Licensing

Any individual applying for a California resident producer’s license must be at least 18 years old and must be a resident of California before submitting an application.

Required pre-licensing course and exam

Before you can sit for the California pre-licensing exam, you must successfully complete a Department of Insurance-approved pre-licensing course.

If you fail the California insurance licensing exam, you may schedule a retake as soon as 24 hours after the failed attempt. You may retake the same exam up to 10 times within a 12-month period. If you exceed this limit, the CDI will ban you from retaking that license exam for one year from the date of your last failed attempt.

Fingerprints/background check

As part of the application process, you must submit fingerprints to the California Department of Insurance. Plan to get fingerprinted after you pass the state exam and at least one day before you apply for the license.

Controlled business

Controlled business is insurance written primarily in the interest of the producer or the producer’s family members. Producers are prohibited from obtaining a California insurance license solely to write controlled business.

You may sell a policy to yourself or to family members, but you can’t obtain a license for that sole purpose.

Non-resident license

A licensed producer must meet the following requirements to obtain a nonresident license:

• The individual must have a California 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 in which they want to be licensed.

• The individual’s home state must offer equal reciprocity for the state in which the individual is attempting to obtain a non-resident license. Currently, California has reciprocation agreements with all other states.

Temporary license

You can’t get a temporary life insurance license in California. The CDI isn’t issuing temporary licenses at this time. You must meet the insurance license qualifications and apply for a regular California license.

Inactive status

A California resident producer who is ordered to active military duty may place their license on inactive status until discharge. While the license is inactive, the producer may continue to receive residual (“trailing”) commissions, but may not solicit or transact any new business.

Renewal maintenance

California insurance licenses are initially issued for 2 years. A producer must renew the license every 2 years, by the last day of the licensee’s birth month.

There is a 30-day grace period for producers who don’t renew before expiration. Renewing during the grace period results in a $50 late fee. If the license still isn’t renewed, the license expires and all company appointments are canceled.

A producer may have a license reissued within 12 months of expiration without having to test again. If a former producer has been without a license for more than 12 months, they must take the pre-licensing course, retest, and get fingerprinted before applying for a new license.

Continuing education

All states, including California, have continuing education (CE) requirements that must be met to renew any major lines (life, health, property, liability) insurance license. Individuals licensed in California must complete 24 hours of CE before renewing their license.

Notice of change of name or address

Any change of name or address (residential or business) must be reported by the licensee to the California Department of Insurance within 30 days of the change. Failure to do so may result in monetary fines and/or suspension of the license.

Company regulations

An insurance company must be authorized by the Department of Insurance to conduct business in California. To receive authorization, the 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 corporate bylaws and required fees.

Place of business

Every resident insurance producer authorized to conduct business in California must maintain a place of business (with public access) within the state.

Capital and surplus requirement

A company authorized to conduct insurance business in California 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.

Duties of the Commissioner of Insurance

The California Commissioner of Insurance is an elected state executive position in California state government. Insurance Commissioners are elected for four-year terms at the same time as the Governor during federal midterm election years. Like all elected California executive officials, the Insurance Commissioner may not serve more than two terms.

The Commissioner oversees the California Department of Insurance, which regulates the state’s insurance industry. The Department of Insurance is charged with licensing insurance companies and reviewing their financial statements, establishing rate regulations, investigating consumer complaints, and punishing insurers with fines or penalties for regulatory noncompliance.

The Commissioner is responsible for establishing and enforcing regulations in the California 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, 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.

Sidenote

Know this...

The Commissioner does not have the authority to arrest, issue injunctions, or sentence jail time. The Commissioner can start the process, but it takes a law officer to arrest and a judge or court of law to issue injunctions or sentence jail time.

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.

• 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 California.

• 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 believes that a producer has violated (or is about to violate) an insurance regulation in California, the Commissioner may issue a cease and desist order. Receiving a cease and desist order does not mean the producer’s registration has been suspended or revoked, but it does require the producer to stop or limit the activity addressed in the order.

Hearing

A recipient of a cease and desist order must comply immediately, but the Commissioner’s actions are not “final and binding.” Any California resident producer subject to disciplinary action has the right to request a hearing to discuss the merits of the situation.

The Commissioner also has the authority to investigate any producer doing business in California to determine whether a hearing is required. If sufficient evidence is found, the Commissioner will issue a notice with the date and time of the hearing. This notice will be sent to interested parties at least 20 days before the hearing.

If a hearing results in a finding of a known violation of California insurance law, the Commissioner may, in addition to issuing a cease and desist order, impose a civil penalty of up to$15,000 per violation.

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 on 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

California is a “file and use” state. A file-and-use filing is a submission that must be filed with the Department, but the insurer may begin using it as soon as it is filed. The insurer does not have to wait for Department approval before using it.

File and use does not mean an insurer can submit anything it wants. The submission must still comply with applicable laws, regulations, and bulletins.

If the wording on a health insurance policy (or other form) conflicts with California 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 time by the Department of Insurance or any representative appointed on its behalf.

Fraudulent producer representation

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

A producer found guilty of conducting business in California 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 a violation as well (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 that results in a monopoly of insurance business, is prohibited.

False financial statements

Any licensed producer who makes false statements containing inaccurate material facts, or who makes false statements on an application for insurance, is in violation of NAIC regulation.

Illegal inducements

In California, 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 is subject to suspension of their 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 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 covers only honest mistakes that result in (financial) damage to customers or prospects. It does not cover violations of insurance regulation.

Rebating

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

Producers in California are also prohibited from receiving any payment for the sale, solicitation, or negotiation of insurance outside of commissions and/or salary.

Sidenote

Know this...

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

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.

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 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 Department of Insurance is responsible for establishing minimum standards for full and fair disclosure of policy content. The Department also requires 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 the financial condition of a company is endorsed, by any government agency or by any independent group, individual, organization, or society.

• Any statements in advertising that are false or untrue regarding the time frame in which claims are paid.

Gramm-Leach Bliley Act (GLBA)

This law repealed the Glass-Steagall Act of 1933, allowing 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. It grants insurers a limited exemption from federal antitrust legislation.

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 of 1971

If an applicant is denied insurance, employment, or credit due to information collected, this regulation grants access to the information and the 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 to request a copy of the report.

Privacy Act of 1974

This regulation established a system for the collection, use, and dissemination of information gathered during the underwriting process. When an applicant for insurance signs the application (notice regarding insurance information practices), the applicant gives 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 the insurer has not done so by then, a new authorization must be obtained.

Telemarketing

The DO NOT CALL registry is a list of telephone numbers, and it is intended to prevent calls from telemarketers. Unsolicited sales calls must be made in accordance with the following provisions:

• No call may be placed outside of 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 California Insurance Guaranty Association is made up of 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 California. This is not unique to California. Insurers must be authorized in every state in which they transact business.

Once authorized, any insurer doing business in California must contribute to the California 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).