Penalties & Enforcement Efforts

Effective October 1, 2002, Florida-licensed insurance agents who sell unlicensed insurance could face a felony charge and lose their license under a new law enacted in the 2002 legislative session.   To make agents aware of the problems of caused by authorized insurers, the new law requires a discussion of unauthorized entities in all insurance education courses.

In the recent past, the Department of Financial Services has shut down several entities selling unlicensed health insurance plans and two entities that were selling unauthorized medical malpractice insurance to health care providers. These entities have left at least 30,000 Floridians with more than $6 million in unpaid claims. In conjunction with barring these entities from doing business in Florida, the department is investigating dozens of licensed agents for selling unauthorized insurance.

Florida's Unauthorized Entities law enhanced the penalty for selling unauthorized insurance from a second-degree misdemeanor to a third-degree felony, punishable by up to five years in prison and a $5,000 fine per count. In addition, Florida law requires anyone who solicits, negotiates or sells an insurance contract for an unauthorized insurer to be held financially responsible for unpaid claims.

While investigating unlicensed entities, department regulators have determined that the operators of unauthorized entities would not have been able to reach potential buyers without the assistance of licensed agents. Both employers and agents have been enticed by the low premiums unlicensed entities charge, but the rates are often not actuarially sound and money is not set aside for reserves. Because unlicensed entities do not participate in a state guaranty fund (a fund designed to cover unpaid claims in the event of bankruptcy), policyholders in unlicensed plans are usually left with unpaid claims when the businesses fold.  The Department usually become aware of a plan's termination when policyholders began complaining about slow or no payment of claims -- but by that time, there is little the Department can do to protect the "policyholders".   

The Department offers a reward of up to $25,000 for information leading to a conviction.

The department's Bureau of Agent and Agency Investigations has 60 investigators available to look into potential violations and take appropriate administrative action against an agentís license. The Division of Insurance Fraud has more than 100 sworn law-enforcement investigators who can file criminal charges. Further, the department has created an Unauthorized Entities Section dedicated to tracking and taking civil action against these phony plans.

To summarize, possible consequences for acting as an insurer without a proper license:

conviction of third-degree felony  [Florida Statutes Section 624.401]
liability for all unpaid claims  [Florida Statutes Section 626.901(2) ]
suspension or revocation of all insurance licenses [ [Florida Statutes Section 626.621, .611 and .6215]

Consequences for aiding and abetting an unauthorized insurer:

conviction of third-degree felony  [Florida Statutes Section 626.902(1)]
liability for all unpaid claims  [Florida Statutes Section 626.901(2) ]
suspension or revocation of all insurance licenses [ [Florida Statutes Section 626.621, .611 and .6215]