Commissioner’s Bulletin # B-0034-01

Introduction

This bulletin is to inform you of the main provisions of bills affecting licensed insurance agents and agencies in Texas which were passed by the 77 ^th Legislature: Senate Bill (SB) 314; SB 414; and SB 466. The most comprehensive bill, SB 414, was signed on June 13, 2001 and will take effect on September 1, 2001. SB 414 includes the essential components of the Uniform Producer Licensing Model Act proposed by the National Association of Insurance Commissioners (NAIC), making Texas compliant with the reciprocity requirements found in the federal Gramm, Leach, Bliley Act of 1999.

One of the significant changes of SB 414 allows non-resident corporate or partnership agencies to obtain a license and solicit business directly within the state of Texas. Another major change was the consolidation of agent licenses into fewer license types. Further, the requirement that all officers, directors, and shareholders of a corporate agency or partners of a partnership reside in Texas and hold an agent's license has been eliminated.

SB 414 -- Consolidation of License Types

SB 414 reduces the number of agent licenses from 44 to 23. The Consolidation of Licenses Chart at the end of this section outlines the "roll-up" of the old license types into the new, broader authorities. Highlights of the changes in license types are below.

All Active Licenses Remain Active

A person who holds an active agent license on September 1, 2001 is considered licensed under the applicable provisions of SB 414. Any conversion from one license type to another will automatically apply to each person or entity who has an active license on September 1, 2001. License renewal dates will not be affected by the conversion.

Some licenses may be past their renewal dates but still in the 90-day renewal "grace period" on September 1, 2001. (This will happen if a license´s renewal date is between June 1, 2001 and September 1, 2001 and the license has not been renewed by September 1, 2001.) If a license is past the renewal date on September 1, 2001, the license holder must complete the renewal process by the 90 ^th day following the renewal date in order to have the license automatically convert to the new license type. Licenses that are not renewed by the 90 ^th day after the renewal date will be canceled and the license holder will have to apply for a new license.

Limited License

SB 414 allows for new Limited Property and Casualty and Limited Life, Accident and Health licenses. Since both licenses require an applicant to take the same basic examination and allow a licensee to sell prepaid legal and credit insurance, the department has decided to consolidate the two licenses into a single "Limited License."

General Lines License - Authority to Write Additional Product Lines

A person who holds a General Lines Life, Accident, Health, and HMO license may, without obtaining an additional license, write additional types of insurance contracts as follows: Limited Life, Accident, and Health; Funeral Prearrangement; Life Insurance Under $15,000 and the types of insurance authorized in Article 21.09, Texas Insurance Code (TIC), for specialty licenses.

A person who holds a General Lines Property and Casualty license may, without obtaining an additional license, write additional types of insurance contracts as follows: Limited Property and Casualty; County Mutual; the types of insurance authorized in Article 21.09, TIC, for specialty licenses; and accident and health insurance for a property and casualty insurer authorized to sell those products.

Consolidation of Licenses Chart

LIFE, ACCIDENT AND HEALTH LICENSE

Article 21.07-1, TIC

PROPERTY AND CASUALTY LICENSE

Article 21.14, TIC

Consolidation of Licenses Chart (Continued)

LIMITED LINES LICENSE

Articles 21.07-1 and 21.14, TIC

SPECIALTY LICENSES

Article 21.09, TIC

LICENSES TO BE MAINTAINED

Managing General Agent (Article 21.07-3, TIC) (08-00)

Surplus Lines Agent (Article 1.14-2, TIC) (09-00)

Life and Health Insurance Counselor (Article 21.07-2, TIC) (11-00)

Property and Casualty Risk Manager (Article 21.14-1, TIC) (18-00)

Reinsurance Intermediary Broker (Article 21.07-7, TIC) (20-00)

Reinsurance Intermediary Manager (Article 21.07-7, TIC) (20-01)

Insurance Adjusters (Article 21.07-4, TIC)

Adjuster-Trainee (17-00)

Adjuster-All Lines (17-01, 17-08)

Adjuster- Property and Casualty (17-02, 17-04, 17-05, 17-06, 17-07)

Adjuster-Workers Compensation (17-03)

Adjuster-Emergency (17-09)

SB 414 - Nonresident Entities / Reciprocity

A significant change brought about by SB 414 will allow non-resident corporate and partnership agencies to obtain a license and solicit business directly within the state of Texas. SB 414 deleted the requirement that a corporate or partnership agency be organized under the laws of Texas. Further, the requirement that all officers, directors, and shareholders of a corporate agency physically reside in Texas and hold an agent's license has been deleted. SB 414 requires that at least one officer of the corporation, or an active partner of the partnership, and all persons who actively perform acts of an agent on behalf of the corporation hold an agent's license.

SB 414 - Examinations and Pre-Licensing Training

Company-Administered Examinations

Not all licenses require examination by TDI or its contractor. SB 414 authorizes insurance companies to administer examinations for three license types:

• Life Insurance Under $15,000 license - primarily agents for stipulated premium companies, statewide mutual assessment companies, local mutual aid associations and local mutual burial associations;
• Funeral Prearrangement Life Insurance license; and
• County Mutual license.

The new examinations for the Life Insurance Under $15,000 and County Mutual licenses and a revised examination for the Funeral Prearrangement license will be available from TDI in the near future.

An applicant for the above license types must complete a 5-hour, company-administered training course and pass the company-administered examination before applying for a license. Additionally, insurance companies must submit the outlines and contents of the 5-hour training course to TDI for approval before they are administered.

Persons holding a license type that changes to a new license type

Persons whose license type rolled up on September 1, 2001 due to the provisions of SB 414 may have to take a licensing exam to keep the new license. This examination requirement affects individuals who hold the following licenses on August 31, 2001:

• Stipulated Premium Life under $15,000 (02-91)
• Farm Mutual (not previously licensed)
• County Mutual (02-06)
• Credit Insurance (02-05)
• Ticket Agent Selling Accident and Health (02-07)
• Job Protection (02-10)
• Agricultural Agent (03-00)

Exemptions from Exam Requirement

There are three main exemptions from the exam requirement:

1. Individuals who obtained their original license through examination;
2. Individuals who "solicited insurance on behalf of a stipulated premium company, farm mutual company, or county mutual insurance company for at least 24 months before" September 1, 2001;
3. Individuals who are re-applying for a license type that he/she previously held if:
4. 1. The application is received by TDI within one year of the previous license´s expiration date, and
   2. The previous license was not denied, revoked, or suspended by TDI

If your license type is rolling up on September 1, 2001, and you do not meet one of the exemptions in the above paragraph, use the following chart to determine whether you have to take an exam.

Exam Chart For Agents Not Previously Examined

SB 414 - Continuing Education

SB 414 requires all individuals holding a general or limited license to complete continuing education (CE).

New CE Requirements take effect with renewals on or after January 1, 2003

The effective date of the new license law is September 1, 2001; however, new CE requirements apply only to licenses renewing on or after January 1, 2003, since the CE section is effective on that date. That means that an agent or adjuster who renews before December 31, 2002 must comply with the laws and regulations that were in effect prior to SB 414. Licensees who renew a license on or after January 1, 2003 must meet the new CE requirements listed below.

SUMMARY OF CE REQUIREMENTS BY LICENSE TYPE

(for renewals on or after January 1, 2003)

Additional CE changes for renewals on or after January 1, 2003

• Only half of the hours used for CE compliance may be self-study.
• All licensees, including adjusters, must take a minimum of 2 hours of CE in ethics per renewal period.
• In addition to the ethics requirement, adjusters must complete 4 hours of approved consumer protection courses per renewal period.
• No licensee will be required to take more than 30 hours of approved CE per renewal period because more than one license is held.
• The CE exemption for individuals who have been licensed at least 20 years has changed to apply only to individuals who held a license continuously for 20 years instead of to any individual who has a total of 20 licensed years. TDI may accept CE hours completed in other professions or in association with professional designations in an insurance-related field.

Other SB 414 Licensing Changes

Referral Fees allowed

The referral by an unlicensed person to an insurance agent is not the act of an agent if the unlicensed person does not discuss "specific insurance policy terms or conditions with the customer or potential customer." A referral fee may be paid to such an unlicensed person if the payment is not "based upon the purchase of insurance" by the customer.

Subagents

A General Lines Life, Accident, Health and HMO agent or a General Lines Property and Casualty agent may appoint a licensed agent as a subagent to act under the sponsoring agent´s license. The subagent:

• may represent the insurance carriers to which the sponsoring agent is appointed and is not required to be separately appointed by the insurance carriers;
• must be licensed to write each type of insurance he/she is employed to write, but is not required to hold each type of license issued to the sponsoring agent or agency;
• may be individually appointed by insurance carriers as well as being appointed as a subagent; and
• may be appointed as a subagent of multiple sponsoring agents and agencies.

Notification of Appointment within 30 Days

An agent may act on behalf of the appointing insurance carrier before the department receives the filing of the appointment. The insurance carrier must notify the department "not later than the 30th day after the effective date of the appointment."

Bonding Requirements for Agencies

Corporate or partnership agencies will be required to have a $250,000 errors and omissions policy, or post a $25,000 bond.

Surplus Lines Agents

Non-resident surplus lines agents and agencies may now be licensed by TDI. A surplus lines agent employed by a surplus lines agency will not be required to separately meet financial responsibility and filing requirements.

Corporations, limited liability companies, or partnerships who wish to become a licensed surplus lines agency must have at least one officer, director, or active partner who has passed the surplus lines examination. The licensed entity must only conduct the "surplus lines insurance activities" through properly licensed surplus lines agents. TDI will propose, through rule, a definition of "surplus lines activities;" it is contemplated that the definition will exclude the functions of office workers who are not directly involved in the marketing and effectuation of surplus lines insurance.

Exemptions from Licensing

SB 414 preserves exemptions from licensing for: (1) full-time salaried home office employees of an insurance carrier who solicit or receive applications (although registration of such persons is required), and (2) salaried employees in the office of a licensed agent who do not negotiate or solicit coverage but who perform clerical and administrative services, including the "incidental taking of information from customers," and receipt of premiums in the office, so long as they do not receive commissions nor are paid on volume of premiums.

SB 414 also recognizes exemptions from licensing part-time agents as follows:

• a person writing life insurance under $15,000 is not required to obtain an insurance license if, in the preceding calendar year, the person wrote policies that generated, in the aggregate, less than $20,000 in direct premium;
• a person writing policies authorized under Chapter 16 of the Texas Insurance Code for a farm mutual insurance company that generated, in the aggregate, less than $50,000 in direct premium in the previous calendar year;
• a person writing industrial fire insurance policies that generated, in the aggregate, less than $20,000 in direct premium in the previous calendar year.

One-year Temporary P & C License Conversion

Any one-year temporary property and casualty license that is active on September 1, 2001 will automatically convert into a General Lines Property and Casualty license without the individual having to show completion of the 80 hours of training previously required for the temporary licensee.

SB 414 BILL SUMMARY

Article 21.01.

§1 Purpose of Act is to consolidate licenses and promote uniformity in regulation of agents.

§2 License required to solicit insurance in Texas.

§3 Subjects the listed licensees to the provisions of Subchapter A.

§4 Rules.

Article 21.01-1. Exam and Continuing Education.

§1 (a) Transfer of exam administration to a testing service.

(b) Formation of an exam advisory board.

(c) Exam requirements if test is administered by TDI.

(d) Notification of exam results.

(e) Examinee may request exam analysis.

§2 (a) Exam required of agents.

(b) Fee for exam to be set by TDI.

(c) Limited exam for limited licenses covering:

1. basic principles of insurance contracts;
2. basic laws of this state regulating the business of insurance; and
3. ethical obligations and duties.

(d) Exam exemptions.

(e) Fraternal license issued only to individuals.

(f) Exams offered in English and Spanish.

§3 (a) TDI has sole jurisdiction over agent continuing education.

(b) 15 hours per year required for general licenses including 2 hours ethics per year; 5 hours per year required for limited licenses including 2 hours per year ethics. Authority to grant reciprocity for courses taken in insurance related field.

(c) Extension of continuing education deadline at discretion of the department.

(d) No CE required for persons licensed 20 continuous years or longer as of effective date of act.

(e) TDI to certify courses; certification criteria to be established by rule; fee required for course certification; fee based on number of CE hours for the course.

(f) CE providers must register with TDI; TDI to adopt rules setting out requirements to be a provider; authority to transfer administration of CE program to an independent contractor; TDI to retain authority to establish scope and type of CE for license types.

(g) Authority to form an advisory council.

Article 21.01-2. Expiration and Renewal of Licenses.

§1A (a) 2 year renewal period established; renewal application required; renewal period may be changed by rule.

(b) Current license continues upon payment of renewal fee prior to expiration.

(c) Renewal within 90 days following expiration.

(d) Reapplication if license expired more than 90 days but less than 1 year.

(e) No renewal if license expired more than 1 year; reapplication and new exam required.

(f) Renewal of expired license if licensee has been in continual practice since cancellation of Texas license.

(g) Required to file change of address and proof of license status when relocating to a new state.

(h) No fee required under (g).

(i) TDI to send notice prior to expiration.

(j) Authority to adopt expiration dates which promote uniformity; requirement to prorate license fees.

(k) Section does not apply to Third Party Administrators.

§2A (a) Dual compensation prohibited.

(b) License required to receive commissions except renewal commissions.

(c) Rebates prohibited.

(d) Acting without a license prohibited; 5 year bar on licensure for violation.

(e) Prohibits a person who has a license revoked from soliciting for a fraternal benefit society.

(f) Prohibits a person who has a license revoked from being an officer/director/shareholder of a licensed insurance agency.

(g) Prohibits Property and Casualty agent from writing insurance in excess of value of insured property.

(h) Contingent referral fees prohibited.

(i) Section does not apply to persons licensed under Insurance Code Chapter 9.

§3A (a) Range of disciplinary actions available to TDI.

(b) Actions against a license.

(c) List of prohibited activities.

(d) 5 year bar against reapplication after license is denied/refused/revoked.

(e) Revoked licensee must show good cause to obtain a new license.

(f) Authority of TDI to place licensee on disability probation.

(g) Licensee culpable for conduct committed while licensed.

(h) Disciplinary provisions applicable to Title Insurance agents.

§4A Judicial review of commissioner's decisions on license issuance/revocation.

§5A (a) Automatic fines for: failure to complete continuing education, failure to report change of address, failure to notify TDI of administrative action by another state insurance department.

(b) Other disciplinary actions available in addition to fines.

(c) Assessment of fines subject to hearing process.

§6A Attorney General may enforce Subchapter A.

§7 Rule making authority.

Article 21.02. Who are agents.

(a) Persons who solicit insurance, take policy applications, transmit premium or adjust losses on behalf of an insurance company are held to be the agent of the company.

(b) Referral of a customer to a licensed agent is not the act of an agent under this article.

Article 21.04. Licensee is agent of insurer.

Article 21.07.

§1 (a) License required to act as an agent.

(b) Subchapter A, Chapter 21 does not apply to:

1. Employees of insurance companies who do not solicit insurance;
2. Attorney-in-fact for a reciprocal exchange;
3. Attorney-in-fact for a Lloyds plan;
4. Group motor vehicle insurance business;
5. Employee of an agent who does not solicit insurance.

§1A Definitions.

§2 (a) Application required.

(b) Application requirements to be set by rule.

(c) Applicants must be actively engaged in insurance business.

(d) Controlled business prohibited.

(e) License cannot be denied on ground that agent will work only part-time.

(f) License issued to an individual if: 18 years old, passes license exam, submits application.

(g) Sole proprietor may incorporate.

(h) Licensee to notify TDI of: change of address, felony conviction, administrative action of another insurance regulator.

(i) License issued to a corporation or partnership if: properly organized under the law, admitted to conduct business in Texas, authorized to act as an insurance agent, has at least one officer/director/partner and all other agents licensed by TDI, proves financial responsibility by bond or errors and omissions policy, registers all branch locations, files biographical information on unlicensed persons.

(j) Unlicensed employee of a corporation may not act as agent.

(k) Biographical information required for executive officers and unlicensed partners who control the licensee.

(l) Corporations to notify TDI of: change in agents representing the corporation, felony convictions against persons associated with the corporation, change in officers/directors.

(m) Banks to be licensed under the same provisions as a corporation.

(n) Prior approval of TDI required for a change in control of a licensed agent.

(o) Information required on persons obtaining control of a licensed agent.

(p) Acquisition of control may be disapproved by TDI.

(q) Change of control deemed approved if not denied within 60 days.

(r) Commissioner as agent for service of process.

(s) Cancellation of license if license holder does not maintain qualifications necessary for issuance of the license.

(t) Insurance records maintained separate from records of other business.

(u) Subagent must be licensed but not required to have each license of the appointing agent.

(v) Entities chartered by the federal Farm Credit Administration are permitted to be licensed by TDI to solicit insurance.

§3A Temporary license.

(a) Department may issue temporary license.

(b) Temporary license deemed issued if not received before eighth day following application.

(c) Temporary license may not be renewed.

(d) Temporary license may not be issued unless applicant intends to solicit insurance from the public.

(e) Temporary license may not be used to obtain commissions on sales covering:

1. the temporary licensee;
2. person related by consanguinity or affinity;
3. previous employer of licensee;
4. a previous employee of the licensee

(f) Temporary licensee may not replace an existing life policy or annuity.

(g) TDI may revoke temporary appointment powers of a company.

(h) Company to provide 40 hours training to each temporary licensee.

(i) TDI may require company to file agent training program for review.

(j) 70 percent of a company´s temporary licensees must sit for exam and 50 percent must pass.

(k) Company limited to 250 temporary licenses per year.

§6 (a) Agents may be appointed with more than one insurer.

(b) Appointments may be cancelled by insurer or agent.

(c) Agent may act for insurer prior to receipt of appointment by TDI.

(d) Agents may appoint subagents; fee required.

(e) Insurance company not required to appoint subagent.

(f) Subagent may be terminated upon notice to TDI; Section 6B applies to termination for cause.

§6B (a) Insurer or agents to notify TDI of appointments cancelled for cause.

(b) Any cancellation information is privileged and confidential.

(c) No liability may be imposed for disclosing the cancellation of appointment to TDI.

§6C (a) TDI is to collect fees and deposit them with the State Comptroller.

(b) TDI has authority to use fees for enforcing the insurance code.

(c) TDI is to determine the fee amounts by rule.

Article 21.07-1.

§1 Texas Life, Accident and Health Agents License Act.

§2 General Lines Life, Accident, Health, and HMO license required for agents writing: life/accident/health insurance, only accident and health, HMO memberships, fixed or variable annuities, combination or industrial insurance, life in excess of $15,000 for a stipulated premium company, accident and health for a stipulated premium company, agent soliciting US military personnel, or for a fraternal benefit society excluding part-time agents.

§3 Agent with general license may write limited and specialty products without obtaining any additional licenses.

§4 Limited life, accident and health license required for an agent writing: funeral prearrangement, life insurance that does not exceed $15,000 face value, local mutual aid/mutual burial/mutual assessment, pre-paid legal service contracts, credit insurance except as provided under the specialty license

(b) Limited licensee to sell only limited products.

(c) Limited licensee may obtain a temporary license.

§5 Funeral prearrangement license.

(a) License for sale of life insurance or annuity to cover delivery of funeral services.

(b) License issued to individual upon completion of company administered exam.

(c) Commissioner to prescribe a uniform exam.

(d) Commissioner may withdraw authority of company to administer exam.

(e) Funeral prearrangement agent may not write coverage exceeding $15,000 but may be appointed to act for more than one company. (see SB 314)

(f) License cancelled when licensee ceases to act for appointing company.

(g) Provisions of limited license apply to funeral license except for CE requirements (see SB314).

§6 Life Insurance not Exceeding $15,000.

(a) License for stipulated premium, mutual assessment, local mutual aid, or local mutual burial company.

(b) Company to administer exam.

(c) Commissioner may withdraw authority to administer exam.

(d) Licensee may not write insurance exceeding $15,000.

(e) License exemption for agents writing less than $20,000 in annual premium.

(f) Provisions of limited license apply.

Article 21.14.

§1 Texas Property and Casualty Agents License Act.

§2 General Lines Property and Casualty license required for: agents writing property and casualty insurance, a sub-agent or salaried employee of an agent, an agent for a county mutual insurer.

§3 Agent with general license may write limited and specialty products without obtaining any additional licenses.

§4 Authority of general licensee to write accident and health insurance for a casualty company.

§5 Emergency license without exam.

§6 (a) Limited license required for agents writing: job protection, crop insurance, farm mutual insurance, motor vehicle only insurance, manufactured homes, pre-paid legal service contracts, industrial fire, credit except under the specialty license.

(b) An entity chartered by the federal Farm Credit Administration may be licensed as agriculture agent.

(c) Limited licensee to sell only limited products.

(d) Section does not apply to:

1. Farm mutual agents generating less than $50,000 in annual premium.
2. Industrial fire agents generating less than $20,000 in annual premium

§7 Registration of full-time home office salaried employees.

§8 Insurance Service Representative.

(a) Salaried employee in office of property casualty agent.

(b) General license provisions apply.

§9 County Mutual Agent license.

(a) License issued to an individual.

(b) 5 hours training required.

(c) Insurance company to administer exam.

(d) Commissioner to prescribe exam.

(e) Limited license provisions apply.

Article 21.11.

§1 (a) TDI to license non-resident agents.

(b) Authority of Commissioner to enter into reciprocal agreements with other states.

(c) TDI may waive license requirements if other state has substantially equivalent requirements or waiver is necessary to promote uniformity.

(d) Commissioner as agent for service of process.

(e) Non-resident applicants who are not licensed in their resident states must submit criminal history information to TDI.

§2 (a) Non-resident license holder to have same rights as resident license holder.

(b) Exemption of non-resident from continuing education if agent has complied with home state continuing education requirements.

(c) CE required for non-resident agents not licensed in their resident state.

§3 (a) TDI may issue license if authority in resident state is generally comparable to the Texas license.

(b) Agents with reciprocal license may not write insurance in Texas for which they are not licensed in their resident state.

(c) Subchapter A applies to non-resident licensees.

§4 Non-resident licensing provisions do not affect home office employees.

§5 Rulemaking authority.

Article 21.07-4. Adjuster License.

§1 (a) Adjuster restricted to an individual.

(b)(8) Adjuster does not include persons employed to investigate fraudulent insurance claims.

Article 1.14-2. Surplus lines. Residency restriction removed.

Conforming Amendments.

Article 3.71.

§1 Conforms language to consolidated license terminology.

Article 3.75.

§7 (a) General life, accident and health license required to sell variable annuities.

(b) Regulation of agents selling variable products subject to Subchapter A.

Article 5.13-1.

(c) Conforms code reference to new consolidated license.

Article 8.24.

(h) Permits a carrier to underwrite business only through TDI-licensed agents.

Article 10.37-3.

§1 (a) License required for agents of fraternal benefit societies.

(b) Licensing of agents subject to Subchapter A.

§2 (a) Persons soliciting for a fraternal prior to effective date of Act to be issued a license upon submission of an application to TDI.

(b) Persons soliciting for less than 2 years to take exam within 9 months following license issuance.

(c) Persons soliciting for more than 2 years to take exam within 2 years following license issuance.

Article 16.24A.

(a) Requires a license to solicit for a farm mutual insurer.

(b) Prohibits a farm mutual from appointing an agent under the provisions of 21.14-2.

Article 17.25.

§9 Subjects county mutual agents to provisions of Subchapter A of Chapter 21.

Article 21.07-3.

§19 Managing General Agents subject to provisions of Subchapter A.

Article 21.07-6.

§3(c) Third Party Administrators subject to disciplinary provisions of Subchapter A.

Article 21.21-9. Conforms definition of depository institution.

Article 22.14.

Requires agents of stipulated premium companies to be licensed under Subchapter A of Chapter 21.

Article 23.23A.

Requires agents of a non-profit legal services corporation to be licensed under Subchapter A of Chapter 21.

Article 25.06. Job protection agents subject to Subchapter A.

SB 314 - Texas Department of Banking

SB 314 continued the existence of the Texas Department of Banking for 12 years and made various statutory changes. Section 19 of the bill amends Article 21.07-1, section 5B, TIC, to exclude pre-paid funeral agents from CE requirements and allows pre-paid funeral agents to be appointed by more than one insurance company.

SB 466 - Specialty Telecommunications License

SB 466 authorizes TDI to issue a specialty license to a retail seller of telecommunications equipment. The entity that holds a specialty license would be able to sell insurance that provides coverage to customers for the loss of, the malfunction of, or damage to the telecommunication equipment. The sale of this type of insurance must be connected to a sale of telecommunications equipment.

Like other specialty licenses, the telecommunications license may be issued to a business that offers the insurance products at the "point of sale."

Please call the Licensing Division at 512-322-3503 or visit the Department´s web site at www.tdi.state.tx.us if you have any questions.

Matt Ray

Deputy Commissioner

Licensing Division