Regulation Of The Insurance Agent’s Activities

In an attempt to assure that insurance agents and/or counselors are acting in the best interests of the public, the Code lists certain rules that an insurance agent must not violate. If they are violated, the board may suspend, revoke, or decline to renew his license. In addition, penalties such as fines and/or imprisonment may be levied. The activities prohibited by the Code include the following.

1. Violation of any provision of the state’s insurance laws. This is essentially a catch-all provision which deals with the misrepresentation of the provisions of contracts, false advertising, defamation, and falsification of financial records. Possibly the most important aspect of this provision is that dealing with rebates. A rebate is the offer to return or the actual return of part of an insurance agent’s commission to the prospective insured as an inducement to purchase the coverage. Extra dividends also may be offered in lieu of a return of premium. Rebating is detrimental to all parties concerned since it results in unfair discrimination among policyholders and predatory pricing among insurers. In fact, rebating is actually a form of unfair discrimination as all insureds who represent the same risk are not offered the same price.

2. Making material misstatements in the application for a license.

3. Obtaining or attempting to obtain a license through fraud or misrepresentation.

4. Misusing or illegally taking money belonging to the insurer, insured, or a beneficiary.

5. Demonstrating an untrustworthy character or incompetence as an insurance agent.

6. Engaging in fraudulent or dishonest practices.

7. Making improper or incomplete comparisons of insurance policies. This activity is called “twisting” and is clearly against public policy. By making incorrect or misleading comparisons of contracts, the insurance agent attempts to convince the insured to cancel one contract in order to buy another. This often results in the insured losing money. The insurance consumer is especially susceptible to such misrepresentations because in most cases he knows little or nothing about insurance.

8. Obtaining or attempting to obtain a license for the purpose of procuring or negotiating insurance for friends, business associates, or the insurance agent himself. It is important to note that actions taken by the board regarding the licensing or nonlicensing of an individual are subject to District Court review. Thus, the courts and not the board are the final voice.

In recent years, the life insurance business has become involved in the marketing of financial instruments other than life insurance. The major ones are variable annuities and mutual funds. The following brief discussion will center on the state and federal regulations concerning these instruments.