Given the central role the insurance industry plays in millions of American lives and businesses, it is no wonder that it is subject to a number of regulators – the federal government, state governments, and industry watchdogs. The primary purpose of this regulation is to promote the public welfare by maintaining the solvency of insurance companies. After all, policyholders depend on a company’s financial stability to pay benefits well into the future. One insolvent company can jeopardize thousands of insureds. In addition to ensuring the financial strength of individual insurers, regulators also provide consumer protection, enforce fair trade practices and take care that insurance contracts are offered to the public at fair prices. It is very important that insurance agents be aware of and comply with all insurance laws and regulations.
Florida's Department of Financial Services and Office of Insurance Regulation
The Department of Financial Services, headed by Florida's Chief Financial Officer, and the Commissioner of the Office of Insurance Regulation oversee the insurance industry in accordance with the provisions of the Florida Insurance Code. They each have rule-making and enforcement powers to carry out their responsibilities.
The Florida Insurance Code is a broad set of regulatory principles. It sets general policy, but leaves the details of regulation to the Department and Office. The Florida Legislature adopted a Policyholder Bill of Rights to protect the insurance buying public. The Bill of Rights sets forth a series of aspirational goals to guide the Department and Office in their day-to-day operations. The Policyholder Bill of Rights can be found in the Florida Statutes, Chapter 626.9641.
The Department of Financial Services focuses its regulations and authority on consumer and agent issues, such as agent licensing and anti-fraud efforts; while the Office of Insurance Regulation concentrates on regulation of insurance companies and contract terms. The Department and the Office are empowered to investigate complaints, audit industry participants, and, if need be, rehabilitate insolvent insurers. Let's take a quick look at a few regulations Florida imposes on insurance companies and agents.
Certificates of Authority
An admitted insurance company is one that the Office of Insurance Regulation has licensed to transact business in Florida under the provisions of the state laws — i.e., it holds a certificate of authority to operate in Florida. Put another way it is an “authorized” company.
Insurance companies that have not been authorized by the Office do not come under the jurisdiction of the Florida Office of Insurance Regulation — they are not subject to examination of its financial soundness, approval of types of coverages offered, nor the appropriateness of its advertising. Florida's Life and Health Guaranty Fund (described below) only covers the liabilities of authorized insurers, so anyone purchasing policies from unauthorized companies is at risk if those insurers cannot meet their claims. In Florida, an agent is personally liable for any insurance contract he or she places with an unauthorized insurer.
The Department of Financial Services imposes severe penalties on agents who aid and abet these illegal operations:
¨ Conviction of a third-degree felony,
¨ Liability for all unpaid claims, and
¨ Suspension or revocation of all insurance licenses.
Florida Statutes Chapter 626.901
Insurance policies are only of value if there is a high probability that the company will be able to fulfill its promises far into the future. One reason for state regulation of insurers is to ensure the financial integrity of insurance companies operating in the state. Insurance regulators require companies to file annual reports, and will audit insurers' financial situation at least every three years.
Occasionally, an insurance company will fail. When this happens, state regulators will appoint a receiver to liquidate or reorganize the insurer in a process similar to bankruptcy. If liquidated, the Florida Life and Health Guaranty Association – an organization comprised of all authorized life and health insurers in Florida — takes over the duties of the failed insurer: collecting premiums, servicing the policy and paying claims. Through this association, the industry collectively “bails out” the occasional failed firm. The Association will pay claims against the failed company’s traditional life insurance products and fixed annuities (but not variable products). The Association will pay up to $300,000 in death benefits for life insurance ($100,000 in cash value) or $300,000 for fixed annuity payments. Florida law prohibits agents from referring to this protection as part of their sales presentations.