ARIZONA State Regulations & NAIC Insurance Law
Arizona State Regulations and NAIC Insurance Law
Licensing
Any individual applying for an Arizona resident producer’s license must be at least 18 years old and be a resident of Arizona before submitting an application.
Required Pre-licensing Exam
In Arizona, prospective insurance producers must pass a pre-licensing exam. No more than four attempts can be made within a twelve-month period. If an individual fails an examination for a specific line of authority four times, the individual may not take an examination for that line of authority for one year.
Fingerprints/Background Check
As part of the application process, you must submit fingerprints to the Arizona Department of Insurance. Prometric, Arizona’s insurance examination provider, and some other vendors use electronic systems to optically image fingerprints, which tend to produce more accurate results.
Submit the unopened envelope (sealed and signed by the fingerprinting technician) containing the completed fingerprint card, Form L-FPV (Fingerprint Verification Form), and your license application.
Controlled Business
Controlled business is written solely in the interest of the producer or their family members. Producers are prohibited from securing an Arizona insurance license to provide this form of business. Of course, as a producer, you can sell a policy to yourself or your family members, but you cannot obtain a license for this sole purpose.
Non-Resident License
A licensed producer will need to meet the following requirements to obtain a nonresident license:
- The individual must have an Arizona resident producer license in good standing.
- The individual must complete the appropriate application and submit the required fees to the insurance department/commission in each state where they wish to become licensed.
- The individual’s home state must offer equal reciprocity for the state you are attempting to obtain a non-resident license in. Currently, Arizona has reciprocation agreements with all other states.
Temporary License
The Arizona Department of Insurance may issue a temporary producer’s license without the requirement of an examination to the surviving spouse or legal representative of a deceased or disabled producer or a producer who is called to active military duty.
In Arizona, a temporary license may be issued for a maximum of 180 days.
Only one temporary license will be issued (to the same person) in any consecutive six-month period. A temporary license will not be issued to someone who does not intend to apply for a license to sell insurance to the general public or manage an existing book of business.
Inactive Status
An Arizona resident producer ordered to active military duty may place his/her license on inactive status until he/she is discharged. While a license is inactive, the producer may continue to receive residual or “trailing” commissions but may not solicit or transact any new business.
Renewal Maintenance
Arizona Insurance licenses are initially issued for 2 years. Producers must renew their license every 2 years, by the last day of the licensee’s birth month. There is a 12-month grace period for those failing to renew before expiration; renewing during this grace period will result in a $100 late fee. After the 12-month grace period, the license will expire, and the producer will be forced to pass the pre-licensing examination again if they want their license back.
Continuing Education
All states, including Arizona, have continuing education requirements that must be met to renew any major lines (life, health, property, liability) insurance license. The number of hours required is not testable because it will vary depending on the specific situation. Criteria determining the CE requirement include lines of authority the producer holds and if the producer holds a non-resident insurance license, to name a few.
Notice of Change of Name or Address
Any change of name or address (residential or business) must be reported by the licensee to the Arizona Division of Insurance within 30 days of relocation. Failure to do so may result in monetary fines and/or the suspension of a license.
Company Regulations
An insurance company must be authorized by the Division of Insurance to conduct business in Arizona. To receive authorization, the insurance company must present its rate tables and articles of incorporation, including the nature and purpose of the company’s business intentions, along with the appropriate bylaws for their corporation and appropriate fees.
Place of Business
Every resident insurance producer authorized to conduct business in Arizona must maintain a place of business (with public access) within the state.
Capital and Surplus Requirement
A company that has been authorized to conduct insurance business in Arizona must maintain minimum standards as a corporation. The certificate of authority will allow the insurer to conduct business in the state only if it maintains the minimum capital or permanent surplus required.
LTC Policies
No insurer may offer an LTC policy in Arizona unless it offers the option to buy inflation protection at the time of application. The policy must plainly state that premiums may increase.
While LTC policies are generally designed to pay for life, state law requires them to be issued with a benefit period of at least 24 months.
Medigap Policies
Federal law mandates national standardization of Medicare supplement policies to eliminate confusion surrounding the many different types of Medicare supplement policies available. The law requires that insurers offer no more than 12 “standardized” Medigap plans developed by the National Association of Insurance Commissioners (NAIC).
The 12 standard plans include a basic policy offering “core” benefits called Plan A (Parts A and B co-payments, 365 additional days of hospitalization, and the first 3 pints of blood). Each of the other 11 plans has a different combination of additional benefits, which are identified by letters B through L.
If an insurer sells ANY Medigap policies in Arizona, they MUST offer Plan A. A Buyer’s Guide and an Outline of Coverage must be delivered at the time of application before any premium payment is accepted.
Duties of the Director of Insurance
The Arizona Director of Insurance and Financial Institutions is a state executive position in the Arizona state government. The director is responsible for establishing and enforcing regulations in the Arizona insurance market to protect consumers and encourage economic development.
There are no term limits for the director. If a vacancy occurs, the governor nominates a new appointee to the state Senate. If the departing incumbent can continue to hold office until the new appointee qualifies, he or she does so. Otherwise, the nominee assumes office pending confirmation. If the Senate subsequently rejects the nominee, the governor makes a new appointment.
The Arizona DOI is responsible for enforcing and administering all laws pertaining to insurance in the state, including:
- Investigate all claims and complaints of legal violations relating to insurance.
- If the Director finds that laws have been violated, their findings and supporting documents will be forwarded to the state attorney general to pursue prosecution.
- Monitor transactions of all companies, including domestic, foreign, and alien insurance companies.
- Audit the books and records of all Domestic insurers at least every 3 years.
- Audit the books and records of any resident producer as frequently as necessary.
- 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.
Suspend, Revoke or Non-renew
The DOI 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.
- Being found guilty of a violation or the noncompliance of insurance regulations and laws…
- Committing fraud while attempting to obtain an insurance license.
- Commingling policy owners’, insurers’, and beneficiaries’ money with the producer’s own money.
- Providing false information in reference to the terms and conditions of an insurance contract.
- Having been found guilty of a felony (or misdemeanor involving activities related to the individual’s moral character.)
- Having been convicted of violations in reference to unfair trade practices 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 Arizona.
- 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 DOI believes that a producer has (or is about to) violated any insurance regulation in Arizona, they may issue a cease and desist order. 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 addresses in the order.
Hearing
While the recipient of a cease and desist order must comply immediately, actions taken by the DOI are not “final and binding”. Any Arizona resident producer subjected to disciplinary action has the right to request a hearing to discuss the merits of the situation.
Likewise, the DOI has the authority to conduct an investigation into any producer doing business in Arizona to determine if a hearing is required. Upon finding sufficient evidence, the DOI will issue a notice with the date and time of the hearing, which will be sent to interested parties at least 30 days before the hearing.
If a hearing results in the finding of a known violation of Arizona insurance law, the director may, in addition to the issuance of a cease and desist order, impose a civil penalty of up to $500 for each violation but not to exceed $10,000 in the aggregate for multiple violations.
Unfair Claims Settlement Practices
- The intentional obstruction and delay of claims payment or the delay of a claims investigation is a violation of regulation.
- Neglecting to provide a prompt response and written explanation of insurance policy terms, conditions, and laws related to the contract are examples of unfair claims settlement practices.
- Failure to provide claims without launching a thorough investigation is a violation of regulation.
- Making settlement claims based on information contained in an application that has been altered without the insured’s consent is a violation of regulation.
- Denying a claim without conducting a thorough investigation.
- Attempting to settle a claim for less than fair market value.
Policy Forms
Arizona is a “file and use” state. Forms must be filed with the DOI before use. After submission, the forms must be approved or denied within 30 days. The forms may be considered approved once this time frame has expired, provided no other communication has been received.
If the wording on a health insurance policy (or other form) conflicts with Arizona state law, the policy will be amended to minimum conformity with state statutes.
Record Maintenance
Complete and accurate records must be kept at the producer’s place of business for a minimum of 3 years. The records must show every contract placed, the named insured, changes or amendments, and premiums received with each transaction. Records may be inspected at any given point in time by the DOI or any representative appointed on their behalf.
Fraudulent Producer Representation
An insurance producer who represents to the public that he/she is licensed to conduct insurance business in Arizona but has not passed the appropriate licensing examination is in violation of regulation. Any means of public communication using 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 Arizona in any line of insurance for which they are not properly licensed may have any other insurance license suspended or revoked.
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.
- Providing inaccurate or incomplete information or comparisons regarding the benefits of a policy is an example of misrepresentation.
- Providing inaccurate or incomplete information with the sole purpose of inducing lapse, exchange, conversion, forfeiture, or surrender is also a violation (twisting).
False Advertising
Communication involving the publication of newspapers, magazines, radio, or television that is intended to deliver false information in reference to insurance is a violation of NAIC regulation.
Defamation
- The intentional and malicious circulation of written or oral information intended for the direct or indirect dissemination of derogatory statements is prohibited.
- Publishing and circulating inaccurate information regarding the financial condition of an insurer, person, or competitor in the insurance industry is a violation of NAIC regulation.
Boycott, Coercion and Intimidation
Participation in any boycott or activity involving coercion and intimidation for the sole purpose of retaining business or resulting in the monopoly of the insurance business 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 NAIC regulation.
Illegal Inducements
In Arizona, it is prohibited to induce the purchase of insurance by offering anything with a monetary value in excess of $10. It is also prohibited to accept anything with a monetary value in excess of $10 from a client. Any producer participating in this activity will be subject to suspension of his/her license and a monetary fine.
Unfair Discrimination
Discriminating on the basis of class, race, marital status, or sexual preference is a violation of regulation. Any unfair discriminatory practices intended to directly or indirectly favor an applicant or insured are prohibited. Denying insurance coverage based on an individual’s blindness or partial blindness is considered discrimination and is a violation of NAIC regulation.
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 violation of insurance regulation.
AHCCCS
At the end of the day, it is all Medicaid, but states have their own language for their medical welfare programs. In Arizona, Medicaid is called AHCCCS (pronounced ak-ses), an acronym for the Arizona Health Care Cost Containment System. For the purpose of the exam, AHCCCS and MEDICAID are interchangeable terms. It is a state-administered healthcare program for those in financial need. It is funded by federal and state money.
Small Group
In Arizona, a “small group” is defined as 2-50 people and may be exempt from certain restrictive federal laws governing group insurance. The 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
Newborn children must be covered as dependents by their parents’ policy from the moment of birth. Adopted children (even unborn) are covered by the adoptive parents’ policy from the moment the adoption becomes legal. The newborn or newly adopted child may be enrolled within 30 days without any pre-existing condition limitations.
A dependent child must be under age 19 (24 if they are a full-time student) at the end of the calendar year. However, a mentally or physically handicapped child (any age) can be covered as a dependent on his/her parent’s policy until he/she becomes self-supporting.
Rebating
Arizona licensed producers are prohibited from directly or indirectly giving any refund, discount, favor, or credit to reduce premiums to induce insurance purchases.
Furthermore, producers in Arizona are also prohibited from receiving any payment for the sale, solicitation, or negotiation of insurance outside of commissions and/or salary.
Sharing Commission
Splitting or sharing 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.
Twisting
Providing false information or expressing derogatory ideas about a competitor company’s financial conditions 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 are prohibited.
Unfair Marketing Practices
The DOI is responsible for establishing minimum standards for the full and fair disclosure of policy content. They also require the standardization and simplification of the terms used to describe insurance coverage. Advertising may not involve the following:
- Any implication that policies are approved or that a company’s financial condition is endorsed by any government agency or by any independent group, individual, organization, or society.
- Any advertising statements 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 Glass-Steagall Act of 1933, allowing 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 various new business activities, including insurance, while attempting to address the regulatory issues raised by such combinations.
McCarran-Ferguson Act
A federal law signed in 1945 by Congress declared that the insurance industry would be regulated at the state level. This law grants insurers a limited exemption from federal antitrust legislation.
National Association of Insurance Commissioners (NAIC)
The U.S. standard setting and regulatory support organization was 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 reviews, 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 NAIC’s central resources, form the national system of state-based insurance regulation in the U.S.
Fair Credit Reporting Act of 1971
If an applicant is denied insurance, employment, or credit due to information collected, this regulation grants access to the information and reasons for the denial. After receiving notice that an adverse underwriting decision has been made (which must be communicated within 3 days), an individual has 90 business days within which to request a copy of the report.
Privacy Act of 1974
This regulation was established to provide a system for collecting, using, and disseminating information gathered during the underwriting process. When an insurance applicant signs the application (notice regarding insurance information practices), they give the insurer the right to check driving records, MIB, and consumer investigative reports. A signed application authorizes the insurer to collect information for 30 months. If they have not done so by then, a new authorization must be obtained.
Telemarketing
The DO NOT CALL registry is a list of telephone numbers, and the DO NOT CALL registry is intended to prevent calls from telemarketers. Unsolicited sales calls must be made under the following provisions:
- No call may be placed outside the hours of 8 am to 9 pm local time where the call is received.
- The sales nature of the call must be disclosed, and the nature of the product/service being offered must be disclosed.
- The caller must identify themselves and the broker/dealer they represent.
- If a prize is being offered, the prize cannot be contingent on purchase.
CAN-Spam
When an unsolicited e-mail is sent, the sender must:
- Use the word advertisement or the letters ADV on the subject line.
- Notate the physical location from where the email originated.
- Give the recipient the opportunity to opt out of ever receiving another email from the sender.
Insurance Guaranty Association
The Arizona Insurance Guaranty Association comprises authorized insurers and is controlled by a board. Joining the association is part of the authorization process that admits insurance companies to conduct business in Arizona. This is not unique to Arizona; insurers must be authorized in every state in which they transact business.
Once authorized, any insurer doing business in Arizona must contribute to the Arizona Insurance Guarantee Fund, which is intended to indemnify policy owners of insurance companies that have become insolvent (up to $100,000 cash and $300,000 total benefits).
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, 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 HealthCare.gov and/or the state exchanges.
The Affordable Care Act (45 CFR 144, 146, 147, 148, 150, 154, 155, 156, 157, 164…) in the exam content outline refers to the United States Code of Federal Regulation, Title 45. The parts identified refer to how the Public Health Service Act (PSHA) encompassed the 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.
Lesson Summary
State regulations and NAIC insurance law licensing guidelines outline various requirements and regulations for obtaining and maintaining insurance licenses, including the following:
- Applicants must be 18 years old and state residents to apply.
- Controlled business, written for the producer’s interest or family, is prohibited.
- Non-resident licenses require reciprocity, application, and fees.
- Temporary licenses may be issued for specific situations for up to 180 days.
- Inactive status is possible during military service, with restrictions on transactions.
- Licenses must be renewed every 2 years.
- Address changes must be reported within 30 days.
Insurance companies must meet these criteria to operate in the state:
- Authorized companies must present corporate documents and maintain capital standards.
- Producers must have a public office in the state.
The commissioner of insurance enforces laws and regulations and also does the following:
- Conducts investigations on violations and monitors companies and producers.
- Has authority to suspend, revoke, or refuse licenses for various reasons.
- May issue cease and desist orders if regulations are violated.
- Handles unfair marketing practices and sets standards for policy disclosure.
Producers have responsibilities regarding record-keeping and ethical behavior, including the following:
- They must keep accurate records for at least 3 years.
- Violations like misrepresentation, false advertising, and coercion can lead to license suspension.
- Commission sharing is allowed between licensed parties in the same line of business.
- Regulations on privacy, credit reporting, telemarketing, and spam emails are also outlined.
The Life and Disability Insurance Guaranty Association provides protection for policy owners in case of insurer insolvency.