Bulletins - Year 2002


DATE: December 18, 2002
RE: The Terrorism Risk Insurance Act of 2002
TO: All Property & Casualty Insurers Writing Commercial Lines Insurance Products


Background

There has been much uncertainty in the markets for commercial lines property and casualty insurance coverage in light of the substantial losses experienced by the industry on September 11, 2001. Soon after the tragic events, many reinsurers announced that they did not intend to provide coverage for acts of terrorism in future reinsurance contracts. This led to a concerted effort on behalf of all interested parties to seek a temporary federal backstop to calm market fears over future terrorist attacks and the ability of the insurance industry to allocate capital to provide coverage for these unpredictable and potentially catastrophic events. Congress recently enacted and the President has signed into law, the Terrorism Risk Insurance Act of 2002 (The Act). This federal law provides a federal backstop for defined acts of terrorism and imposes certain obligations on insurers.

The intent of this bulletin is to advise you of certain provisions of the Act that may require insurers to submit a filing in this state and to inform you regarding a voluntary procedure for insurers to use to expedite the filing and timely review of the disclosure notices, policy language and the applicable rates that are discussed in the Act.

Section 102(6) of the Act defines "insurers" for purposes of the Act. "Insurer" means any entity and affiliate thereof--(A) that is--(i) licensed or admitted to engage in the business of providing primary or excess insurance in any State; (ii) an eligible surplus line carrier listed on the Quarterly Listing of Alien Insurers of the NAIC, or any successor thereto; (iii) approved for the purpose of offering property and casualty insurance by a Federal agency in connection with maritime, energy, or aviation activity; (iv) a State residual market insurance entity or State workers' compensation fund; (B) that receives direct earned premium for any type of commercial property and casualty insurance coverage. The Secretary of Treasury may extend the Act to other classes or types of captive insurers and other self-insured arrangements by municipalities and other entities as well as to group life insurance.

Section 102(12) of the Act states the term "property and casualty insurance" (A) means commercial lines of property and casualty insurance, including excess insurance, workers' compensation insurance, and surety insurance, and (B) does not include crop or livestock insurance, private mortgage or title insurance, financial guaranty insurance issued by monoline financial guaranty insurance corporations, medical malpractice, health or life insurance including group life, flood insurance provided under the National Flood Insurance Act, or reinsurance or retrocessional reinsurance.

All insurers, as defined in the Act, are required by the Act to participate in the Terrorism Insurance Program (the Program) and make available coverage for insured losses in all of their covered commercial lines policies. The term "insured loss" means any loss resulting from an act of terrorism (including an act of war, in the case of workers’ compensation) that is covered by primary or excess property and casualty insurance issued by an insurer if such loss—(i) occurs within the United States; or (ii) occurs in an air carrier (as described in section 40102 of title 49, United States Code), to a United States flag vessel (or a vessel based principally in the United States, on which United States income tax is paid and whose insurance coverage is subject to regulation in the United States), regardless of where the loss occurs, or at the premises of a United States mission. The Act also advises that insured loss excludes amounts awarded in a civil action that are attributable to punitive damages. The Act further requires insurers to make available property and casualty insurance coverage for insured losses that do not differ materially from the terms, amounts, and other coverage limitations applicable to losses arising from events other than acts of terrorism.

The Act voids any terrorism exclusions in a contract for property and casualty insurance that is in force on the date of enactment of this Act to the extent that it excludes losses that would otherwise be insured losses. The Act also voids any state approval of any terrorism exclusion from a contract for property or casualty insurance that is in force on the date of enactment of this Act to the extent that it excludes losses that would otherwise be insured losses. The Act allows insurers to "reinstate a preexisting provision in a contract for commercial property and casualty insurance that is in force on the date of enactment of this Act and that excludes coverage for acts of terrorism only" if one of two conditions are met. The insurer must have received a written statement from the insured that affirmatively authorizes such reinstatement or if the insurer has provided notice to the insured, at least 30 days before any such reinstatement and the insured fails to pay any increased premium charged by the insurer for providing such terrorism coverage.

Definition of Insured Loss

Section 102(5) of the Act provides a definition of insured loss. It states, "the term 'insured loss' means any loss resulting from an act of terrorism (including an act of war, in the case of workers' compensation) that is covered by primary or excess property and casualty insurance issued by an insurer if such loss — (A) occurs within the United States; or (B) occurs to an air carrier (as defined in section 40102 of title 49, United States Code), to a United States flag vessel (or a vessel based principally in the United States, on which United States income tax is paid and whose insurance coverage is subject to regulation in the United States), regardless of where the loss occurs, or at the premises of any United States mission."

As a result of the definition contained in the Act, there are essentially two distinct types of losses that a business might face that result from terrorism. One type of loss is the insured loss that is defined within and covered by the provisions of the Act. For convenience, we will adopt the moniker of "certified loss" to refer to losses resulting from certified acts of terrorism. The second type of loss that a business might face is one that does not fit within the definition of insured loss as described in the Act. For convenience, we will adopt the moniker of "non-certified loss" to refer to losses resulting from terrorism that is not certified. The most significant difference between these losses is that the certified losses will always involve a foreign person or foreign interest, while the non-certified losses may not.

Please note that the preemption of this state’s filing law, Section 27-14-1, et seq., Code of Alabama 1975, applies only to contract language that is applicable to certified losses. If an insurer intends to reinstate an exclusion on in-force policies as allowed under the Act, it may only reinstate an exclusion that previously existed on the policy.

This state has allowed, and will continue to allow, some significant limitations that provide coverage for acts of terrorism under certain circumstances. For policies providing property insurance coverage the following limitations apply to non-certified losses:

  • Exclusion for acts of terrorism only apply if the acts of terrorism result in industry-wide insured losses that exceed $25,000,000 for related incidents that occur within a 72 hour period;
  • Exclusions for acts of terrorism are not subject to limitations above if:
    • The act involves the use, release or escape of nuclear materials, or that directly or indirectly results in nuclear reaction or radiation or radioactive contamination;
    • The act is carried out by means of the dispersal or application of pathogenic or poisonous biological or chemical materials; or
    • Pathogenic or poisonous biological or chemical materials are released, and it appears that one purpose of the terrorism was to release such materials.

For policies providing liability insurance coverage the following limitations apply to non-certified losses:

  • Exclusion for acts of terrorism only apply if the acts of terrorism result in industry-wide insured losses that exceed $25,000,000 for related incidents that occur within a 72 hour period; or
  • Fifty or more persons sustain death or serious physical injury for related incidents that occur within a 72 hour period. For purposes of this provision serious physical injury means:
    • Physical injury that involves a substantial risk of death;
    • Protracted and obvious physical disfigurement; or
    • Protracted loss of or impairment of the function of a bodily member or organ.
  • Exclusions for acts of terrorism are not subject to limitations above if;
    • The act involves the use, release or escape of nuclear materials, or that directly or indirectly results in nuclear reaction or radiation or radioactive contamination;
    • The act is carried out by means of the dispersal or application of pathogenic or poisonous biological or chemical materials; or
    • Pathogenic or poisonous biological or chemical materials are released, and it appears that one purpose of the terrorism was to release such materials.

Definition of Act of Terrorism

Section 102(1) defines an act of terrorism for purposes of the Act. Section 102(1)(A) states, "The term 'act of terrorism' means any act that is certified by the Secretary of the Treasury, in concurrence with the Secretary of State, and the Attorney General of the United States—(i) to be an act of terrorism; (ii) to be a violent act or an act that is dangerous to—(I) human life: (II) property; or (III) infrastructure; (iii) to have resulted in damage within the United States, or outside the United States in the case of—(I) an air carrier or vessel described in paragraph (5)(B); or (II) the premises of a United States mission; and (iv) to have been committed by an individual or individuals acting on behalf of any foreign person or foreign interest, as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion." Section 102(1)(B) states, "No act shall be certified by the Secretary as an act of terrorism if—(i) the act is committed as part of the course of a war declared by the Congress, except that this clause shall not apply with respect to any coverage for workers’ compensation; or (ii) property and casualty insurance losses resulting from the act, in the aggregate, do not exceed $5,000,000." Section 102(1)(C) and (D) specify that the determinations are final and not subject to judicial review and that the Secretary of the Treasury cannot delegate the determination to anyone.

This state will not allow exclusions of coverage for acts of terrorism that fail to be certified losses solely because they fall below the $5,000,000 threshold in Section 102(1)(B) on any policy that provides coverage for certified losses. Insurers required to file policy forms may submit language containing coverage limitations for certified losses that exceed $100 billion.

The Act includes a definition of acts of terrorism that is used within this bulletin to mean certified losses. Policies subject to policy form filing requirements should also define what constitutes an act of terrorism for non-certified losses. For non-certified losses, this state would accept the following definition, or one that is more liberal to policyholders:

The phrase "non-certified act of terrorism" means a violent act or an act that is dangerous to human life, property; or infrastructure that is committed by an individual or individuals and that appears to be part of an effort to coerce a civilian population or to influence the policy or affect the conduct of any government by coercion, and the act is not certified as a terrorist act pursuant to the Federal Terrorism Risk Insurance Act of 2002.

Submission of Rates, Policy Form Language and Disclosure Notices

Insurers are required to comply with the Act and with state law. Section 106(a)(2)(B) of the Act states that "during the period beginning on the date of enactment of this Act and ending on December 31, 2003, rates and forms for terrorism risk insurance coverage covered by this title and filed with any State shall not be subject to prior approval or a waiting period under any law of a State that would otherwise be applicable." The subsection further notes that rates remain subject to subsequent regulatory review based on whether a rate is "excessive, inadequate, or unfairly discriminatory" and other applicable state law. Similarly, policy forms are subject to subsequent review based on all applicable laws and regulations. Thus, a system is created where insurers can immediately implement prospective rate changes for coverage of insured losses related to acts of terrorism as defined in the Act. Policy language for terrorism risk and insurance covered by the Act (granting coverage or excluding coverage for insured losses) is only exempt from prior approval or waiting periods to the extent that the policy language relates to insured losses as defined in the Act. Other policy language changes and related pricing remain subject to current applicable state law and will be processed in an expedited manner.

If an insurer relies on an advisory organization to file loss costs and related rating systems on its behalf, no rate filing is required unless an insurer plans to use a different loss cost multiplier than is currently on file for coverage for certified losses. The rate filing should provide sufficient information for the reviewer to determine what price would be charged to a business seeking to cover certified losses. This state will accept filings that contain a specified percentage of premium to provide for coverage for certified losses. Insurers may also choose to use rating plans that take into account other factors such as geography, building profile, proximity to target risks and other reasonable rating factors. The insurer should state in the filing the basis that it has for selection of the rates and rating systems that it chooses to apply. The supporting documentation should be sufficient for the reviewer to determine if the rates are excessive, inadequate or unfairly discriminatory.

Insurers subject to policy form regulation must submit the policy language that they intend to use in this state within a reasonable time after they are implemented. This state considers 30 days to be a reasonable time for purposes of completing an expedited filing of policy language. The policy should define acts of terrorism and both certified and non-certified losses in ways that are consistent with the Act, state law and the guidance provided in this bulletin. The definitions, terms and conditions should be complete and accurately describe the coverage that will be provided in the policy.

The Commissioner requests that the disclosure notices be filed for informational purposes, along with the policy forms, rates and rating systems as they are an integral part of the process for notification of policyholders in this state and should be clear and not misleading to business owners in this state. The disclosures should comply with the requirements of the Act and should be consistent with the policy language and rates filed by the insurer. Details about the applicable requirements are contained in the following two paragraphs.

In-force business receives special consideration under the Act. Section 105 (a) voids any terrorism exclusion on existing policies to the extent that it excludes losses that would otherwise be insured losses as defined in the Act. It details a process for insurers and policyholders to reinstate the voided exclusions. Under that process, an insurer may reinstate a preexisting provision in a contract that is in force on the date of enactment of this Act and that excludes coverage for an act of terrorism only if the insurer has received a written statement from the insured that affirmatively authorizes such reinstatement or if the insured fails to pay any increased premium charged by the insurer for providing such coverage and the insurer provided notice, at least 30 days before any such reinstatement as provided in Section 105 of the Act.

There are also disclosures required for new business and renewal business. Although voidance of contract language is not an issue, insurers must make certain disclosures to policyholders to remain in compliance with the Act. Section 103(b)(2) requires insurers to provide a clear and conspicuous disclosure to the policyholder of the premium charged for covered insured losses and advise that a federal program exists where the federal government will share significant portions of major insured losses with insurers.

Effect on Workers’ Compensation Insurance Coverage

Treatment of workers’ compensation is slightly different than for other property and casualty insurance coverages. First, Section 102(1)(B)(i) provides that the federal program will share the risk of loss for workers’ compensation for acts of war in addition to acts of terrorism. This treatment occurs because of the statutory nature of the workers’ compensation program, which does not provide an exclusion for losses resulting from an act of war. Under Alabama law there is no exclusion for workers’ compensation losses resulting from an act of war. There is no provision in the Act that would preempt the compulsory coverage aspects of workers’ compensation insurance policies. In other respects, however, workers’ compensation coverage is treated under the Act as any other covered line of insurance. Therefore, the notice requirements of Section 103(b)(2) and the mandatory "make available" requirements of Section 103(c) apply to workers’ compensation policies. In this connection, workers’ compensation insurers are required to separately state (the amount of) the estimated portion of the premium being charged a policyholder for acts of terrorism, as defined in the Act. As this state’s workers’ compensation law does not have any exclusions for terrorism or war, neither insurers nor policyholders may use the Act’s procedures to create such an exclusion. With regard to the filing and approval of rates and forms, workers’ compensation insurers are also covered by the Act, specifically Section 106(a)(2)(B) that waives any state prior approval or time requirements for the first year of the Act. Such insurers shall therefore follow the alternative filing procedures established in this bulletin.

Information for SERFF Filers

For insurers that use the SERFF system, there will be an expedited filing form in that system for your use.

Explanation and Instructions for Terrorism Rate and Form Review

The Act preempts any state prior approval law pertaining to rates or forms—including any law that imposes waiting periods—prior to use of a rate or form for purposes of terrorism coverage, as defined by the Act. This preemption remains in effect for the first year of the Act. Consistent with these requirements of the Act, this bulletin establishes a system for rates and forms, requiring insurers or advisory organizations to file their rates and forms no later than 30 days after their first date of use. The procedure for obtaining an expedited review of such rates and forms is set forth below. However, nothing in this bulletin shall be construed as establishing a rate or form filing review or approval requirement where one does not otherwise exist under this state’s law. Policy language changes and related pricing for non-certified losses remain subject to current applicable state law and will be processed in an expedited manner.

Forms with Instructions

Attached to this bulletin is a uniform filing transmittal form that has been agreed upon by this state and other states. An insurer or advisory organization wishing to receive expedited treatment of its filing shall complete the EXPEDITED FILING TRANSMITTAL DOCUMENT—FOR TERRORISM RISK INSURANCE FORMS AND PRICING as directed. In addition, the insurer(s) or advisory organization submitting the filing must certify that the filing is consistent with this bulletin, state law and the provisions of the Act. Certification is made by signing the appropriate blank on the transmittal form. Filings for policy language changes and related pricing for non-certified losses, which remain subject to current applicable state law, may be made using the attached filing transmittal form. These filings will be processed in an expedited manner. The attached expedited filing transmittal document replaces all otherwise applicable filing forms and filing transmittal forms for these filings.

To be complete, an expedited filing must include the following:

  • A completed, certified Expedited Filing Transmittal Document for each insurer or advisory organization.
  • One copy of each policy form or endorsement that the insurer intends to use, unless the insurer has given an advisory organization authorization to file them on its behalf.
  • A copy of the rates and rating systems along with the supporting documentation, if required.
  • A copy of any disclosure notices that will be used to convey information to policyholders in this state.
  • The appropriate filing fees.
  • A postage-paid, self-addressed envelope large enough to accommodate the return. Note that a comparable filing transmittal form is available in SERFF.

If this filing is for multiple companies, please provide a copy of the transmittal header for each company and an extra copy for return to the company. (i.e. 7 companies = 8 copies)

This bulletin shall take immediate effect. The expedited filing process outlined herein shall expire on December 31, 2003. The remainder of the bulletin shall expire on December 31, 2005, unless Congress extends the duration of the Act.



DATE: August 21, 2002
RE: Continuing Education Courses
TO: All Continuing Education Providers


The Department of Insurance (the Department) has been made aware that some of our authorized providers offering continuing education (CE) courses are not complying with the Section 27-8A, Code of Alabama 1975.

We are receiving complaints that the following abuses are occurring in the following areas:

  • Overnight CE;
  • Internet CE; and
  • Advertising and Offering courses not approved.

According to Section 27-8A-3, Code of Alabama 1975, all courses, providers, and certifications are subject to audit by the commissioner. In addition, course or course providers may be disqualified at the discretion of the commissioner.

Also, those producers failing to complete the required number of hours are in direct violation of compliance requirements. Pursuant to 27-8A-1(a): any natural person licensed in this state as an insurance producer or service representative for the lines of insurance listed in subsection (b), and not exempt under subsection (c), shall satisfactorily complete a minimum of 12 classroom hours per year of courses, programs of instruction, or seminars as may be approved by the commissioner pursuant to this chapter.

The Department views the continuing education mandates as necessary and important requirements. Therefore, the Department will not tolerate abuse by providers and/or producers, as such activity will subject those to disciplinary actions, which include, but are not limited to, suspension and/or revocation of license and penalties. Furthermore, the Department expects anyone aware of the above practices to notify us immediately.



DATE: May 13, 2002
RE: Bulletins
TO: All Companies


It has come to my attention that agents are not receiving copies of bulletins issued by the Department. In order to comply with departmental bulletins it is imperative that all pertinent individuals receive the requisite information.

Therefore, I am directing all companies to circulate each and every bulletin prepared by the Department to the proper individuals.



DATE: May 10, 2002
RE: Pre-Licensing Course (40 Hour)
TO: All Forty-Hour Providers


The Department of Insurance (the Department) has been made aware that some of our authorized providers offering the pre-licensing course are not complying with the Code of Alabama, 1975, Section 27-7-5.

Pursuant to 27-7-5(3): an individual must complete a pre-licensing course of study consisting of 40 classroom hours or equivalent individual instruction on the general principles of insurance, the course to be taught only by those educational institutions, junior or senior colleges, technical colleges, trade schools, insurance companies, or insurance trade organizations which hold written authority from the commissioner to issue certificates of completion.

We are receiving complaints that the following abuses are occurring:

  • Students are receiving written materials for home study (overnight course lessons);
  • Students are encouraged not to purchase the required textbook(s);
  • Students are not being instructed on insurance and ethics but on how to pass the exam; and
  • Unstructured classes, unorganized curriculums.

From the cited abuses, "the equivalent individual instruction" language of the statute is being misused. The above practices do not constitute equivalent individual instruction. While the Department is not mandating forty actual hours of classroom instruction and the law does not require such, there must be meaningful education and instruction given to applicants.

The Department will not tolerate abuse by providers, producers and/or applicants, as such activity will subject those to disciplinary actions, which include, but are not limited to, suspension and/or revocation of license and penalties. Furthermore, the Department expects anyone aware of the above practices to notify us immediately. Therefore, this bulletin serves as notice that the Department expresses concern regarding the above practices and urges all providers to conform to the full extent of the law in qualifying applicants for licensure.

ALL PROVIDERS ARE DIRECTED TO SUPPLY A COPY OF THIS BULLETIN TO EACH OF THEIR PRODUCERS LICENSED IN THE STATE OF ALABAMA.



DATE: April 10, 2002
RE: USA PATRIOT Act of 2001
TO: All Alabama Domiciled Insurers


On October 26, 2001, President Bush signed into law the "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001" (the Act). This law, enacted in response to the terrorist attacks of September 11, 2001, strengthens our Nation’s ability to combat terrorism and prevent and detect money-laundering activities.

The purpose of this Bulletin is to advise persons or entities regulated by the Alabama Department of Insurance of important new responsibilities under the Act. In particular, Section 352 of the Act amends the Bank Secrecy Act ("BSA") to require that all financial institutions establish an anti-money laundering program, and Section 326 amends the BSA to require the Secretary of the Treasury (Treasury) to adopt minimum standards for financial institutions regarding the identity of customers that open accounts.

Section 352 – Establishing Anti-Money Laundering Programs

Section 352 of the Act requires the establishment of an anti-money laundering program, including, at a minimum:

  • The development of internal policies, procedures, and controls; these should be appropriate for the level of risk of money laundering identified.
  • The designation of a compliance officer; the officer should have appropriate training and background to execute their responsibilities. In addition, the compliance officer should have access to senior management.
  • An ongoing employee training program; a training program should match training to the employees’ roles in the organization and their job functions. The training program should be provided as often as necessary to address gaps created by movement of employees within the organization and turnover.
  • An independent audit function to test the programs. The independent audit function does not require engaging outside consultants. Internal staff that is independent of those developing and executing the anti-money laundering program may conduct the audit.

Treasury is currently drafting a regulation describing the anti-money laundering compliance program for insurers. The regulation may borrow from the anti-money laundering compliance program rule recently proposed by the NASD for broker-dealers, and is expected to be promulgated in late spring or early summer.

Insurance companies are included in the BSA’s definition of financial institution, and should be prepared to comply with the new law and the regulations promulgated thereunder. Section 352 of the Act becomes effective on April 24, 2002; all insurance companies are required to be in compliance with the law by that date.

As part of its rulemaking process, Treasury is determining the extent to which other insurance entities will be considered financial institutions for purposes of the regulation. It is anticipated that the regulation could cover all other persons and entities engaged in the business of insurance, including brokers, agents, and managing general agents, and may also include other regulated entities. These insurance entities will be required to comply with the regulation by the regulation’s effective date.

Anti-money laundering programs are not anticipated to be "one size fits all." Rather, it is expected that they will be developed using a risk-based approach. Development of an anti-money laundering program should begin with identification of those areas, processes and programs that are susceptible to money laundering activities. The practices and procedures implemented under the program should reflect the risks of money laundering given the entity’s products, methods of distribution, contact with customers and forms of customer payment and deposits.

Section 326 – Customer Identification

Section 326 of the Act amends the BSA to require that Treasury issue regulations setting forth minimum standards for financial institutions regarding the identity of their customers in connection with the purchase of a policy or contract of insurance. This program must set forth customer identity verification and documentation procedures, as well as procedures the insurer will employ to notify its customers about this requirement and determine whether the customer appears on government lists of known or suspected terrorists or terrorist organizations.

Final regulations regarding this requirement are to be issued by the Department of the Treasury by October 26, 2002. Proposed regulations will be published in the Federal Register later in the year. Through the rulemaking process, Treasury will determine which insurance entities will be subject to the regulations. Insurance entities subject to the rules will be required to comply when the final Treasury regulations become effective.

Requests for additional information or questions regarding:

  • This bulletin may be directed to Ryan Donaldson of the Alabama Insurance Department at (334) 241-4142.
  • The Act may be directed to Linda L. Duzick, Office of Thrift Supervision, serving as insurance industry liaison for the Department of Treasury, at (202) 906-6565 or linda.duzick@ots.treas.gov


DATE: April 5, 2002
RE: The Sale of Bogus Health Plans
TO: All Life and Health Agents in the State of Alabama


Producers (agents) of health insurance policies risk license revocation, felony prosecution and personal financial liability if the producer sells health care plans offered by unauthorized and/or illegal insurers.

Alabama producers of health insurance must be extremely careful in falling for and being recruited by unauthorized and/or illegal insurers. There are many subterfuges used to recruit Alabama producers.

In the past twelve (12) months, the Alabama Department of Insurance has taken action against six (6) unauthorized and/or illegal health plans either for recruiting Alabama producers and/or selling products to consumers. These unauthorized and/or illegal health plans recruited licensed producers to market its product to unsuspecting employers, consumers and others. Additionally, the Department of Insurance is continuing to investigate other questionable health plans.

Producers who sell unauthorized and/or illegal health insurance jeopardize the security and health of Alabama consumers, and subject themselves to disciplinary action, which could include suspension and/or revocation of their licenses, monetary restitution and penalties.

Sections 27-10-1 and 2, Code of Alabama, 1975, are the controlling statutes. The solicitation and/or sale of unauthorized and/or illegal health insurance may subject a producer to personal liability for unpaid claims and losses.

A producer may also be subject to criminal prosecution.

Each health insurance producer in the State of Alabama is responsible for diligently investigating any insurance entity before agreeing to represent same. If a producer has a question about any insurance company, said producer may call the Insurance Department at 1-800-433-3966 or go to the Department Website @ www.aldoi.gov

Each producer must review very carefully the health plan, company and product as follows:

  • A product looks or operates like insurance but (a) claims it is not, or (b) claims it is ERISA and only providing "benefits" and not insurance.
  • Avoidance in the use of insurance terminology, i.e., use of the words (a) "consultant fees" or "fees" instead of "commissions"; (b) "contributions," not "premiums"; (c) the sale of a product by "labor consultants" or "business agents" who enroll or negotiate with potential members, not producers.
  • Producers have no commission schedule or fixed commission rates and the term "fees" is used.
  • Producers are asked to market and sell an "ERISA" Plan or "union" plan. COVERAGE PROVIDED BY LEGIMATE, SINGLE EMPLOYER ERISA PLANS "ARISES FROM THE EMPLOYER/EMPLOYEE RELATIONSHIP" AND IS NOT MARKETED OR SOLD BY INSURANCE PRODUCERS.
  • The product claims to be "fully-funded," "fully insured" or "reinsured," but the name of the carrier insuring or underwriting the product is not listed. The health insurance company must be licensed in the State of Alabama.
  • Producers are instructed to market and sell the plan to both individuals and employers who are required to join and pay dues to a trade, occupation, occupational or consumer association solely to obtain health coverage. Enrollees do not control or sponsor the activities of the association and are not given the association by-laws or voting rights information.
  • Producers are asked to market and sell an "employee leasing" arrangement, i.e., place individuals and groups into a "professional employee organization" ("PEO") which provides self-funded health coverage. The PEO is not licensed by the State of Alabama as a staff leasing services company, nor does it pay the wages of the enrollees.
  • By this product the company accepts and covers individuals or groups with pre-existing conditions, even though those individuals and groups have no credible coverage.
  • The product advertises unusually low premiums and/or unusually generous benefits, low (or no) minimum requirements for participation, and loose (or no) underwriting guidelines.

IF IT LOOKS TOO GOOD TO BE TRUE, IT PROBABLY IS.

Be extremely careful with any new health insurance plan that you hear about and investigate thoroughly before you sell or solicit it.



DATE: January 24, 2002
RE: Licensing and Appointment of Producers
TO: All Companies Licensed to Do Business in Alabama


Every insurer intending to appoint a person as a producer is required to file with the Commissioner of Insurance a statement showing what investigation it has made of the applicant’s qualifications, character and fitness for the duties to be assumed, and the results of such investigation. This Department’s review of applications for appointment submitted by insurers in this state indicates on numerous occasions sufficient investigation into the character of applicants for an insurance agent license has not been done by the insurer. Furthermore, this Department has discovered numerous instances where insurers are forwarding applications for appointment on behalf of individuals to this Department who either do not meet the statutory qualifications to hold an Alabama insurance agent’s license or have failed to provide the necessary documentation with the application when required to do so.

Specifically, this Department has found instances where individuals who have been convicted of felony crimes, who have been submitted as applicants as insurance agents or are already holding such licenses and yet have failed to receive a pardon for the same. This Department will immediately revoke the license of any producer who is found not to be statutorily qualified. Furthermore, this Department will take prompt and immediate action against any insurer found to have submitted an application for said individual if it can be determined the insurer had knowledge or should have had knowledge of the statutory disqualification. Please remember it is your responsibility to determine the character and fitness of the applicants you submit. Furthermore, no insurer is to submit an electronic (diskette) appointment form for any individual who is required to answer "yes" to questions involving criminal convictions, license revocations, etc., or bankruptcy. Companies who submit these applications electronically or submit applications on behalf of these individuals without attaching the required documentation will have these applications denied and will be subject to administrative action by this Department.

This Department, along with other state Insurance Departments as well as the NAIC, has issued bulletins and provided information to insurers concerning Title 18 U.S.C., Section 1033 and 1034 (the Violent Crime and Control Act of 1994). As you should be aware, this Act makes it a felony for anyone to engage in the business of insurance who has been convicted of a felony crime involving dishonesty or breach of trust unless that person receives a waiver from the appropriate regulatory official. In Alabama that person is the Commissioner of Insurance, and my staff has developed procedures for obtaining such a waiver. This Department has discovered numerous instances recently where insurers have knowingly employed prohibited persons as insurance agents in this state in violation of that statute. Title 18 U.S.C., Section 1033 and 1034, not only provides criminal penalties for the individual who participates in the business of insurance without a waiver; it also provides criminal penalties for the insurer who employs such an individual.

It is the policy of this Department to refer instances where insurers are knowingly submitting appointment applications on behalf of prohibited persons to the appropriate United States Attorney’s Office for whatever disposition they deem appropriate. A review of procedures established by some insurers reveals they rely on the representation of the agent that he/she is not a prohibited person. As stated above, this Department has discovered numerous instances where individuals who were clearly prohibited persons either failed to properly notify the insurer which employed them and/or failed that insurer failed to notify this Department of their status. I would urge every insurer doing business in this state to independently verify the statutory qualifications, both state and federal, for the individuals they employ in the business of insurance in the state of Alabama. Your cooperation in this matter is appreciated.



DATE: January 18, 2002
RE: Producer Licensing Update
TO: All Companies Licensed to Do Business in Alabama


Effective January 1, 2002, many changes were made concerning the laws, fees, forms and test center for the State Producer Licensing Examination.

Any old 1020 Form received by this Department on or after January 1, 2002, will be returned. The new form must be completed and sent to the Department accompanied by the appropriate fees for the lines of authority for which an individual or Business Entity wishes to be licensed.

Anyone approved for testing before January 1, 2002, as well as all future applicants, should be referred to the Department’s website which is located at www.aldoi.gov. Once on the website, one should go to the section entitled "Producer Licensing, Testing - Troy State University," to register for the Producer Licensing Examination. For information concerning additional changes, please log back onto the website at www.aldoi.gov - Producer Licensing, and then choose the appropriate file to obtain the new changes. If you have any further questions, please feel free to contact the Department directly at (334) 241-4126. In order for this Department to timely process Producer Licensing Applications for individuals and entities, we would ask before you call or write, that you first please visit our website at www.aldoi.gov to see if your questions can be answered there.



DATE: January 10, 2002
RE: Alabama Questionaire - Use of Credit Information in Rating
TO: All Property & Casualty Insurers Licensed in the State of Alabama


All Property and Casualty Insurers licensed in the state of Alabama are required to complete the following questionnaire regarding their filed and approved rates in effect as of February 14, 2002 for private passenger automobile and personal residential (homeowners and dwelling fire & allied lines) insurance. This questionnaire is due at the Department of Insurance no later than February 14, 2002 and should be submitted to the address below:

Alabama Department of Insurance
Attention: Johnny Johnson
201 Monroe Street, Suite 1820
Post Office Box 303351
Montgomery, Alabama 36130-3351

All private passenger automobile and personal residential (homeowners and dwelling fire & allied lines) insurance rate filings with effective dates of February 15, 2002 or later must also include a completed questionnaire submitted along with the filing.

Failure to provide complete responses with the initial filing will result in delays in the filing review process.

Pursuant to Alabama Insurance Code §§27-13-28 and 27-13-66, Code of Alabama (1975), all information submitted in response to this bulletin in conjunction with a rate or rule filing will be classified as confidential and shall be kept under lock and key.

Provide your responses on a separate document, repeating each question with the corresponding response included below the question.

The responses below relate to (check one):

_____ The Company’s currently approved and effective rates
Filing Effective Date:____________________
_____ The Company’s proposed rates
Proposed Effective Date:____________________
  • Do you use information from consumer credit reports, including credit-scoring or insurance scoring models that use information from consumer credit reports, to underwrite, rate, assign a risk to tier or company within group? If yes, answer questions 2-12 below.
  • Explain how you use information from credit reports, including credit scoring or insurance scoring models, in your underwriting and/or rating of personal lines insurance for the product in this filing. This explanation should include:
    • What specific information is used from the credit report,
    • What effect, if any, does a lack of credit history have on underwriting, acceptance or rates,
    • The name of the credit reporting agencies used to acquire the information,
    • When the information is used (initial underwriting, renewals etc.),
    • On whom the information is collected (all policyholders, selected sub-groupings of policyholders, etc.),
    • How the information is used (e.g. accept or decline risks, assign to company or tier, apply a specific rating factor, determine eligibility for payment plans).
  • If you use a credit scoring or insurance - scoring model to either underwrite or rate risks, please answer the following:
    • Identify whether the model is developed by your company or is provided by an outsider vendor.
    • Explain when you began using the credit scoring model and the date of the last change in the model. If the model was changed within the past year explain the change.
    • Provide the specific factors included in the model and the associated weights assigned to each factor and how the weights were determined that are used in the scoring model to develop a score.
    • Explain whether the score cutoffs or ranges used to underwrite or rate policies have changed over the past year. If they have changed, explain the change. For example, if the credit score cutoff for the best rate has changed from 700 to 710, give the date of the change and explain how the score cutoffs were changed.
  • What information do you disclose to your agents, to your applicants, and to your policyholders regarding the use of any credit-scoring or insurance-scoring model to either underwrite or rate risks?