State Government's Role
Generally, when agents think about insurance regulation and their initial interaction with insurance regulators, they think about state insurance licensing requirements and the general requirement for continuing education. In addition to agent licensing, the state insurance departments' main responsibilities include the oversight of insurers' operations and marketing practices. Those marketing practices are our principal focus.
Despite their lack of uniformity, state insurance laws contain common themes. Through their laws and regulations, the states establish rules of practice that provide compliance and ethical guidelines by spelling out what an agent is permitted to do or prohibited from doing. Some of the more common rules deal with the:
requirement that only approved policies may be sold,
prohibition against misrepresentation,
guidelines that must be followed in the replacement of coverage,
returning of premiums or other consideration to a client, i.e. rebating, and
requirement that agents perform their duties in a timely way.
If these federal and state regulations were the only rules that applied to agent and insurer marketing practices and conduct, they would be sufficient to hold both agents and their companies liable for errors and omissions. Insurers, however, have liability for agent conduct that pre-dates these laws. That liability derives from the common law and its concept of agency.
SPECIFIC FLORIDA LAWS AND RULES
Like all other states, Florida regulations prohibit deceptive sales practices. Only policies offered by approved (authorized) insurers may be offered to residents of the state. Florida Rule 4-230 requires agents who are aware of unauthorized insurers operating in the state to notify the Department of Financial Services of such unauthorized activity.
Replacement of coverage is regulated under Rule 4-151. Replacement of life insurance is defined as the sale of a new policy while allowing existing coverage to lapse, be reduced in value through the use of non-forfeiture options, amended to reduce policy benefits, reissue the policy with a reduced cash value, or borrowing 25% or more of the policy's loan value. The replacement rule requires agents to ask prospects if an existing policy's coverage is reduced as part of the application process. If the agent knows -- or should have known -- that such reduction in an existing policy's value occurs when solicting new coverage, the agent must complete a replacement form (Form DI4-312). The applicant may request a comparison of the existing policy's benefits to the proposed coverage -- the replacing insurer must provide a comparison, if requested.
Twisting -- inducing a client to replace coverage through the use of misrepresentations or deception -- is prohibited under Florida law (see Code of Ethics below). Twisting (and replacement) applies when the replacing policy is issued by a different company than issued the lapsing policy, e.g., Company B replaces Company A's policy. In the past, some insurers induced existing clients -- using mesrepresentations -- to letting existing coverage lapse or reduce benefits and sell those clients another policy (Company A replaces Company A's coverage). Florida law defines this as "churning". Churning is prohibited under Florida statutes 626.9541(1)(aa) and Rule 4-151 Part III. If a company "replaces" its coverage with another policy, the agent must disclose this to the policyholder on Form DI4-1180.
Rebating -- returning a portion of a commission as an inducement to apply for insurance -- is permitted in Florida in very limited circumstances under Florida Statute 626.572:
(1) No agent shall rebate any portion of his or her commission except as follows:
(a) The rebate shall be available to all insureds in the same actuarial class.
(b) The rebate shall be in accordance with a rebating schedule filed by the agent with the insurer issuing the policy to which the rebate applies.
(c) The rebating schedule shall be uniformly applied in that all insureds who purchase the same policy through the agent for the same amount of insurance receive the same percentage rebate.
(d) Rebates shall not be given to an insured with respect to a policy purchased from an insurer that prohibits its agents from rebating commissions.
(e) The rebate schedule is prominently displayed in public view in the agent's place of doing business and a copy is available to insureds on request at no charge.
(f) The age, sex, place of residence, race, nationality, ethnic origin, marital status, or occupation of the insured or location of the risk is not utilized in determining the percentage of the rebate or whether a rebate is available.
(2) The agent shall maintain a copy of all rebate schedules for the most recent 5 years and their effective dates.
(3) No rebate shall be withheld or limited in amount based on factors which are unfairly discriminatory.
(4) No rebate shall be given which is not reflected on the rebate schedule.
(5) No rebate shall be refused or granted based upon the purchase or failure of the insured or applicant to purchase collateral business.
Agents and companies may, for advertising purposes, provide applicants with gifts valued up to $25. Department rules define gifts as "articles of merchandise". The Department does not recognize gift certificates, memberships or other services as "merchandise". Consequently, agents who give away auto club memberships, gift certificates or cash violate the Insurance Code.
Florida regulations also prohibit defamation. Defamation is defined under Statute 626.9541(1)(c) as: "Knowingly making, publishing, disseminating or circulating, directly or indirectly, or aiding, abetting, or encouraging the making, publishing, disseminating or circulating of, any oral or written statement, or pamphlet, circular, article or literature which is false or maliciously critical of or derogatory to any person and which is calculated to injure such person. Defamation is a tort that includes both libel (written) and slander (spoken) of a person.
FLORIDA ADMINISTRATIVE CODE
CODE OF ETHICS -- LIFE UNDERWRITERS
4-215.210 Scope. The Business of Life Insurance is hereby declared to be a public trust in which service all agents of all companies have a common obligation to work together in serving the best interests of the insuring public, by understanding and observing the laws governing Life Insurance in letter and in spirit by presenting accurately and completely every fact essential to a client's decision, and by being fair in all relations with colleagues and competitors always placing the policyholder's interests first.
4-215.215 Twisting. Twisting is declared to be unethical. No person shall make any misleading representations or incomplete or fraudulent comparison of any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, or convert any insurance policy, or to take out a policy of insurance in another insurer.
4-215.220 Rebating. Rebating is declared to be unethical. Except as otherwise expressly provided by law, no person shall knowingly permit or offer to make or make any contract of life insurance, life annuity or disability insurance, or agreement as to such contract other than as plainly expressed in the contract issued thereon, or pay or allow, or give or offer to pay, allow, or give, directly or indirectly as an inducement to such insurance, or annuity, any rebate of premiums payable on the contract, or any special favor or advantage in the dividends or other benefits thereon, or any valuable consideration or inducement whatever not specified in the contract.
4-215.225 Defamation. Defamation is declared to be unethical and defined as making, publishing or circulating any oral, written or printed statement which is false, or maliciously critical of or derogatory to the financial condition of any insurance company, or which is calculated to injure any person engaged in the business of life insurance, and this practice is declared to be unethical.
(I) Misrepresentations are declared to be unethical. No person shall make, issue, circulate, or cause to be made, issued, or circulated, any estimate, circular, or statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby or the dividends or share of the surplus to be received thereon, or make any false or misleading statement as to the dividends or share of surplus previously paid on similar policies, or make any misleading representation or any misrepresentation as to the financial condition of any insurer, or as to the legal reserve system upon which any life insurer operates, or use any name or title of any policy or class of policies misrepresenting the true nature thereof.
(2) No person shall make, publish, disseminate, circulate, or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in a newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, any advertisement, announcement or statement containing any assertion, representation or statement with respect to the business of insurance or with respect to any person in the conduct of his insurance business, which is untrue, deceptive or misleading.
4-215.235 Proposals and Requirements. Wherever a Life Insurance agent submits a written proposal or program for any prospective client, such proposal should contain the following information: the Company whose policy is proposed to issue, the date of the proposal, and the signature and address of the agent submitting it.
For specific rules and laws:
Florida's Insurance Code is found in Title XXXVII of Florida Statutes