District of Columbia Regulations & NAIC Insurance Law
Licensing
Any individual applying for a District of Columbia resident producer’s license must be at least 18 years old and must be a resident of the District of Columbia before submitting an application.
Examination
An applicant for a resident producer license must pass a written examination, unless applying for a limited lines or surplus lines license or otherwise exempt (D.C. Code § 31-1131.05(a)).
Fingerprints/background check
The Commissioner reviews an applicant’s background before issuing a license, and many states require applicants to submit fingerprints for a state and FBI criminal history check as part of the application. In the District, a resident applicant (other than for a limited lines license) must submit fingerprints to the Commissioner with written consent to a criminal history record background check (D.C. Code § 31-1131.06a(a)).
Controlled business
Controlled business is insurance written on the producer’s own life, property or interests, or on those of the producer’s family, employer or a business the producer controls. A producer may insure themselves and their family, but a license exists to sell insurance to the public, so states generally restrict obtaining or using a license principally to write controlled business.
Non-resident license
A producer licensed in another state can obtain a District of Columbia nonresident license without taking District of Columbia’s examination. Under the NAIC’s Producer Licensing Model Act, which most states have adopted in some form, a nonresident receives the license if the person:
- Is currently licensed as a resident, and in good standing, in the home state
- Has applied (the home-state application or the Uniform Application) and paid the fees
- Lives in a home state that grants nonresident licenses to residents of this state on the same basis (reciprocity). The District’s statute sets only the first two conditions and the application, with no reciprocity requirement (D.C. Code § 31-1131.08(a-2))
Under the same model, a producer who moves to another state files a change of address, with certification from the new home state, within 30 days. A licensed producer who moves into a state applies for a resident license there within 90 days and does not repeat prelicensing education or the examination for lines already held.
Temporary license
Most states allow the insurance regulator to issue a temporary license, without an examination, when one is needed to keep an insurance business serviced. Typical cases are:
- The surviving spouse or personal representative of a producer who dies or becomes disabled, to allow time to sell the business or train new people
- A member or employee of a business entity producer, on the death or disability of its designated producer
- The designee of a producer entering active military service
Under the NAIC’s model act, the regulator may also issue one in any other circumstance where it finds that the public interest will best be served.
The regulator may limit what a temporary licensee may do and may require a licensed sponsor who takes responsibility for the temporary licensee’s acts.
The NAIC’s model act limits a temporary license to 180 days.
Military service
Under the NAIC’s model act, a producer who cannot meet license renewal requirements because of military service, or because of another extenuating circumstance such as a long-term medical disability, may request a waiver of those requirements and of any examination, fine or sanction for missing them.
Renewal and reinstatement
A producer license stays in effect only while the producer renews it on schedule: paying the renewal fee and completing continuing education by the due date.
Each state sets its own renewal cycle.
A producer who misses the deadline and lets the license lapse may be able to reinstate it without retaking the examination.
Under the NAIC’s model act, a lapsed license may be reinstated within 12 months of the renewal due date, for a penalty of double the unpaid renewal fee. Each state sets its own window and fee, and after the window closes the person must qualify for a new license.
Continuing education
All states, including the District of Columbia, have continuing education requirements that must be met to renew any major lines (life, health, property, liability) insurance license. Many states also require continuing education of other licensees, such as adjusters or title or bail bond agents, while exempting producers who hold only certain limited lines; each state’s law says which. Individuals licensed in the District of Columbia must complete continuing education prior to renewing their license, part of which must cover ethics. The number of hours required is set by state law and published by the state insurance department.
Notice of change of name or address
Under the NAIC’s model act, the licensee reports a change of address to the regulator within 30 days of the change.
The model also requires a producer to report to the regulator within 30 days any administrative action taken against the producer in another state or by another government agency, counted from the final disposition, and any criminal prosecution in any jurisdiction, counted from the initial pretrial hearing date. A producer who does business under any name other than their legal name must notify the regulator before using it.
Company regulations
An insurance company must be authorized by the Department of Insurance, Securities and Banking to conduct business in the District of Columbia. To receive a certificate of authority, the company applies to the Commissioner and files its charter or articles of incorporation, financial statements showing that it meets the state’s capital and surplus requirements, and the other documents and fees the state requires.
Capital and surplus requirement
A company that has been authorized to conduct insurance business in the District of Columbia must maintain minimum standards as a corporation. The certificate of authority allows the insurer to conduct business in the state only if it maintains the minimum capital or permanent surplus required. In the District, the Commissioner has power to revoke or suspend the certificate of authority of an insurer that is impaired in capital or surplus (D.C. Code §§ 31-2502.03(a)(1), 31-4305(a)(1)).
LTC policies
No insurer may offer an LTC policy in the District of Columbia unless the insurer offers, at the time of application, the option to buy inflation protection. The policy must plainly state that premiums may increase.
While LTC policies are generally designed to pay for life, the NAIC’s model act defines long-term care insurance as coverage for at least 12 consecutive months, and each state sets its own minimum benefit period.
Medigap policies
To reduce confusion about the many types of Medicare supplement policies available, federal law mandates national standardization of Medigap policies. Insurers must offer a limited number of standardized Medigap plans developed by the NAIC.
Currently, the available plans are A, B, C, D, F, G, K, L, M, and N. Plans E, H, I, and J have been eliminated. In addition, Plans C and F are not available to individuals who became newly eligible for Medicare on or after January 1, 2020.
Plan A includes the “core” benefits (Parts A and B co-payments, 365 additional days of hospitalization, and the first 3 pints of blood). Its core benefits also include the Part A hospice care coinsurance or copayment.
If an insurer sells ANY Medigap policies in the District of Columbia, they MUST offer Plan A. A Buyer’s Guide and an Outline of Coverage are delivered at the time of application, prior to accepting any premium payment.
Duties of the Commissioner
The District of Columbia Commissioner is a state executive position in the District of Columbia government. The Commissioner is the chief executive of the District of Columbia Department of Insurance, Securities and Banking, which regulates insurance companies operating in the District of Columbia. The Mayor of the District of Columbia appoints the Commissioner, with the advice and consent of the Council (D.C. Code § 31-104(a)).
The Commissioner is responsible for establishing and enforcing regulations in the District of Columbia insurance market in a manner that protects consumers and encourages economic development.
Those duties include:
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Investigate all claims and complaints of legal violations relating to insurance.
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If the Commissioner finds that laws have been violated, the findings and supporting documents may be referred for criminal prosecution.
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Monitor transactions of all companies including domestic, foreign, and alien insurance companies.
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Examine the financial condition of insurers; the NAIC’s model examination law calls for every insurer to be examined at least once every five years.
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Audit the books and records of any resident producer as frequently as necessary. Under the NAIC’s examination model, the regulator may examine any person subject to its authority, nonresident producers included, as often as it considers appropriate.
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Collect all fees associated with producers and insurers.
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Determine and administer fines associated with violations for insurers and producers.
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Issue reports pertaining to the suspension and revocation of licenses of producers and certificates of authority for insurers.
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Approve documentation used by insurance companies such as forms and rates.
Suspend, revoke or non-renew
The Commissioner has the authority to suspend, revoke, or refuse to renew a license for:
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Providing false information on the application for an insurance license.
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Omitting any relevant information on an application that would have disqualified the individual from being eligible to receive a license. Under the NAIC’s model act, the ground is broader: providing incorrect, misleading, incomplete or materially untrue information in the license application.
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Being found guilty of a violation or the noncompliance of insurance regulations and laws…
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Committing fraud while attempting to obtain an insurance license.
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Improperly withholding, misappropriating or converting any money or property received in the course of doing insurance business.
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Providing false information in reference to the terms and conditions of an insurance contract.
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Having been convicted of a felony.
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Having admitted or been found to have committed any insurance unfair trade practice or fraud.
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Having engaged in activities of a fraudulent nature which allowed the person to involve themselves in dishonest, coercive, untrustworthy, and financially irresponsible practices.
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Having had an insurance producer license, or its equivalent, denied, suspended or revoked in any state or territory of the United States, a province of Canada, or another country (D.C. Code § 31-1131.12(a)(9)).
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Using another person’s identity and forging their name on an insurance application.
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Being found guilty of using unethical practices or cheating on an examination for an insurance license.
Cease and desist
If the Commissioner finds that a producer has violated the state’s insurance laws, the Commissioner may order the producer to cease and desist. The recipient of a cease and desist order has not had his/her registration suspended or revoked, but is required to stop or limit the activity addressed in the order.
Hearing and penalties
A person facing action by the Commissioner is entitled to notice and an opportunity for a hearing, within time limits set by District of Columbia law, and may ask a court to review the final order. Under the District’s unfair trade practices law the hearing comes first: before the Commissioner acts against a person for a violation, the Commissioner must offer that person an opportunity for a hearing (D.C. Code § 31-2231.23(a)).
A violation of the insurance laws can bring a civil penalty in addition to action against a license. State law sets the maximum, usually per violation and often with a cap on the total, and a higher tier commonly applies to a violation that was knowing or flagrant. Some violations are also crimes.
Unfair claims settlement practices
Under the NAIC’s model act, these practices are violations when committed flagrantly and in conscious disregard of the law, or often enough to indicate a general business practice.
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Unreasonably delaying the investigation or payment of claims by requiring both a formal proof of loss form and subsequent verification that would result in duplication of information and verification appearing in the formal proof of loss form.
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Failing, in the case of claims denials or offers of compromise settlement, to promptly provide a reasonable and accurate explanation of the basis for such actions.
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Refusing to pay claims without conducting a reasonable investigation.
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Making settlement claims based on information contained on an application that has been altered without the insured’s consent is a violation of regulation.
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Denying a claim without conducting a thorough investigation.
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Attempting to settle or settling a claim for less than the amount a reasonable person would believe the insured or beneficiary was entitled to by reference to written or printed advertising material accompanying or made part of an application.
Policy forms
Insurers file their policy forms with the Commissioner.
Depending on the line of insurance and the form, a state may require approval before a form is used, often with a period after which a filing that has not been acted on is deemed approved, or may allow the form to be used as soon as it is filed (“file and use”). In the District, an accident and sickness policy form may not be issued or delivered until 30 days after it is filed, unless the Commissioner approves it sooner (D.C. Code § 31-4712(a)).
Under the usual conformity rule, which many states’ insurance codes write into law, a policy provision that conflicts with state law does not make the policy invalid: the policy is read as amended to conform to the law.
An individual health policy may also carry the optional uniform provision “Conformity with State Statutes”: a provision that, on the policy’s effective date, conflicts with the statutes of the state where the insured resides is amended to conform to their minimum requirements.
Record maintenance
A producer keeps records of each transaction (the policies placed, the insureds, the premiums received and any changes) and makes them available for the Commissioner’s inspection.
Fraudulent producer representation
An insurance producer who represents to the public that he/she is licensed to conduct insurance business in the District of Columbia, but has not passed the appropriate licensing examination, is in violation of regulation. Any means of public communication - including advertisements, letterheads, circulars, business cards, and other methods of representation - are included in the definition of impersonating a licensed producer.
A producer found guilty of conducting business in the District of Columbia in any line of insurance for which they are not properly licensed may have any other insurance license suspended or revoked.
Misrepresentation
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Misrepresentation involving the creation or distribution of policies, quotes, and illustrations designed to provide inaccurate information about the terms and conditions of a policy is prohibited. Under the NAIC’s model act, any estimate, illustration or statement that misrepresents a policy’s benefits, advantages, conditions or terms is an unfair trade practice when committed flagrantly and in conscious disregard of the law, or often enough to indicate a general business practice.
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Providing inaccurate or incomplete information or comparisons regarding the benefits of a policy is an example of misrepresentation.
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Providing inaccurate or incomplete information for the purpose of inducing, or tending to induce, the lapse, exchange, conversion, forfeiture, or surrender of a policy is a violation as well (under the NAIC’s model act, twisting).
False advertising
Making, publishing or circulating an advertisement, announcement or statement about the business of insurance that is untrue, deceptive or misleading is an unfair trade practice under the NAIC’s model act. The medium does not matter: the rule reaches newspapers, magazines, radio and television, and also notices, circulars, pamphlets, letters, posters and any other way of placing the statement before the public. Under the model act, such a statement is an unfair trade practice when committed flagrantly and in conscious disregard of the law, or often enough to indicate a general business practice. Some state laws adopt this condition, and others reach a single such statement. In the District, no person may place such a statement before the public (D.C. Code § 31-2231.04), and the chapter calls the acts it prohibits unfair trade practices when they are committed with such frequency as to indicate a general business practice (D.C. Code § 31-2231.01(9)).
Defamation
Defamation of an insurer is an unfair trade practice under state law, based on the NAIC’s model act: making, publishing or circulating an oral or written statement that is false, or maliciously critical of or derogatory to the financial condition of an insurer, and that is calculated to injure such insurer. Some states’ laws reach further, to a statement calculated to injure any person engaged in the business of insurance. Spreading an untrue rumor that a competing insurer is about to fail is the classic example. The District’s own statute reaches a statement about the financial condition of an insurer that is calculated to injure the insurer (D.C. Code § 31-2231.05).
Boycott, coercion and intimidation
Entering into an agreement to commit, or by concerted action committing, any act of boycott, coercion or intimidation that results or tends to result in unreasonable restraint of, or monopoly in, the business of insurance is prohibited.
False financial statements
Any licensed producer who makes false statements containing any information that involves inaccurate material facts or false statements on an application for insurance is in violation of the state’s unfair trade practices law. The rule is not limited to licensed producers: under the NAIC’s model act, it is an unfair trade practice for an insurer or any person engaged in the business of insurance to make false or fraudulent statements or representations on or relative to an application for a policy, for the purpose of obtaining a fee, commission, money or other benefit from any provider or individual person.
Illegal inducements
Offering anything of value not specified in the policy (money, a service, a favor or a gift) as an inducement to buy insurance is prohibited unless state law expressly allows it, and any agreement made as part of the sale must be written into the policy.
States differ on promotional gifts. The NAIC’s model act lets producers and insurers give customers non-cash gifts, meals or charitable donations up to an amount the state considers reasonable, as long as the gift is not conditioned on buying or renewing a policy and is offered without unfair discrimination. Each state sets its own limit.
Unfair discrimination
Unfair discrimination is treating people or risks that present the same hazard differently. The NAIC’s model act, on which state unfair trade practices laws are based, prohibits:
- Unfair discrimination between individuals of the same class and equal expectation of life in life insurance and annuity rates, dividends, benefits or terms
- Unfair discrimination between individuals of the same class and essentially the same hazard in health insurance premiums, benefits or terms
- Refusing, limiting or canceling coverage because of a person’s sex, marital status, race, religion or national origin
- In property and casualty insurance, refusing or limiting coverage solely because of a risk’s geographic location, unless sound underwriting and actuarial principles justify it, or solely because the applicant or insured is physically or mentally impaired
Many states also expressly forbid refusing or limiting coverage solely because a person is blind or partially blind. The District bars refusing to insure, refusing to continue to insure, or limiting coverage because of marital status, race, color, personal appearance, sexual orientation, gender identity or expression, matriculation, political affiliation, or status as a victim of an intrafamily offense, sexual assault, dating violence or stalking (D.C. Code § 31-2231.11(c)).
Errors & omissions
Errors & Omissions (E&O) insurance is a type of professional liability insurance that protects insurance agents if they are sued for negligent performance of their duties. E&O only covers honest mistakes resulting in (financial) damage to customers/prospects. There is no coverage for intentional misconduct, criminal acts, or regulatory fines.
Small group
In the District of Columbia, a “small employer” is defined by its average number of employees during the preceding calendar year, with no two-employee minimum (D.C. Code § 31-3301.01(42)(A)), and may be exempted from certain restrictive federal laws governing group insurance. Small group market means the health insurance market under which individuals obtain health insurance coverage (directly or through any arrangement) on behalf of themselves (and their dependents) through a group health plan maintained by a small employer.
Children covered as dependents
Under the Affordable Care Act, a plan that offers dependent coverage must make it available to an adult child until age 26, whether or not the child is married, a student or financially dependent on the parent.
State law generally requires a policy that covers dependents to cover a newborn from the moment of birth and an adopted child from placement, and may let the insurer require notice and any added premium within a set period to continue the child’s coverage. Policies also generally continue coverage past the age limit for a dependent child who cannot support themselves because of a mental or physical disability that began before that age.
Rebating
District of Columbia licensed producers are prohibited from directly or indirectly giving any refund, discount, favor, or credit to reduce premiums to induce the purchase of insurance.
Sharing commission
The splitting or sharing of commissions with a licensed producer is allowed. Both parties must be licensed in the line of business in which the proposed commission is to be split. Under the NAIC’s model act, a commission may also be paid to an insurance agency, or to a person who does not sell, solicit or negotiate insurance.
Twisting
Misrepresenting a policy’s terms, conditions or benefits, or comparing policies incompletely, to induce a policyholder to lapse or surrender an existing policy is a violation of the law (D.C. Code § 31-2231.21). A misleading statement or misrepresentation about an insurer’s financial condition is a separate violation (D.C. Code § 31-2231.03(4)). Any written or oral statements used to induce the lapse, termination, exchange, or surrender of an insurance contract based on inaccurate information are prohibited.
Under the NAIC’s model act, twisting is a misrepresentation made to induce a policyholder to lapse, forfeit, surrender, exchange or convert a policy. A false or maliciously critical statement about a competing insurer’s finances, made to injure it, is defamation.
Unfair marketing practices
The Department of Insurance, Securities and Banking is responsible for establishing minimum standards for the full and fair disclosure of policy content. The Department also requires the standardization and simplification of the terms used to describe insurance coverage. Advertising may not involve the following:
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Any statement or implication that policies are approved, or that the financial condition of a company is endorsed, by any government agency or by any independent group, individual, organization or society, unless that is the fact.
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Any statements regarding advertising that are false or untrue in reference to the time frame in which claims are paid.
Gramm-Leach Bliley Act (GLBA)
This law repealed the parts of the Glass-Steagall Act of 1933 that kept commercial banks and securities firms apart, and allowed the consolidation of commercial banks, investment institutions and insurance companies. GLBA established a framework of responsibilities of federal and state regulators for these financial industries. It permits financial services companies to merge and engage in a variety of new business activities, including insurance, while attempting to address the regulatory issues raised by such combinations.
McCarran-Ferguson Act
Federal law signed in 1945 in which Congress declared that the insurance industry would be regulated at the state level. Grants insurers a limited exemption from federal antitrust legislation. Since 2021 the exemption does not cover the business of health insurance, apart from narrow activities such as sharing historical loss data (15 U.S.C. § 1013(c)).
National Association of Insurance Commissioners (NAIC)
The U.S. standard-setting and regulatory support organization is created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the U.S.
Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA, 15 U.S.C. 1681) regulates consumer reporting agencies and the use of consumer reports, such as credit reports, MIB records and investigative reports, including in insurance underwriting.
- When an insurer requests an investigative consumer report, it must disclose that to the consumer within 3 days of the request
- When an insurer takes adverse action based on a consumer report, it must notify the consumer and identify the reporting agency. The consumer then has 60 days to request a free copy of the report and may dispute inaccurate information
Privacy Act of 1974
The federal Privacy Act of 1974 governs how federal agencies handle personal information. It does not apply to private insurers. An insurer’s use of an applicant’s personal information is governed by the FCRA, the Gramm-Leach-Bliley Act and state insurance privacy law.
In states that adopted the NAIC’s Insurance Information and Privacy Protection Model Act, an authorization to collect personal information signed with an application is valid for no more than 30 months for life, health or disability insurance and one year for property or casualty insurance.
Under the same model act, a person told of an adverse underwriting decision may ask in writing, within 90 business days of the notice, for the specific reasons for it, which must be given within 21 business days of the request.
Telemarketing
The National Do Not Call Registry is a list of telephone numbers whose owners do not want to receive telemarketing calls. Telemarketers may not call registered numbers without the person’s permission or an established business relationship, and unsolicited sales calls:
- May be made only between 8 a.m. and 9 p.m. in the recipient’s local time
- Must give the caller’s name, the name of the company the call is made for, and a telephone number or address at which that company can be contacted
CAN-SPAM
A commercial email must:
- Be identified clearly as an advertisement
- Carry accurate header information and a subject line that is not deceptive
- Include the sender’s valid physical postal address
- Offer a way to opt out, and the sender must honor an opt-out within 10 business days
Life and health insurance guaranty association
Every state has a life and health insurance guaranty association that protects policyholders and beneficiaries when a member insurer becomes insolvent, by continuing coverage and paying covered claims under life insurance, health insurance and annuity contracts, up to limits set by law. Insurers licensed to write the covered lines in the state must belong to it as a condition of doing business there, and it is funded by assessments on its members.
The District of Columbia Life and Health Insurance Guaranty Association pays, for any one life, no more than $300,000 in life insurance death benefits, of which no more than $100,000 in net cash surrender and withdrawal values; $300,000 in the present value of annuity benefits; $300,000 for disability insurance and $300,000 for long-term care insurance; $500,000 for health benefit plans; and $100,000 for other health insurance coverage. It is not obligated to cover more than $300,000 in all for any one life, or $500,000 where health benefit plans are involved (D.C. Code § 31-5402(c); D.C. Code § 31-5403(a)).
Affordable care act
While the Affordable Care Act (aka Obamacare) was without question the most extensive overhaul of the healthcare system this country has seen in a generation, www.healthcare.gov and the state exchanges are not testable. As such, we do not discuss the real “meat and potatoes” of Obamacare in this course.
The most important and far reaching consequence of Obamacare is the elimination of pre-existing conditions; everybody, regardless of current or past medical conditions, is eligible to purchase health insurance. For the purpose of the pre-licensing exam, however, you want to be familiar with group policies being issued outside of www.healthcare.gov and/or the state exchanges.
When you see Affordable Care Act (45 CFR 144, 146, 147, 148, 150, 154, 155, 156, 157, 164…) in the exam content outline, this refers to the United States Code of Federal Regulation, Title 45. The parts identified refer to how the Public Health Service Act (PSHA) encompassed Health Insurance Portability and Accountability Act (HIPAA) and Consolidated Omnibus Budget Reconciliation Act (COBRA) into Obamacare, which is covered in the Group Health Insurance chapter.