The State of Florida has taken a very strong position on the issue of unauthorized entities.  An unauthorized entity is an insurance company that is not licensed with the Florida Department of Financial Services.  Agents and brokers have responsibility for conducting reasonable research to ensure that they are not writing policies or placing business with unauthorized entities.  Lack of careful screening can result in significant financial loss to Florida residents due to unpaid claims and/or theft of premiums.  Agents may be held liable when representing these unauthorized entities.  It is the agent’s and broker’s responsibility to give fair and accurate information regarding the companies they represent.  
Any question about the authorized status of a company can be checked by calling the Florida Department of Financial Services at 1-877-693-5236 (inside Florida) or 850-413-3089 (outside Florida).  The Department urges all agents and brokers to adhere to this admonition.   




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 Insurance Guaranty Association (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. 



Unauthorized Entities


The sale of insurance by unlicensed entities poses a grave danger to the public.   These entities and contracts are not subject to the safeguards built into state insurance laws.  "Policies" issued by unauthorized "insurers" are not required to maintain adequate reserves to pay policyholder claims.   In many cases, operators of these "unauthorized entities" embezzle the premium payments -- and when claims begin to mount, the house of cards simply collapses. Moreover, since the "insurers" were unlicensed, their policies are not covered by the state guarantee fund.   http://www.wallstreetinstructors.com/ce/continuing_education/ethics2/1x1.gifSo policyholders are left holding the bag — liable for expenses they thought would be reimbursed.   This usually ruins their personal credit and has profound impacts on other aspects of their lives.  In the case of phony health insurance, coverage by "unauthorized entities" means that duped policyholders do not have "continuous credible coverage" — a typical requirement for obtaining new group coverage.  Even if "policyholders" don't suffer financial ruin due to unpaid claims, they may find it difficult or impossible to obtain new coverage once the scam is discovered.


The sale of phony insurance usually occurs when the insurance market is tight.  When legitimate insurance is difficult to obtain, the insurance-buying public is susceptible to dishonest operators marketing coverage offered by unauthorized entities.  In many cases, the promoters of these plans operate in the shadows of the regulatory structure.   The patchwork, federal/state nature of insurance regulations works to their advantage:  by claiming federal jurisdiction, they avoid state regulation — and by claiming to be insurance products (which are primarily regulated by state law), they avoid federal oversight.    


During their investigations of unlicensed entities, department regulators have found that the operators of unauthorized entities would not have been able to reach potential buyers without the assistance of licensed agents. Both the insurance buying public 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. The Department usually becomes 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".   


Effective October 1, 2002, Florida-licensed insurance agents who sell unlicensed insurance could face a felony charge and lose their agent’s license.   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.


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.


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 agent’s 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

¨ liaiblity for all unpaid claims

¨ suspension or revocation of all insurance licenses


Consequences for aiding and abetting an unauthorized insurer:


¨ conviction of third-degree felony

¨ liaiblity for all unpaid claims

¨ suspension or revocation of all insurance licenses
























Insurance policies are only of value if there is a high probability that the company will be able to fulfill its promises 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, a property or casualty 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 Insurance Guaranty Association – an organization comprised of all authorized property and casualty 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.  For most claims, the Association will pay unpaid property and casualty claims up to a maximum of $300,000 (or the policy limits, if less) – with two exceptions.  Claims under homeowner coverage are capped at $500,000 (structure and contents) or the policy limits.  For claims by condominium or homeowner associations, the limit is the lesser of the policy limits or $100,000 multiplied by the number of units in the association.    All claims processed by the Florida Insurance Guaranty Association are subject to a $100 deductible.  Florida law prohibits agents from referring to the Guaranty Association as part of their sales presentations.    (A similar mechanism, the Florida Life and Heath Guaranty Association, applies to unpaid claims of failed life and health insurers.)


It is important to remember that these protections are available only to claims against policies issued by Florida-authorized insurers. 



 Policy Form and Rate Approval


With the exception of life insurance, the Office of Insurance Regulation reviews the premium rates of all insurance policies issued in Florida.  Florida law provides that the benefits offered by an insurance policy must be reasonable for the premium charged. The Office of Insurance Regulation has established various criteria that insurance companies must meet before rates can be approved. These are based on acceptable loss ratios and expense ratios that are designed to prevent the insured from being overcharged by the insurance company.  Premium rate schedules for property and casualty policies must be filed with — and approved by — the Office.  The rate schedule will include the premium for the basic policy as it applies to different actuarial classes, as well as premium costs for riders and other optional coverages the insured may choose.  The rate schedule will also outline any discounts or other premium reductions that various policyholders may qualify for.   



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