Counselors, Business Entities and Other Producer Rules

Michigan’s Insurance Code regulates more than sales conduct. It sets a separate license for people who audit or advise on policies, extra duties for agencies, rules for insurers that hand broad authority to an agent, a materiality test that decides whether a false application answer defeats a claim, and false-statement offenses that differ by what was falsified and to whom. Chapter 12 uses “agent” to mean an insurance producer (MCL 500.1201(a)), and older sections say “commissioner” where the Director of the Department of Insurance and Financial Services now acts.

Insurance Counselors

What requires the license

A person may not audit or abstract policies of insurance or annuities, or give advice, counsel or an opinion on their benefits, coverage, terms, value, effect, advantages or disadvantages, unless licensed as an insurance counselor. The same is true of advertising, soliciting business or holding oneself out as a counselor (MCL 500.1232). Unlicensed people may not use “consultant,” “consulting services” or other language in a way that implies the license.

The section has defined exceptions:

• the customary advice a licensed agent offers, and a lawyer admitted in Michigan;
• the designation “certified insurance counselor” when conferred by the Society of Certified Insurance Counselors, capitalized in each of its three words and never used generically, and “accredited advisor in insurance” from the Insurance Institute of America;
• “fraternal insurance counselor,” when conferred by the fraternal field managers association. A fraternal agent who also represents a non-fraternal insurer, and is not a licensed counselor, may not hold out as one in selling for that insurer.

The statute does not define “customary.” Explaining the deductible on a policy you are selling is customary advice. Charging a fee to examine a client’s policies from several insurers and rank them is counselor work.

Getting and keeping the license

The applicant applies on the Director’s forms and takes a written examination. The Director may investigate, may waive the examination for a person licensed as a counselor within the preceding 12 months, and must decide within 60 days of a complete application (MCL 500.1234(1), (2)). A complete application received March 3, 2027 therefore needs a decision by May 2, 2027.

The Director issues the license if the applicant has a reasonable understanding of the insurance to be counseled and of Michigan’s insurance laws, intends in good faith to act as a counselor, and has a good business reputation and good moral character (MCL 500.1234(3)). The statutory fees are $10 for the application, $10 for each examination the Director administers and $10 a year for the license (MCL 500.240(1)(d), (f), (h), (4)).

The written agreement

Before any service in section 1232, the counselor and client must sign an agreement that outlines the work and states the fee. It must say that the fee may not be waived under any circumstances. It must also disclose that the counselor will receive a commission from the insurer on any insurance the counselor places as an agent. The counselor keeps a copy for at least 2 years after the services end and makes it available to the Director (MCL 500.1236).

A working case. Marisol Vega is a licensed counselor and also a licensed agent. A client asks her to review three policies and recommend changes, for a flat fee of $300 (an example figure). She writes the agreement before opening any file, with the work and the fee. She includes a sentence that the fee cannot be waived, even if the client buys nothing, and a disclosure that she will earn a commission if the client buys a replacement policy through her agency. Both sign. If she finishes September 15, 2026, she keeps the agreement through at least September 15, 2028.

Compare Colin Mercer, who is not licensed. He calls his business “Mercer Coverage Consulting,” reviews policies for a fee and advises on which to keep. Each of those acts breaches section 1232, including a name that implies the license.

Business Entities

A corporation, partnership, limited liability company or other legal entity acting as a producer must hold its own license (MCL 500.1201(d), 500.1205(2)). The Director approves it only after finding the fees paid, no act listed in MCL 500.1239(1) committed, and an individual licensed producer designated as responsible for the entity’s compliance with Michigan’s insurance laws, rules and regulations (MCL 500.1205(2)).

After a hearing, the Director may suspend, revoke or refuse the entity’s license if an individual licensee’s violation was known, or should have been known, by one or more partners, officers or managers, and the violation was neither reported to the Director nor corrected (MCL 500.1239(5)).

A forged signature. Dev Anand, a producer at Cedar Row Insurance Group, LLC, signs a client’s name on a beneficiary change form that the client was slow to return. A manager notices the mismatched signature during a file review and says nothing. Forging another’s name to an application or a document related to an insurance transaction is a ground for action against Dev’s license (MCL 500.1239(1)(h)). For the entity, the manager’s knowledge is the problem: the violation was known, unreported and uncorrected. The agency should correct the form and report to the Director.

Insurers and Managing General Agents

An insurer that does business with a managing general agent takes on duties under MCL 500.1411. Such an agent may underwrite, process claims and set loss reserves. The insurer must:

• keep on file an independent financial examination of each managing general agent it has done business with;
• obtain an actuary’s annual opinion on the adequacy of loss reserves, where the agent sets them;
• review the agent’s underwriting and claims operations on site at least semiannually;
• keep reinsurance binding authority with an officer unaffiliated with the agent;
• notify the Director in writing within 30 days of entering or ending a contract with one, stating the agent’s duties and authorized lines;
• review its books each quarter to see whether an agent has become one. If so, it must promptly notify the agent and the Director, and both must comply with the chapter within 30 days.

Chapter 13, on holding companies, has a sanction aimed at insurers. If a violation of chapter 13 makes an insurer’s continued operation contrary to the interests of policyholders or the public, the Director may, after notice and an opportunity to be heard, suspend, revoke or refuse to renew the insurer’s license or authority (MCL 500.1379). A producer faces discipline under section 1239 instead.

Misrepresentation and Materiality

A misrepresentation in an application does not automatically defeat coverage. MCL 500.2218 sets four rules:

1. No misrepresentation avoids a contract of insurance or defeats recovery unless it was material. It is material only if the insurer’s knowledge of the true facts “would have led to a refusal by the insurer to make the contract.”
2. A representation is a statement of past or present fact, made to the insurer by or by the authority of the applicant at or before the contract, as an inducement to make it. A prediction is not one. An answer the producer records with the applicant’s authority counts.
3. Evidence of how the insurer treated similar risks is admissible on materiality.
4. On a life, accident or health application, denying previous treatment, consultation, observation or hospital care is treated, for materiality, as denying the disease or ailment it concerned. If the insurer proves the misrepresentation in a suit to rescind or recover, and the insured or a claimant prevents full disclosure of the impairment, it is presumed material.

Michigan’s Supreme Court reads “the contract” in rule 1 as the contract issued, at the premium agreed, so a misrepresentation is material if the truth would have led the insurer to charge more, even if it would still have issued a policy (Oade v Jackson National Life Insurance Co, 465 Mich 244 (2001)).

Disability insurance policies under chapter 34 have their own sentence: a false statement bars recovery only if it “materially affected either the acceptance of the risk or the hazard assumed by the insurer.”

Life. Owen Banks answers “no” to hospital treatment in the past five years. He had a three-day admission for chest pain. He dies within the 2-year contestable period, and the insurer contests. The answer is a representation and it is false, and under rule 4 it is treated as a denial of the ailment the admission was for. The insurer may offer its underwriting guidelines on similar applicants. If they show it would have declined him, or issued the policy only at a higher premium, the misrepresentation is material and the contract can be avoided. If they show it would have issued the same policy at the same premium, the false answer does not defeat recovery.

Property. An applicant tells a producer that her house has no wood stove, and the producer marks “none” on a homeowners application. There is a stove, and a chimney fire follows. The statement was made by the applicant’s authority, and the insurer’s guidelines decline dwellings with a wood stove, so the misrepresentation is material.

Intentionally misrepresenting the terms of a contract or application is a ground for action against the license (MCL 500.1239(1)(c)). Knowingly, and with an intent to injure, defraud or deceive, preparing a statement with false information material to an application is a fraudulent insurance act (MCL 500.4503(b)).

False Statements, False Claims and Libel

Each offense is aimed at a different statement:

Falsehood	Provision	Consequence
Knowingly false information, or willful withholding, to the Director, a rating or statistical agency or an insurer, that affects rates or premiums	MCL 500.2474; MCL 500.2666	Penalties under MCL 500.2478 and 500.2670; each section governs rates under its own chapter
Knowingly false material information in an application or claim, with intent to injure, defraud or deceive	MCL 500.4503; 500.4511	Felony: up to 4 years, $50,000 or both, with restitution
False claim for health care benefits, or false statement of material fact to determine rights to them	MCL 752.1003(1) to (4)	Felony: up to 4 years, $50,000 or both; each claim under (2) or (3) separate
Agreement to defraud a health care insurer or corporation with false claims	MCL 752.1005	Felony: up to 10 years, $50,000 or both
Knowing or willful false statement in an application for membership in, or to obtain benefits from, a fraternal benefit society	MCL 500.8197(1)	Misdemeanor: 30 days to 1 year, or $100 to $500, or both
Sworn false statement of death or disability to collect a society benefit	MCL 500.8197(2)	Perjury
An accountant’s finding that an insurer materially misstated its financial condition	MCL 500.1015	Written report to the board or audit committee within 5 business days; the insurer copies the Director within 5 business days of receipt

The health care false claim act’s section 1003 does not apply to statements made on an application for coverage (MCL 752.1003(6)), so a false health application falls under chapter 45 and MCL 500.2018.

Falsehood about a competitor also has a civil side. A libel or slander plaintiff recovers actual damages. Exemplary or punitive damages for libel require that the plaintiff first give notice to publish a retraction and allow a reasonable time (MCL 600.2911(2)). A private individual must show a falsehood published negligently, and recovers economic damages including attorney fees. A public official or figure must prove knowledge of falsity or reckless disregard by clear and convincing evidence (MCL 600.2911(6), (7)). If Ravi Desai, to win accounts, emails prospects that a rival agency “is insolvent and about to close,” and it is false, the rival may have a claim, and the Director may also act under MCL 500.2009.

Lesson summary

• Only a licensed counselor may audit or abstract policies or annuities or advise on their benefits, terms or value, and unlicensed people may not use language implying the license. A licensed agent’s customary advice, lawyers and the named designations are excepted.
• A counselor needs a written agreement signed before any service. It states the fee, says the fee cannot be waived, discloses any commission, and is kept at least 2 years.
• A business entity needs its own license and a designated responsible producer. Its license is at risk when partners, officers or managers knew or should have known of an individual’s violation that was not reported or corrected.
• An insurer that uses a managing general agent must review it, report to the Director within 30 days of contracting or ending, and check quarterly whether another agent has become one.
• A misrepresentation defeats a contract only if material, meaning the insurer would have refused to make that contract, at that premium. Insurer practice is admissible, and on a life, accident or health application a false denial of treatment is treated as a denial of the condition.
• The false-statement provisions differ by target: rating information, applications and claims, health care claims, and society business. The health care false claim act excludes application statements.
• A false statement about a competitor can bring civil liability under MCL 600.2911 as well as regulatory action.