use words such as “investment plan,” “expansion plan,” “profit-sharing,” “charter plan,” “founders’ plan,” “surplus-sharing,” or similar language in a manner that has a tendency to mislead a purchaser or prospective purchaser of life insurance into believing that he or she will receive something other than a life insurance or annuity policy. (Ref. 27-12-10)

G. UNFAIR DISCRIMINATION

While certain types of discrimination are legal when underwriting insurance policies, unfair discrimination is not legal. Examples of fair discrimination would be charging a higher life insurance premium for tobacco users than non-tobacco users, or charging males a higher life insurance premium than females of the same age and risk class. Tobacco users tend to die sooner than non-tobacco users, and the average life expectancy of males is less than females.

Examples of unfair discrimination would be charging higher premiums for individuals of the same risk class and life expectancy. For example, Pete and Repete are identical twin males, non-tobacco users, approximately the same height, weight and overall health condition. They both applied to the same life insurance company, for the same type and amount of life insurance. But because Pete was an Auburn alumnus, the insurance company wanted to charge him more premium than Repete, an Alabama alumnus. That would not be considered fair.


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While this example is an exaggeration, a person should understand the point. Insurers cannot base rates on race, color, creed or national origin, or an unfair factor like the university a person attended. (Ref. 27-12-11)

H. REBATING

A person cannot promise an applicant of client anything of value not specified in the insurance contract as an inducement to purchase insurance or annuities.

They cannot offer a client or potential client part of their commission, tickets to a ball game, stock in their insurance agency, or anything else of value as an incentive to purchase an insurance policy or annuity from them.

The Commissioner may, after a hearing, revoke the certificate of authority of any insurer and the licenses of any agent that has willfully violated this provision. (Ref. 27-12-12)

I. CHARGES, HEARING, CEASE AND DESIST ORDER

If the Commissioner believes that someone has engaged in any unfair trade practice, he or she will serve them with a statement of the charges and a notice of a hearing to be held on their behalf within 10 days of the date they were served notice.

At the hearing, the producer will be given an opportunity to address the charges against them. This is another example of due process under the law.

If the Commissioner rules against the producer, he or she will issue a cease and desist order which demands that the activities the producer was found guilty of must stop immediately. (Ref. 27-12-18)

J. MISREPRESENTATION ON THE APPLICATION

If a producer is found guilty of misrepresentation on an insurance application, he or she may be punished by incarceration in the county jail for up to one year, and/or a fine of up to $1,000. (Ref. 27-12-23)

K. EMBEZZLEMENT EQUALS THEFT

Monies held by producers belonging to others are considered trust funds and are held in a fiduciary capacity. To use these monies for one’s own benefit is considered theft. (Ref. 27-7-36)

All premiums belonging to others received by a producer in transactions under the producer’s license shall be trust funds so received by the licensee in a fiduciary capacity. The licensee in the applicable regular course of business shall account for and pay the same to the insurer, insured, producer, or other person entitled thereto.

Any producer who, not being lawfully entitled thereto, diverts or appropriates such funds, or any portion thereof, to their own use shall, upon conviction, be guilty of theft of property.


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L. EXTRA CHARGES FOR INSURANCE

You may not add on extra charges for an insurance policy except for the following reasons:

• Taxes collected by surplus lines producers;

• The actual cost of a medical exam;

• A collection fee of up to 1 1/2% per month; and

• Fees approved by the Commissioner for the processing of Property and Casualty applications. (Ref. 27-12-17)

10. DOMESTIC ABUSE PROTECTION ACT

A. PROHIBITED DISCRIMINATION

A company may not deny a claim, exclude coverage, increase the rates or cancel a policy because an insured is the victim of domestic abuse.

A liability company can, however, deny coverage to an insured individual who is the perpetrator of domesticabuseandisbeingsuedfortheinjuryhecaused.[Ref.27-55-3(a)]

B. DOMESTIC ABUSE DISCLOSURE

If an insurance company became aware that an insured claimant is the victim of abuse, it is illegal to disclose this information except:

•Totheabusedpersonoranyonetheydesignateinwriting;

•Toahealthcareprovider;

•Toalicensedphysiciandesignatedbytheabusedperson;

•WhenorderedbytheCommissioneroracourt;

•Whennecessaryforavalidbusinesspurpose;

•Toacompanyattorney;

•Toapolicyowneratdeliveryifthepolicycontainsinformationabouttheabuse;

•ToanyotherentityapprovedbytheCommissioner.[Ref.27-55-3(b)]

C. PROHIBITED INQUIRIES ABOUT ABUSE

A company may not ask if a person is the subject of abuse in the initial application. However, the company may ask about the nature of a previous claim or about the circumstances of an existing injury even if the companysuspectsthatabuseexists.[Ref.27-55-3(c)]


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D. PROPERTY AND CASUALTY CLAIMS AND ABUSE

A property and casualty insurer is not prohibited from denying a property claim when the damage or loss is the result of intentional and abusive conduct by a named insured. If a named insured commits an act of abuse against a co-insured that damages the insured property, the insurance company will pay the claim to the innocent co-insured to the extent of the his or her interest in the property.

However, payment of the claim is subject to the following conditions:

• The innocent co-insured must file a complaint under the “Protection from Abuse Act,” against the abuser for the act causing this loss, and not voluntarily dismiss the complaint; or

• Seek a warrant for the abuser’s arrest for the act causing this loss and cooperate in the prosecution of the abuser.

A property and casualty insurer paying a claim will be subrogated to the rights of the innocent co-insured subject of abuse to recover for any damages paid by the insurance.

A property or casualty insurer is not prohibited from nonrenewing coverage for the subject of abuse if, after a claim, the subject of abuse remains married to or continues to reside in the same household with theabuser.[Ref.27-55-3(f)]

E. LIFE INSURANCE AND ABUSE

A life insurer is not prohibited from declining to issue a life insurance policy if the applicant or prospective owner of the policy is or would be designated as a beneficiary of the policy, and if:

• The applicant or prospective owner of the policy lacks an insurable interest in the prospective insured.

• The applicant or prospective owner of the policy is known on the basis of medical, police, or court records to have committed an act of abuse against the prospective insured.

• The insured or prospective insured is a subject of abuse, and that person, or a person who has assumed the care of that person, if a minor or incapacitated, has objected to the issuance of the policy on the ground that the policy would be issued to or for the direct or indirect benefit of the abuser.[Ref.27-55-3(g)]

F. STATEMENT OF REASONS FOR ADVERSE ACTION

If a company makes an adverse underwriting decision involving the victim of abuse, it must state the specific reasons in writing. “We decline to cover you with an insurance policy because you have been involved in ten accidents in the last 24 months resulting in broken bones.” Obviously the company would decline anyone with that many injuries whether or not they were abuse related. (Ref. 27-55-4)


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An insurer that takes an action which adversely affects a subject of abuse, or a related individual or entity, based on an abuse-related medical condition, abuse-related claim, abuse status, or association or relationship with a subject of abuse, pursuant to an individual or group insurance policy or health benefit plan, shall advise the applicant or the insured of the specific reasons for the action in writing.

Reference to general underwriting practices or guidelines shall constitute a specific reason. The specific reason for the actions of the insurer shall be stated in writing. The actions of the health carrier or insurer, and any applicable policy provisions, must be applied equally to all applicants or the insureds with similar medical conditions or similar claim or claims history without regard to whether the condition or the claims are abuse related.

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