Michigan State Regulations & NAIC Insurance Law

Licensing

To apply for a Michigan resident producer’s license, you must:

• Be at least 18 years old.
• Be a Michigan resident before you submit your application.

Pre-licensing course and exam

Michigan requires a prelicensing course before the producer examination: 20 hours for a single line (life, health, property, casualty or personal lines), or 40 hours for combined life and health or combined property and casualty (MCL 500.1204a).

Michigan publishes a passing score for each producer examination; for example, the property and casualty producer/solicitor examination requires 74% (DIFS Insurance Examination Cut Scores).

Fingerprints/background check

The Director 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.

Controlled business

Controlled business is insurance a producer places on the producer’s own risks or those of people tied to the producer’s business. A license exists to sell insurance to the public, so the amount is limited.

Michigan sets the limit without using that name: during any 12-month period, an agent may not place insurance on the agent’s own property, life or other risk and that of the agent’s employees, employer or business associates in excess of 15% of the total premium the agent placed during that period (MCL 500.1208).

Non-resident license

A producer licensed in another state can obtain a Michigan nonresident license without taking Michigan’s examination. Unless denied under MCL 500.1239, 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
• Has a home state that awards nonresident licenses to Michigan residents on the same basis (reciprocity) (MCL 500.1206a(1))

A nonresident producer who moves from one state to another, or a resident producer who moves from Michigan to another state, files a change of address, with certification from the new resident state, within 30 days of the change of legal residence (MCL 500.1206a(3)). A person licensed in another state who moves to Michigan applies for a resident license within 90 days after establishing legal residence and, unless the Director determines otherwise by rule, does not repeat prelicensing education or the examination for qualifications already held (MCL 500.1206b(2)).

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

Michigan also allows one in any other circumstance where the Director considers that the public interest will best be served by it (MCL 500.1211b(1)(d)).

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.

Michigan may issue a temporary producer license for up to 180 days without an examination, where one is needed to service an insurance business (MCL 500.1211b).

Military service

Michigan’s Director must waive a producer’s continuing education requirements if the producer cannot meet them because of military service (MCL 500.1204c(9)).

Renewal and reinstatement

A Michigan producer license has no fixed term: it remains in effect, unless revoked or suspended, as long as the producer’s continuing education requirements are met by their due date (MCL 500.1206(2)).

A Michigan producer whose license lapses for a reason other than not meeting the continuing education requirements may reinstate the same license without passing the examination again, not later than 12 months after the lapse (MCL 500.1206(3)). That does not apply to a continuing education lapse: a producer who misses the requirement has a 90-day grace period, after which the Director cancels the license and the producer may reapply under MCL 500.1204 (MCL 500.1204c(11)).

Continuing Education

All states, including Michigan, have continuing education (CE) 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 Michigan must complete continuing education before renewing their license. The number of hours required is set by state law and published by the state insurance department.

Notice of change of name or address

A Michigan licensee must inform the Director of a change of legal name or address within 30 days of the change (MCL 500.1206(5)).

A Michigan producer must also report to the Director within 30 days any administrative action taken against the producer in another jurisdiction or by another government agency in Michigan, counted from the final disposition, and any criminal prosecution in any jurisdiction, counted from the initial pretrial hearing date (MCL 500.1247). A producer who does business under any name other than their legal name must notify the Director before using it (MCL 500.1211a).

Company Regulations

An insurance company must be authorized by the Department of Insurance and Financial Services to conduct business in Michigan. To receive a certificate of authority, the company applies to the Director 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 authorized to conduct insurance business in Michigan must meet minimum corporate standards. 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 Michigan, a certificate of authority remains in force until the insurer ends it or the Director suspends or revokes it, and the Director may act when the insurer no longer meets the capital or surplus requirements (MCL 500.435(2), 500.436(1)(a)).

Duties of the Director of Insurance and Financial Services

The Michigan Director of Insurance and Financial Services is a state executive position in Michigan state government. The Director heads the Department of Insurance and Financial Services, which regulates the insurance and financial services industries in Michigan (MCL 550.991). The Director is appointed by the Governor, with the advice and consent of the Senate.

The Director establishes and enforces regulations in the Michigan insurance market in a manner intended to protect consumers and encourage economic development.

Those duties include:

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

• If the Director finds that laws have been violated, the findings and supporting documents may be referred for criminal prosecution.

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

• The Director must examine each authorized insurer once every 5 years (MCL 500.222(4)).

• 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.

Sidenote

Know this...

The Director does not have the authority to arrest, issue injunctions, or sentence jail time. The Director can start the process, but a law officer must make an arrest, and a judge or court of law must issue injunctions or sentence jail time.

Suspend, Revoke or Refuse a License

The Director may place a producer’s license on probation, suspend or revoke it, or levy a civil fine, for the causes below. Depending on the cause, the Director must or may refuse to issue a license (MCL 500.1239(1), (2)):

• Providing incorrect, misleading, incomplete or materially untrue information in the license application (MCL 500.1239(2)(a)).

• Violating any insurance law, or any regulation, subpoena or order of the Director or of another state’s insurance commissioner (MCL 500.1239(2)(e)).

• 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.

• Intentionally misrepresenting the terms of an actual or proposed insurance contract or application for insurance (MCL 500.1239(1)(c)).

• Having been convicted of a felony.

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

• Using fraudulent, coercive or dishonest practices, or demonstrating incompetence, untrustworthiness or financial irresponsibility, in the conduct of business in Michigan or elsewhere (MCL 500.1239(1)(g)).

• Having an insurance producer license or its equivalent denied, suspended or revoked in any other state, province, district or territory (MCL 500.1239(2)(c)).

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

• Improperly using notes or any other reference material to complete an examination for an insurance license (MCL 500.1239(2)(d)).

Cease and Desist

If the Director finds, after an opportunity for a hearing, that a producer has violated Michigan’s producer licensing law, the Director must put the findings in writing and order the producer to cease and desist (MCL 500.1244(1)). A cease and desist order does not automatically suspend or revoke the recipient’s license, 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 Director is entitled to notice and an opportunity for a hearing, within time limits set by Michigan law, and may ask a court to review the final order.

An applicant or licensee may demand a hearing in writing within 30 days after the Director’s written denial (MCL 500.1239(4)).

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.

For a violation of Michigan’s producer licensing law, the Director may order a civil fine of up to $1,000 per violation, or up to $5,000 per violation if the person knew or should have known of the violation, with no more than $50,000 in fines in one order (MCL 500.1244(1)(a)).

Unfair Claims Settlement Practices

In Michigan, these practices are unfair when, other than isolated incidents, they are a course of conduct indicating a persistent tendency to engage in that type of conduct (MCL 500.2026(1)).

• Delaying the investigation or payment of claims by requiring an insured, claimant or the physician of either to submit a preliminary claim report and then formal proof of loss forms, seeking solely the duplication of a verification.

• Failing to promptly provide a reasonable explanation of the basis in the insurance policy, in relation to the facts or applicable law, for denying a claim or offering a compromise settlement.

• Refusing to pay claims without conducting a reasonable investigation based upon the available information.

• Attempting to settle claims on the basis of an application that was altered without notice to, or knowledge or consent of, the insured.

• Attempting to settle a claim for less than the amount to which a reasonable person would believe the claimant was entitled, by reference to written or printed advertising material accompanying or made part of an application.

Policy forms

Insurers file their policy forms with the Director.

A Michigan policy form must be filed with the Department and approved by the Director before use, and a form is considered approved if the Director does not act within 30 days after it is submitted (MCL 500.2236(1)).

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.

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 Director’s inspection.

Fraudulent Producer Representation

An insurance producer who represents to the public that they are licensed to conduct insurance business in Michigan, but has not passed the appropriate licensing examination, is in violation of regulation. This includes public communication through advertisements, letterheads, circulars, business cards, and other methods of representation.

A producer found guilty of conducting business in Michigan 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. In Michigan, any estimate, illustration, circular, statement, sales presentation or comparison that misrepresents a policy’s terms, benefits, advantages or conditions, by omitting a material fact or incorrectly stating one, is an unfair trade practice (MCL 500.2005(a)). MCL 500.2064(1) separately bars written or oral statements misrepresenting a policy’s terms or benefits. Neither section requires a pattern of conduct.

• 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 in Michigan (MCL 500.2007). 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. The section sets no pattern requirement: it reaches a single such statement.

Defamation

Defamation is an unfair trade practice in Michigan: making, publishing or circulating an oral or written statement that is false, or maliciously critical of or derogatory to the financial condition of a person engaged in the business of insurance, and that is calculated to injure a person engaged in the business of insurance (MCL 500.2009). Spreading an untrue rumor that a competing insurer is about to fail is the classic example.

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 the business of insurance is prohibited (MCL 500.2012).

False Financial Statements

Filing with a public official, or publishing or delivering to anyone, a false material statement of the financial condition of a person engaged in the business of insurance is an unfair trade practice, and so is making a false entry of a material fact in that person’s book, report or statement, or omitting a true one (MCL 500.2014). A separate section covers applications: making false or fraudulent statements on or relative to an application for an insurance policy, to obtain a fee, commission, money or other benefit from an insurer, agent, broker or individual, is also an unfair trade practice (MCL 500.2018). Neither rule is limited to licensed producers.

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.

Michigan prohibits an insurer, agent or solicitor from giving any rebate of premium or commission, or any other valuable consideration not specified in the policy, as an inducement to insurance (MCL 500.2066(1)).

A life insurer or life insurance agent may give each applicant for a life insurance policy an article of merchandise with an invoice value of $5 or less, and a property-casualty insurer or producer may give an applicant or insured an article of merchandise with a cost to the insurer of $50 or less per calendar year (MCL 500.2024a; 500.2024b).

Unfair discrimination

Unfair discrimination is treating people or risks that present the same hazard differently. Michigan’s unfair trade practices law prohibits:

• Unfair discrimination between individuals of the same class and equal expectation of life in life insurance and annuity rates, dividends, benefits or terms (MCL 500.2019)
• Unfair discrimination between individuals of the same class and essentially the same hazard in accident or health insurance premiums, benefits or terms (MCL 500.2020)
• Refusing to insure, refusing to continue to insure or limiting coverage because of race, color, creed, marital status, sex, national origin, gender, gender identity or expression, or sexual orientation, except that marital status may be used to classify individuals or risks for insuring family units (MCL 500.2027(a)(i))
• Refusing to insure, refusing to continue to insure or limiting coverage because of residence, age, disability or lawful occupation or the location of the risk, unless there is a reasonable relationship between that factor and the extent of the risk or the coverage; for property insurance, location requires a statistically significant relationship to a risk of loss due to fire within the zip code (MCL 500.2027(a)(ii), (iii))
• Charging a different rate for the same coverage based on these factors, unless the difference rests on sound actuarial principles and a reasonable classification system and relates to actual and credible loss statistics or, for new coverages, reasonably anticipated experience, or the Director previously approved the rate (MCL 500.2027(c))

Many states also expressly forbid refusing or limiting coverage solely because a person is blind or partially blind.

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 honest mistakes that result in financial damage to customers or prospects. It does not cover intentional misconduct, criminal acts, or regulatory fines.

Rebating

Michigan 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...

Unless exempt, a person must be licensed to sell, solicit or negotiate insurance in Michigan (MCL 500.1201a(1), 500.1202(2)).

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 commission is being split. An insurer or producer may also pay a commission or other consideration to an insurance agency, or to a person who does not sell, solicit or negotiate insurance in Michigan, unless the payment would violate MCL 500.2024, the life, annuity, and accident and health rebating section (MCL 500.1240(4)). Separately, except as MCL 500.1211, 500.1212 and 500.1207(12) provide, an agent may not reward or pay anyone for procuring business, furnishing leads or prospects, or otherwise acting as an agent (MCL 500.1207(11)). Neither section says which controls when a producer pays someone outside the business for a lead, so check with DIFS before paying for one.

Twisting

Providing false information or expressing derogatory ideas about the financial conditions of a competitor company with the intent to cause an existing policy to lapse or be surrendered is a violation of 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.

In Michigan, twisting is a misrepresentation made to induce a policyholder to lapse, forfeit, surrender, exchange or convert a policy (MCL 500.2005(f)). A false or maliciously critical statement about a competing insurer’s finances, made to injure it, is defamation (MCL 500.2009).

Unfair Marketing Practices

Michigan’s rule against untrue, deceptive or misleading advertising reaches any assertion about the business of insurance (MCL 500.2007). 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 for federal and state regulators across 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

Insurance guaranty association

Every state has a property and casualty insurance guaranty association that pays covered claims when a member insurer becomes insolvent. Insurers licensed to write the covered lines in the state must belong to it, and it is funded by assessments on its members.

The Michigan Property and Casualty Guaranty Association’s cap on a covered claim is set by statute at $5,000,000, adjusted each year for inflation (MCL 500.7925(6)).

Auto insurance state minimum

A state’s financial responsibility law sets the minimum liability an auto policy must carry, written as a split limit: the first number is bodily injury liability per person, the second bodily injury liability per accident, and the third property damage liability per accident, each in thousands of dollars.

For a Michigan auto policy issued after July 1, 2020, the minimum liability limits are $250,000 for bodily injury to one person, $500,000 for bodily injury to two or more people in one accident and $10,000 for property damage; a named insured may choose lower bodily injury limits, but not below $50,000 and $100,000 (MCL 500.3009).