Hawaii State Regulations & NAIC Insurance Law

Licensing

Any individual applying for a Hawaii resident producer’s license must:

• Be at least 18 years old (Haw. Rev. Stat. § 431:9A-106(a)(1))
• Be a resident of Hawaii, or have Hawaii as the principal place of business (Haw. Rev. Stat. § 431:9A-102)

Pre-licensing course and exam

Hawaii requires an applicant for a producer license to have passed, within the two years before the license is issued, the examination for each line of authority applied for (Haw. Rev. Stat. § 431:9A-106(a)). The examination tests the applicant’s knowledge of the lines of authority applied for, of a producer’s duties and responsibilities, and of Hawaii’s insurance laws and rules (Haw. Rev. Stat. § 431:9A-105(a)).

In Hawaii, an applicant must score 70 or higher to pass the licensing examination (Haw. Admin. R. § 16-171-311), and examination scores are valid for two years from the date of the examination (Haw. Rev. Stat. § 431:9A-105(d)). An applicant who fails the examination, or fails to appear for it, must reapply and pay all required fees again before being rescheduled (Haw. Rev. Stat. § 431:9A-105(c)).

Fingerprints/background check

Hawaii requires an applicant for a producer license to submit a full set of fingerprints so the Commissioner can obtain national and state criminal history record checks from the Federal Bureau of Investigation and the Hawaii criminal justice data center (Haw. Rev. Stat. § 431:9A-106(a)(5)).

Controlled business

Controlled business is insurance written on the producer’s own life, property or interests, or on those of people and businesses closely tied to the producer. A producer may insure themselves and their family, but a license exists to sell insurance to the public, so states limit how much of a producer’s business may be controlled business. Hawaii’s limit is a comparison of premiums:

Hawaii will neither grant nor extend a producer’s license if premiums on controlled business (insurance on the licensee’s own life, person, property or risks or those of the licensee’s immediate family, or of the licensee’s employer or partnership) exceeded the premiums on all the licensee’s other insurance business in either of the two calendar years before an extension, or would exceed them in the 12 months after the license is issued or extended (Haw. Rev. Stat. § 431:9A-112.5).

Non-resident license

A producer licensed in another state can obtain a Hawaii nonresident license without taking Hawaii’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)

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.

Hawaii follows the model: a nonresident receives a Hawaii nonresident producer license if the person is currently licensed and in good standing as a resident producer in the home state, has requested the license and paid the fees, has submitted the home-state application or a completed uniform application, and lives in a home state that awards nonresident producer licenses to Hawaii residents on the same basis (Haw. Rev. Stat. § 431:9A-108(a)). The Commissioner waives every other requirement for a nonresident applicant with a valid home-state license, except those of that section, so long as the home state awards nonresident licenses to Hawaii residents on the same basis (Haw. Rev. Stat. § 431:9A-116(a)). A producer licensed in another state who moves to Hawaii applies for a resident license within ninety days of establishing legal residence, and needs no prelicensing education or examination for lines held in the prior state unless the Commissioner decides otherwise by rule (Haw. Rev. Stat. § 431:9A-109(b)).

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.

Hawaii may issue a temporary producer license for no more than 180 days, without an examination, when the Commissioner deems it necessary to service an insurance business: to the surviving spouse or court-appointed personal representative of a producer who dies or becomes mentally or physically disabled, to a member or employee of a business entity producer on the death or disability of the individual designated in its application or license, to the designee of a producer entering active service in the armed forces, or in any other circumstance where the public interest will best be served (Haw. Rev. Stat. § 431:9A-111(a)). The Commissioner may limit the temporary licensee’s authority, may require a suitable sponsor, a licensed producer or insurer who assumes responsibility for all of the temporary licensee’s acts, and may impose other similar requirements designed to protect insureds and the public; the license may not continue after the business is disposed of (Haw. Rev. Stat. § 431:9A-111(b)).

Military service

A Hawaii producer who cannot comply with license renewal procedures because of military service or another extenuating circumstance, as the Commissioner determines, may request a waiver of those procedures, and of any examination requirement or other fine or sanction imposed for not complying with them (Haw. Rev. Stat. § 431:9A-107(d)). The Commissioner may also extend the time to meet the continuing education requirement for a licensee on extended active military duty, by the number of days the licensee was on active duty (Haw. Rev. Stat. § 431:9A-124(g)).

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.

A Hawaii producer license is issued for a term of not less than one year and not more than three years (Haw. Admin. R. § 16-171-301), and an individual’s license is renewed on the last day of the licensee’s birth month (Haw. Admin. R. § 16-171-302(a)). It remains in effect so long as the fees are paid and the continuing education requirements for resident producers are met on time (Haw. Rev. Stat. § 431:9A-107(b)).

A producer who misses the deadline and lets the license lapse may be able to reinstate it without retaking the examination.

In Hawaii, a producer whose license became inactive for nonpayment of the renewal fee may reinstate it without a written examination by paying, within twelve months of the inactivation date, the fee and a penalty of double the unpaid renewal fees, if the producer complies with all the requirements of the insurance code (Haw. Rev. Stat. § 431:9A-107(c)). A license placed on inactive status for incomplete continuing education is reactivated with proof of the completed credit hours and payment of the fees and penalties, and needs no new examination if reactivated within twelve months of inactivation (Haw. Rev. Stat. § 431:9A-124(d), (h)). After more than one year from inactivation, the person applies as a new applicant (Haw. Admin. R. § 16-171-322).

Continuing education

All states, including Hawaii, have continuing education requirements that must be met to renew any major lines (life, health, property, liability) insurance license. Individuals licensed in the state of Hawaii must complete continuing education prior to renewing their license. The number of hours required is set by state law and published by the state insurance department. In Hawaii, a producer licensed in one group of lines (life and health, or property and casualty) completes 24 credit hours for each renewal: 21 on the line of authority and 3 on ethics or on the insurance laws and rules. A producer licensed in both groups also completes 24: 10 on life and health, 11 on property and casualty and 3 on ethics or laws and rules. Hours earned beyond the requirement in a two-year renewal cycle may not be carried over (Haw. Rev. Stat. § 431:9A-124(b)-(c)).

Notice of change of name or address

A Hawaii licensee informs the Commissioner of any change of status, which includes a change of legal name or of business, home or mailing address, within thirty days of the change, and failing to do so on time may bring a penalty (Haw. Rev. Stat. § 431:9A-107(f)). A producer also notifies the Commissioner of any change of business address within thirty days of the change (Haw. Rev. Stat. § 431:9A-122(c)).

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. In Hawaii, a producer reports any civil or administrative action taken against the producer in any jurisdiction within thirty days of the final disposition of the matter, and any criminal prosecution within thirty days of arraignment, with a copy of the initial complaint or indictment (Haw. Rev. Stat. § 431:9A-117). 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 Insurance Division to conduct business in Hawaii. 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 (Haw. Rev. Stat. § 431:3-212). A foreign or alien insurer must also have transacted the business of insurance continuously, actively and successfully for at least five years before it qualifies (Haw. Rev. Stat. § 431:3-203(b)). A Hawaii certificate of authority has no expiration date, but the Commissioner extends it from time to time, to an extension date one to three years after issue or extension, for it to stay valid (Haw. Rev. Stat. § 431:3-214(a)).

Capital and surplus requirement

A company that has been authorized to conduct insurance business in Hawaii 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 Hawaii, the Commissioner must suspend, revoke or refuse to extend the certificate of a domestic insurer that fails to make good a deficiency of assets as the Commissioner requires, or of a foreign or alien insurer that no longer meets the requirements, and after a hearing may levy a fine of $500 to $50,000 in addition to or instead of that action (Haw. Rev. Stat. §§ 431:3-216, 431:3-221).

Medigap policies

To reduce confusion about the many types of Medicare supplement policies available, federal law mandates national standardization of Medigap policies. The law requires insurers to 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 state, it must offer Plan A.

In Hawaii, no Medicare supplement policy or certificate may be delivered unless an outline of coverage is delivered to the applicant at or before the time application is made (Haw. Rev. Stat. § 431:10A-307(a)).

Duties of the Insurance Commissioner

The Hawaii Director of Commerce and Consumer Affairs is a state executive position in the Hawaii state government. The director heads the Hawaii Department of Commerce and Consumer Affairs, which sets standards for and enforces the laws and rules governing the licensing and operation of trades, businesses and professions, including banks and insurance companies (Haw. Rev. Stat. § 26-9(a)-(b)).

The Department of Commerce and Consumer Affairs contains the Insurance Division. As a result, the Director supervises and appoints the Hawaii Insurance Commissioner and has ultimate responsibility for regulation of the state’s insurance industry. The Director appoints the Commissioner with the approval of the Governor, and the Commissioner holds office at the Director’s pleasure and has supervision and control of the Insurance Division (Haw. Rev. Stat. § 431:2-102(a)).

The Commissioner is responsible for establishing and enforcing regulations in the Hawaii insurance market in a manner that protects consumers and encourages economic development.

Those duties include:

• Investigate all claims and complaints of legal violations relating to insurance.

• If the Commissioner finds that laws have been violated, the findings and supporting documents may be referred for criminal prosecution. In Hawaii, when the Commissioner has cause to believe a person has violated a penal provision of the insurance laws, the Commissioner proceeds against that person or certifies the facts of the violation to the public prosecutor (Haw. Rev. Stat. § 431:2-203(b)(2)).

• Monitor transactions of all companies including domestic, foreign, and alien insurance companies.

• 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. Hawaii’s Commissioner must examine each domestic insurer at least once every five years, and may examine any company as often as the Commissioner deems appropriate (Haw. Rev. Stat. § 431:2-302(a)).

• 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.

• Collect all fees associated with producers and insurers.

• Determine and administer fines associated with violations for insurers and producers.

• Issue reports pertaining to the suspension and revocation of licenses of producers and certificates of authority for insurers.

• Approve documentation used by insurance companies such as forms and rates.

Beyond its direct regulation of the insurance industry, the Insurance Division provides educational resources for consumers, such as insurance cost comparisons among different companies, brochures, and alerts regarding potential fraudulent activity. Hawaii’s workers’ compensation law is administered by the Director of Labor and Industrial Relations (Haw. Rev. Stat. § 386-71); the Insurance Division has a unit that assists the Commissioner in workers’ compensation insurance rate filings and rate making (Haw. Rev. Stat. § 431:2-107).

Sidenote

Know this...

The Commissioner does not personally make arrests or sentence anyone to jail. When the Commissioner has cause to believe a person has violated a penal provision of the insurance laws, the Commissioner proceeds against that person or certifies the facts of the violation to the public prosecutor, and a violation of the insurance code is punishable by a fine, imprisonment for up to one year, or both (Haw. Rev. Stat. § 431:2-203(b)(2)-(3)).

In Hawaii, investigators appointed and commissioned in the insurance division’s fraud investigations branch have all the powers and authority of a police officer or deputy sheriff (Haw. Rev. Stat. § 431:2-402(f)). The Commissioner may also bring an action in court to enjoin a person from continuing a violation of the insurance code (Haw. Rev. Stat. § 431:2-203(d)).

Suspend, revoke or non-renew

The Commissioner has the authority to suspend, revoke, or refuse to renew a license for:

• Providing false information on the application for an insurance license.

• Omitting any relevant information on an application that would have disqualified the individual from being eligible to receive a license. Hawaii’s ground is broader: incorrect, misleading, incomplete or materially untrue information in the license application (Haw. Rev. Stat. § 431:9A-112(a)(1)).

• Being found guilty of a violation or the noncompliance of insurance regulations and laws…

• Committing fraud while attempting to obtain an insurance license.

• Improperly withholding, misappropriating or converting any money or property received in the course of doing insurance business. In Hawaii, a licensed producer has the responsibilities of a trustee for premium and return premium funds, and must either remit them to the insurers or persons entitled to them or keep them in a federally insured account with a bank or similar institution in Hawaii, separate from the producer’s own funds; only funds reasonably necessary to pay the account’s charges may be commingled with the premium funds (Haw. Rev. Stat. § 431:9A-123.5(a)-(b)).

• Providing false information in reference to the terms and conditions of an insurance contract.

• Having been convicted of a felony. In Hawaii, a conviction may justify refusing, suspending or revoking a license when it occurred within the past ten years, not counting any period of incarceration, and the crime bears a rational relationship to the duties and responsibilities of the licensed business; an older conviction may be considered only when the offense directly relates to the person’s possible performance in that business and the person has not been sufficiently rehabilitated to warrant the public trust. An expunged conviction is not among those that may be considered (Haw. Rev. Stat. § 831-3.1(b)-(c)).

• Having admitted or been found to have committed any insurance unfair trade practice or fraud.

• Having engaged in activities of a fraudulent nature which allowed the person to involve themselves in dishonest, coercive, untrustworthy, and financially irresponsible practices.

• Having had a prior insurance license revoked or suspended in a state other than Hawaii. Hawaii’s ground also covers a license denied or placed on probation in another state, province, district or territory (§ 431:9A-112(a)(9)).

• Using another person’s identity and forging their name on an insurance application.

• 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. In Hawaii, the Commissioner may also issue a cease and desist order when the Commissioner has cause to believe a person is violating or is about to violate the insurance code (Haw. Rev. Stat. § 431:2-203(d)). A cease and desist order does not suspend or revoke the recipient’s registration, but it does require the recipient 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 Hawaii law, and may ask a court to review the final order.

When the Commissioner acts against a Hawaii producer’s license, the Commissioner notifies the person in writing of the reason, and the person may make a written demand for a hearing within ten days of receiving the notice; the hearing is held within thirty days of the demand (Haw. Rev. Stat. § 431:9A-112(b)). In a proceeding under Hawaii’s unfair practices law the hearing comes first: the Commissioner serves a statement of the charges and notice of a hearing at least fifteen days after service (Haw. Rev. Stat. § 431:13-106(a)), and the order under that law issues only if, after the hearing, a violation is found (Haw. Rev. Stat. § 431:13-201(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.

Under Hawaii’s unfair practices law, the Commissioner may order a fine of up to $1,000 for each act or violation, up to $10,000 in all, or, if the person knew or reasonably should have known it was a violation, up to $5,000 for each act or violation, up to $50,000 in any six-month period, and may suspend or revoke the license of a person who knew or reasonably should have known (Haw. Rev. Stat. § 431:13-201(a)). Violating a cease and desist order can bring a fine of up to $10,000 for each act (Haw. Rev. Stat. § 431:13-202(a)), and a violation of any provision of the insurance code is punishable by a fine of $100 to $10,000 per violation, imprisonment for up to one year, or both (Haw. Rev. Stat. § 431:2-203(b)(3)).

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. Hawaii’s law reaches a listed claims practice committed or performed with such frequency as to indicate a general business practice, and three or more written complaints charging separate violations within any twelve-month period create a rebuttable presumption of one (Haw. Rev. Stat. § 431:13-103(a)(11), (c)).

• 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.

• 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.

• Refusing to pay claims without conducting a reasonable investigation.

• Attempting to settle claims on the basis of an application that was altered without notice, knowledge, or consent of the insured (Haw. Rev. Stat. § 431:13-103(a)(11)(K)).

• Denying a claim without conducting a thorough investigation.

• 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 Hawaii, the insurer files with the Commissioner a certificate signed by an officer stating that a contract meets the minimum readability score, and the Commissioner may require a copy of the contract to check it (Haw. Rev. Stat. § 431:10-107). The Insurance Division’s filing requirements make life and individual disability policy forms subject to compliance, filed with a forms certification (Hawaii Insurance Division, Form RF10). Some forms must be approved: a Medicare supplement policy may not be delivered unless its form is approved (Haw. Rev. Stat. § 431:10A-309(a)), and credit life and credit disability forms are approved 45 days after filing unless the Commissioner acts sooner or extends the period by 30 days (Haw. Rev. Stat. § 431:10B-108(a)). A property and casualty policy revision that alters coverage is filed with an analysis of its effect on rates or loss costs (Haw. Rev. Stat. § 431:14-105(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. In Hawaii, a policy, rider or endorsement is not made invalid by a condition or provision that does not comply with the code’s general rules for insurance contracts, but is construed and applied as it would have been had it fully complied with the insurance code (Haw. Rev. Stat. § 431:10-238).

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.

Hawaii requires each producer’s record of every transaction to show the contract procured or issued, the names of the insurers and insureds, the premium and a statement of the subject of the insurance, and to be kept in the licensee’s office, open to the Commissioner’s inspection, for five years after the transaction is completed (Haw. Rev. Stat. § 431:9A-123(a)(1), (b)). The rule does not apply to life or accident and health insurance whose records are customarily kept in the insurer’s offices (Haw. Rev. Stat. § 431:9A-123(c)). Nor does it apply to motor vehicle or homeowners insurance whose records are kept electronically, accessible by the producer and available within one business day (Haw. Rev. Stat. § 431:9A-123(d)). Every licensed producer must have and maintain a place of business accessible to the public, in Hawaii or, for a nonresident, in the home state, where the licensee principally conducts transactions under the license (Haw. Rev. Stat. § 431:9A-122(a)-(b)).

Fraudulent producer representation

In Hawaii, a license is the document the Commissioner issues (Haw. Rev. Stat. § 431:9A-102), not a passed examination, and a person who represents to the public that they are licensed when no license has been issued makes an untrue statement about their insurance business, which Hawaii’s unfair practices law prohibits (Haw. Rev. Stat. § 431:13-103(a)(2)).

Such a statement can be made in any means of public communication, including advertisements, letterheads, circulars, business cards, and other methods of representation.

Selling, soliciting or negotiating a line of insurance requires a license for that line of authority (Haw. Rev. Stat. § 431:9A-103(a)), and violating the insurance laws is a ground on which the Commissioner may deny, place on probation, suspend, revoke or refuse to renew the producer’s license, levy a civil penalty, or any combination of these (Haw. Rev. Stat. § 431:9A-112(a)(2)).

Misrepresentation

• 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.

• Providing inaccurate or incomplete information or comparisons regarding the benefits of a policy is an example of misrepresentation.

• 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 (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 state law, based on 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.

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.

Boycott, coercion and intimidation

In Hawaii, entering into any agreement to commit, or by any action committing, any act of boycott, coercion or intimidation resulting in or tending to result in unreasonable restraint of, or monopoly in, the business of insurance is prohibited (Haw. Rev. Stat. § 431:13-103(a)(4)(A)).

False financial statements

Knowingly making or circulating a false statement of a material fact about an insurer’s financial condition is an unfair practice in Hawaii (Haw. Rev. Stat. § 431:13-103(a)(5)), and so is making false or fraudulent statements on or relative to an application for insurance to obtain a fee, commission, money or other benefit (§ 431:13-103(a)(13)). Hawaii’s list also reaches, with no knowledge requirement, any statement or sales presentation that is misleading or a misrepresentation as to the financial condition of any insurer (Haw. Rev. Stat. § 431:13-103(a)(1)(D)).

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.

Hawaii’s unfair practices law lists rebating: except as otherwise expressly provided by law, offering or giving, directly or indirectly, as an inducement to the insurance, any rebate of premiums payable on the contract, any special favor or advantage in its dividends or other benefits, or any valuable consideration or inducement not specified in the contract (Haw. Rev. Stat. § 431:13-103(a)(8)(A)). The law expressly does not treat certain practices as rebates, among them bonuses or premium abatements paid to life policyholders out of surplus from nonparticipating insurance when fair and equitable, readjusting a group policy’s premium rate on its loss or expense experience, and a reward under a health plan’s wellness program that meets the statute’s conditions (Haw. Rev. Stat. § 431:13-103(a)(9)).

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. In Hawaii, a gift given as an inducement to the insurance and not specified in the contract falls under the rebating prohibition above, except as otherwise expressly provided by law (Haw. Rev. Stat. § 431:13-103(a)(8)(A)).

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. Among the practices Hawaii’s own statute lists as unfair discrimination is refusing to insure, refusing to continue to insure, or limiting coverage because of an individual’s sex or marital status (Haw. Rev. Stat. § 431:13-103(a)(7)(E)). Hawaii’s exception for geographic location is not the model’s actuarial test: refusing, canceling or limiting coverage on a property or casualty risk because of its geographic location is unfair discrimination between risks of the same class and essentially the same hazards unless it is for a business purpose that is not a mere pretext for unfair discrimination, or is required by law or regulatory mandate (Haw. Rev. Stat. § 431:13-103(a)(7)(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 covers only honest mistakes that result in (financial) damage. There is no coverage for intentional misconduct, criminal acts, or regulatory fines.

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.

In Hawaii, a policy providing family coverage on an expense-incurred basis must pay the benefits applicable for children for a newborn from the moment of birth, with the coverage for newly born children limited to the necessary care and treatment of medically diagnosed congenital defects and birth abnormalities; where a specific premium is required for the child, the policy may require notice of the birth and payment of the premium within thirty-one days after the birth for coverage to continue beyond that period (Haw. Rev. Stat. § 431:10A-115(a)). A policy that covers the insured’s children also covers a newborn the insured is adopting from the date of birth, if the insured gives the insurer written notice of the intent to adopt before the birth, within thirty days after it, or within the period for enrolling a natural-born child, whichever is longer (Haw. Rev. Stat. § 431:10A-116(5)(A)). Reaching the policy’s limiting age does not end the coverage of a dependent child who is incapable of self-sustaining employment because of an intellectual disability or physical handicap and chiefly dependent on the policyholder, if proof is given within thirty-one days of the child reaching that age (Haw. Rev. Stat. § 431:10-212).

Rebating

Hawaii licensed producers are prohibited from directly or indirectly giving any refund, discount, favor, or credit to reduce premiums to induce the purchase of insurance.

Sidenote

Know this...

To “solicit” or “negotiate” insurance implies that the person is licensed.

Sharing commission

The splitting or sharing of commissions with a licensed producer is allowed. In Hawaii, no commission may be paid to, or accepted by, a person for selling, soliciting or negotiating insurance in the state if the person is required to be licensed and is not (Haw. Rev. Stat. § 431:9A-113(a)-(b)). 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. Hawaii’s statute allows the same, unless the payment would violate its unfair practices law (Haw. Rev. Stat. § 431:9A-113(d)).

Twisting

Providing false information or expressing derogatory ideas about the financial conditions of a competitor company with the intent to lapse or surrender an existing policy is a violation of the law. Any written or oral statements used to induce the lapse, termination, exchange, or surrender of an insurance contract based on inaccurate information is 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

Hawaii’s unfair practices law prohibits any advertisement, announcement or statement about the business of insurance, or about any person in the conduct of that person’s insurance business, that is untrue, deceptive or misleading (Haw. Rev. Stat. § 431:13-103(a)(2)).

Advertising may not involve the following:

• 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.

• 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