ins commissioners memorandum 6l

BENJAMIN J. CAYETANO

GOVERi'\J"OR

MAZIE K. HIRONO

LT GOVERNOR

•

•

STATE OF HAWAII

INSURANCE DNISION

DEPARTMENT OF COMMERCE & CONSUMER AFFAIRS

P 0. BOX 3614

HONOLULU, HAWAII 96811-3614

250 South King Street, FifU1 Floor

Honolulu, Hawaii 96813

August 1, 2002

KATHRYN S.

MATAYOSHI

DIRECTOR

WAYNE METCALF

INSURANCE COMMISSIONER

Memorandum 2002

6L

MEMORANDUM

TO:

FR:

Wayne

//

RE:

Questions and Answers Regarding Producer Licensing

With the implementation of the Producer Licensing Law effective July 1, 2002, producers and

other licensees have contacted the Insurance Division with questions about the new law.

Therefore, to address these questions and to provide guidelines relating to producer licensing, the

Insurance Division has again consolidated some of the more frequently asked questions into a

"Q&A" format for the benefit of all producers.

For more information about the new license requirements, producers are also urged to review

Memorandum 2002-3L dated April 19, 2002.

QUESTIONS AND ANSWERS ABOUT

PRODUCER LICENSING

Resident and Nonresident Producer License

When will I receive my new producer license?

New producer licenses will replace approximately 8,500 previously issued licenses

relating to the general agent, subagent, and solicitor classifications.

The Insurance Division is in the process of preparing and mailing renewal notices to all

licensed producers. The notices will be mailed in increments. The first incremental

mailing is scheduled for August 1, 2002. Each notice will include information regarding

the renewal fee (minus any applicable credit), new license number, new renewal date,

and when applicable, the required CE credit renewal due date.

Renewals for all individual resident producer licenses will be placed on the new

"birth month" renewal system. The same "birth month" renewal system will also apply

to individual nonresident producer license renewals

l include information regarding

the renewal fee (minus any applicable credit), new license number, new renewal date,

and when applicable, the required CE credit renewal due date.

Renewals for all individual resident producer licenses will be placed on the new

"birth month" renewal system. The same "birth month" renewal system will also apply

to individual nonresident producer license renewals.

The license renewal date for a resident producer business entity (agency,

corporation, partnership, etc.) will be July 16. The license renewal for a nonresident

producer business entity will be April 16.

Barring any unforeseen delays, the Insurance Division will mail the renewal notices to

all licensed producers ~n accordance with the following schedule:

License Tyge

Birth Month

Mail Date

Due Date

(60 calendar days)

Res. Producer

Feb, Apr, Jun

8/01/02

9/30/02

Res. Producer

Aug, Oct, Dec

8/15/02

10/14/02

Res. Producer

Jan, Mar, May

8/29//02

10/27/02

Res. Producer

Jul, Sep, Nov

9/19/02

11/11/02

Res. Business

Entity Producer

July 16th

9/26/02

11/25/02

NR Producer

Jan to Dec

9/26/02

11/25/02

NR Business

Entity Producer

April 16th

9/26/02

11/25/02

Once payment of the renewal fee is received, the Insurance Division will issue the new

Producer License to the licensee.

Pending the issuance of my new producer license, can I continue to sell

insurance under my old GA, SA, and SO license?

Yes.

Must I wait until my new producer license is issued before I receive an

insurer or producer appointment?

No. Pending the issuance of your new producer license, the Insurance Division will

accept an insurer or producer appointment made after July 1, 2002.

Will the requirements for the designated representative of a general agency

change after July 1, 2002?

Yes. After July 1, 2002 the business entity can only designate a licensed producer as its

designated representative

or producer appointment?

No. Pending the issuance of your new producer license, the Insurance Division will

accept an insurer or producer appointment made after July 1, 2002.

Will the requirements for the designated representative of a general agency

change after July 1, 2002?

Yes. After July 1, 2002 the business entity can only designate a licensed producer as its

designated representative. Section 431:9A-106(b)(2) reads in part:

"(b) A business entity acting as an insurance producer is required to obtain

an insurance producer license. Application shall be made using the uniform

business entity application. Before approving the application, the commissioner

shall find that:

(2) The business entity has designated a licensed producer who is a

natural person responsible for the business entity's compliance with

the insurance laws and rules of this State;"

Prior to July 1, 2002, I was a solicitor licensed to sell life insurance. I was

also the designated representative for a general agency that sold property

and casualty insurance. Since I will receive a producer license, will the new

license allow me to continue as the DR for the business entity?

Because you were only authorized to sell life insurance under the solicitor license, you

will have the same line of authority under the new producer license. To continue as the

DR you will need to amend your producer license to include the same P&C lines as the

business entity.

I am authorized to sell life insurance, which under my old solicitor license

allowed me to sell different forms of life insurance, including variable life and

variable annuity contracts of insurance. Effective July 1, 2002, I understand

there is now a separate line of authority for producers who sell variable life

and variable annuity insurance. Since I plan to sell variable life and variable

2

m authorized to sell life insurance, which under my old solicitor license

allowed me to sell different forms of life insurance, including variable life and

variable annuity contracts of insurance. Effective July 1, 2002, I understand

there is now a separate line of authority for producers who sell variable life

and variable annuity insurance. Since I plan to sell variable life and variable

2

annuity insurance, what must I do to have this line authority included on my

producer license?

A producer who sells variable life and variable annuity contracts of insurance is required

to register with the National Association of Securities Dealers, Inc. (NASO).

The Insurance Division will soon mail the license renewal notice to all producers. Those

who intend to sell variable life and variable annuity contracts of insurance are required

to submit the completed NASD securities registration document, together with the

renewal fee payment to the Insurance Division. Once the fee payment, the completed

NASD registration document, and other applicable renewal requirements are met, the

Insurance Division will amend the license to include variable life and variable annuity,

and issue the new license to the producer.

The same requirements will apply to a new applicant for a producer license if the line of

authority is to include variable life and variable annuity contracts of insurance.

A sample of the NASD securities registration document is attached to this

memorandum. This document can be obtained from www.nasdr.com or the producer's

securities broker/dealer

and issue the new license to the producer.

The same requirements will apply to a new applicant for a producer license if the line of

authority is to include variable life and variable annuity contracts of insurance.

A sample of the NASD securities registration document is attached to this

memorandum. This document can be obtained from www.nasdr.com or the producer's

securities broker/dealer.

Appointments

Under the producer licensing law, when does an insurance producer become

authorized to appoint another producer to act as a producer for the insurer?

Section 431:9A-114(a), HRS, reads:

"An insurance producer shall not act as an agent of an insurer unless the

insurance producer becomes an appointed agent of that insurer or is contracted

and appointed by with an insurance producer so appointed." (Emphasis added)

Only the producer who is "so appointed" by the insurer may appoint another producer

to act as an agent for that insurer. Accordingly, a producer who does not have a direct

appointment with the insurer may not appoint other producers to represent the insurer.

For example, Insurance Company X appoints Producer Y to sell life insurance for the

company. Producer Y then appoints another producer, Producer Z, to sell life insurance

on behalf of Company X. In this example, Producer Z may not, in turn, appoint other

producers because Producer Z does not have a direct appointment with Company X.

Will there be new procedures after July 1, 2002 to notify an insurer whether

3

nce Company X appoints Producer Y to sell life insurance for the

company. Producer Y then appoints another producer, Producer Z, to sell life insurance

on behalf of Company X. In this example, Producer Z may not, in turn, appoint other

producers because Producer Z does not have a direct appointment with Company X.

Will there be new procedures after July 1, 2002 to notify an insurer whether

3

or not a producer who is currently appointed has successfully completed the

license renewal?

The notification procedure in effect prior to July 1, 2002, will remain the same. If the

producer complies with the renewal requirements, the license will be renewed

automatically. The appointment which producers had prior to July 1, 2002 will remain

in effect with no further notice to the insurer. However, if the producer fails to comply

with the renewal requirements, the license will be placed on "inactive" status. When

the license becomes "inactive" the Insurance Division will notify the insurer relative to

the appointment.

As a former general agent, subagent, and solicitor, do I need to notify the

various insurers about the appointments I held prior to July 1, 2002 once I

receive my new producer license and producer license number?

For the same reasons cited in the previous question, it is not necessary for a former

general agent, subagent, and solicitor to notify insurers about previous appointments

held before to July 1, 2002.

If I am licensed in four {4) States, do I pay only one fee?

No. You will be responsible for the payment of all applicable fees charged by each state

in which you currently hold a nonresident producer license.

Please explain the appointment process and requirements.

Under the producer licensing law, an insurance producer shall not represent or act as

an agent for an insurer without an appointment

I am licensed in four {4) States, do I pay only one fee?

No. You will be responsible for the payment of all applicable fees charged by each state

in which you currently hold a nonresident producer license.

Please explain the appointment process and requirements.

Under the producer licensing law, an insurance producer shall not represent or act as

an agent for an insurer without an appointment. Specifically, section 431:9A-114 (a)

and (b) reads as follows:

"(a) An insurance producer shall not act as an agent of an insurer unless the

insurance producer becomes an appointed agent of that insurer or is contracted

with and appointed by an insurance producer so appointed.

(b) To appoint a producer as its agent, the appointing insurer or producer

shall file, in a format approved by the commissioner, a notice of appointment

within fifteen days from the date the agency or business entity contract is

executed or the first insurance application is submitted to the insurer or

producer. If the appointment form is not received by the commissioner within

the fifteen-day period, the appointment shall become effective on the date on

which the commissioner receives the appointment form. A producer shall

disclose to a client if the conditions of subsection (a) have not been met. An

insurer or producer may also elect to appoint a producer to all or same insurers

within the insurer's or producer's holding company system or group by filing with

the commissioner a single appointment notice."

4

become effective on the date on

which the commissioner receives the appointment form. A producer shall

disclose to a client if the conditions of subsection (a) have not been met. An

insurer or producer may also elect to appoint a producer to all or same insurers

within the insurer's or producer's holding company system or group by filing with

the commissioner a single appointment notice."

4

An insurer may appoint any number of producers. A producer who is appointed by an

insurer may appoint other producers. However, a producer who does not have a direct

appointment from an insurer may not appoint other producers.

After July 1, 2002, will there be new appointment forms?

Yes. The new appointment forms are I/P/7 /2002 for Insurer-to-Producer

appointments and P/P/7/2002 for Producer-to-Producer appointments. The new

forms are available at the Insurance Division. Also, the appointment forms will soon be

available for downloading from the Division's website at www.state.hi.us/dcca/ins.

How many insurers may an insurance producer represent?

A producer may represent more than one insurer, either by direct appointment or by

being appointed by another producer.

Can an applicant qualify for a producer license if the applicant does not have

an appointment in place at the time of application?

Yes. Effective July 1, 2002, the Insurance Division will no longer require an

appointment as a condition of licensure. However, a licensed producer may not

represent or act as an agent for an insurer without an appointment. Again, producers

are advised to review section 431:9A-114, Hawaii Revised Statutes.

What if a producer never gets an insurer's appointment after policies are

sold?

A producer who continues to sell, solicit, or negotiate insurance without an appointment

will be in violation of section 431:9A-114. The applicable penalties may include license

suspension or revocation, or civil fine

appointment. Again, producers

are advised to review section 431:9A-114, Hawaii Revised Statutes.

What if a producer never gets an insurer's appointment after policies are

sold?

A producer who continues to sell, solicit, or negotiate insurance without an appointment

will be in violation of section 431:9A-114. The applicable penalties may include license

suspension or revocation, or civil fine.

Can the appointment fees for other States be available on line?

At present, there are no websites that give a state-by-state listing of appointment fees.

What if we secure an appointment with an insurer that is not licensed in the

State of Hawaii? In the case of an insolvency, how will this affect the Hawaii

Guaranty Insurance Association?

Unless the business was transacted as surplus lines business, Article 8 of the Hawaii

Insurance Code will not allow unlicensed insurers to do business in this State. Also, the

Insurance Division will not accept appointments from unlicensed insurers.

5

In the case of insolvency, insurance claims filed with an unlicensed insurer are not

defined as "covered claims" for purposes of the Hawaii Guaranty Insurance Association.

Must a producer have a direct appointment with the insurer before the

insurer can pay the producer a commission?

No. In lieu of a direct appointment, a producer may receive commissions from another

producer under a Producer-to-Producer appointment.

Limited Lines Producer License

Did the producer licensing law adopt the old classifications for limited lines

license, such as those which existed prior to July 1, 2002?

Yes. Article 431:9A, HRS, lists the following classifications:

(1)

A limited license to travel agents whose authority is limited to travel ticket

insurance policies of disability, baggage, or personal effects;

(2)

A limited license to individuals in charge of vending machines that offer

travel insurance;

cations for limited lines

license, such as those which existed prior to July 1, 2002?

Yes. Article 431:9A, HRS, lists the following classifications:

(1)

A limited license to travel agents whose authority is limited to travel ticket

insurance policies of disability, baggage, or personal effects;

(2)

A limited license to individuals in charge of vending machines that offer

travel insurance;

(3)

A limited license to an individual who sells disability insurance as a

promotional device to improve newspaper circulation;

( 4)

A limited license to -ereditors that offer credit life and credit disability

insurance to debtors under group or individual policies; and

(5)

A limited credit insurance license to any individual who sells group or

individual policies of credit life, credit accident & health, credit involuntary

unemployment, or credit property insurance, provided the individual

satisfactorily passes a limited license examination.

When will the examination for limited lines producer license be available?

The examination is currently under review and will be available as soon as the review is

completed.

Commissions and Referral Fees

Commissions and other related fees were discussed in Memorandum 2002-3L dated

April 19, 2002. Licensees were advised that the applicable statute was section 431:9A-

113, HRS, which reads:

6

"(a) An insurance company or insurance producer shall not pay a

commission, service fee, brokerage fee, or other valuable consideration to a

person for selling, soliciting, or negotiating insurance in this State if that person

is required to be licensed under this article and is not so licensed.

Licensees were advised that the applicable statute was section 431:9A-

113, HRS, which reads:

6

"(a) An insurance company or insurance producer shall not pay a

commission, service fee, brokerage fee, or other valuable consideration to a

person for selling, soliciting, or negotiating insurance in this State if that person

is required to be licensed under this article and is not so licensed.

(b) A person shall not accept a commission, service fee, brokerage fee, or

other valuable consideration for selling, soliciting, or negotiating insurance in this

State if that person is required to be licensed under this article and is not so

licensed.

Consideration for selling, soliciting, or negotiating insurance in this State if that

person is required to be licensed under this article and is not so licensed.

(c) Renewal or other deferred commissions may be paid to a person for

selling, soliciting, or negotiating insurance in this State if that person was

required to be licensed under this article at the time of the sale, solicitation, or

negotiation and was so licensed.

( d) An insurer or insurance producer may pay or assign commissions,

service fees, brokerage fees, or other valuable consideration to an insurance

agency or to persons who do not sell, solicit, or negotiate in this State, unless the

payment would violate section 431:13-103."

Referral Fees

Subsequent to the issuance of Memorandum 2002-3L, producers have contacted the

Insurance Division with additional questions regarding "referral fees". The following are

of some of the questions asked by producers

valuable consideration to an insurance

agency or to persons who do not sell, solicit, or negotiate in this State, unless the

payment would violate section 431:13-103."

Referral Fees

Subsequent to the issuance of Memorandum 2002-3L, producers have contacted the

Insurance Division with additional questions regarding "referral fees". The following are

of some of the questions asked by producers.

What are the common conditions for referral fees?

Do referral fees pertain to variable life and annuity contracts?

Can you give a referral fee to a mortgage broker, loan officer, or real estate

broker who refers clients to an insurance producer?

Can a producer advertise referral fees?

Whether the producer is allowed to pay a referral fee in all, some, or none of the above

cases will depend on the facts and circumstances relevant to each case. However,

producers are urged to consider the following as general guidelines when contemplating

the payment of referral fees.

Pursuant to section 431:9A-113(a), HRS, no producer shall pay a commission, service

fee, brokerage fee, or other valuable consideration to an unlicensed person who sells,

solicits, or negotiates insurance in this State. Accordingly, a producer who paid a

referral fee to a person who engaged in unlicensed insurance business in this State

would, by making such a payment, be in violation of this section. The applicable

penalties may include license suspension or revocation, or a civil fine.

7

ee, or other valuable consideration to an unlicensed person who sells,

solicits, or negotiates insurance in this State. Accordingly, a producer who paid a

referral fee to a person who engaged in unlicensed insurance business in this State

would, by making such a payment, be in violation of this section. The applicable

penalties may include license suspension or revocation, or a civil fine.

7

The terms Sell, Solicit, and Negotiate are defined in the producer licensing law as

follows:

"'Sell' means to exchange a contract of insurance by any means, for money or

its equivalent, on behalf of an insurance company."

" 'Solicit' means attempting to sell insurance or asking or urging a person to

apply for a particular kind of insurance form a particular company."

" 'Negotiate' means the act of conferring directly with or offering advice directly

to a purchaser or prospective purchaser of a particular contract of insurance

concerning any of the substantive benefits, terms, or conditions of the contract,

provided that the person engaged in the act either sells insurance or obtains

insurance from insurers or producers."

In the past, the Insurance Division has provided guidelines as to the type of activities or

conduct that may be interpreted as "selling" or "soliciting". In Memorandum 1998-lSA

the following guidelines were offered which, when viewed in conjunction with the

producer licensing law, are still applicable:

(1)

Selling or attempting to sell insurance, or attempting to sell additional

coverage or other insurance;

(2)

Assisting a prospective or present insured in filling out insurance

application;

(3)

Explaining, describing, or recommending insurance, coverage, terms or

benefits;

(4)

Quoting rates or premiums; or

viewed in conjunction with the

producer licensing law, are still applicable:

(1)

Selling or attempting to sell insurance, or attempting to sell additional

coverage or other insurance;

(2)

Assisting a prospective or present insured in filling out insurance

application;

(3)

Explaining, describing, or recommending insurance, coverage, terms or

benefits;

(4)

Quoting rates or premiums; or

(5)

Binding coverage, issuing or delivering policies.

In view of section 431:9A-113(a), HRS, producers should reasonably ascertain, prior to

paying the referral fee, whether the person who made the referral had engaged in the

sale, solicitation, or negotiation of insurance so as to require a license. Payment in the

latter situation is prohibited.

Miscellaneous

Where can I get information about Continuing Education requirements?

Many of the recent questions regarding CE are still applicable to an earlier Q&A

published by the Insurance Division. Therefore, producers are urged to review the CE

Q&A through the Division's website at www.state.hi.us/dcca/ins.

8

I assume the license examination will be changed to accommodate the new

Producer Licensing Law. If so, when will the new examination be given?

The written examination will include new questions about producer licensing.

Candidates applying for a producer license on or after July 1, 2002 will be given the

new exam. There will also be a new limited examination for those applying for a

Personal Lines License.

a) For property and casualty lines, how does the Producer Licensing Law

protect the independent producer from other producers {former general

agent) who want to re-write the agency contract so that the "book of

business" brought in by the independent producer will now belong to the

appointing producer {former general agent)?

b) Under the old law, an independent solicitor's "book of business" belonged

to the independent producer and not the agency that appointed the

producer to sell property and casualty insurance

s {former general

agent) who want to re-write the agency contract so that the "book of

business" brought in by the independent producer will now belong to the

appointing producer {former general agent)?

b) Under the old law, an independent solicitor's "book of business" belonged

to the independent producer and not the agency that appointed the

producer to sell property and casualty insurance. How does the new

Producer Licensing Law protect the independent producer?

Because the two questions are similar, they were combined to generate the following

answer:

The licensee's "book of business" has always been a contractual matter, and not one

governed by statute. For this same reason, the producer licensing law does not change

or affect the standard agency or producer agreement between independent contractors.

Producers should be aware that under the new licensing law, individual producers are

now allowed to seek direct appointments with the insurer.

Please direct additional questions or inquiries regarding the producer licensing law to:

State of Hawaii

Insurance Division

P.O. Box 3614

Honolulu, HI 96811

Telephone: (808) 586-2788

9

Document Title

~~I>'~

-NASD securities registration

document.

Page l of l

__Jfile for:

CRO#~:=t.

Data Current as of: 07 /23/2002

CYNTHIA

Registrations

This section provides the jurisdictions with which the broker is currently

registered or licensed to do business, the category of each registration,

and the date on which the registration approval was granted.

Employer:•••••••••••••••

Jurisdiction/SRO Category

Status

HI

Agent

Approved

Invest. Co and

NASO

Variable

Approved

Contracts '

s~r-te..s r.a

Document Title

Status As Of Date

06/11/2002

06/04/2002

Page l of l

__Jfile for:

securities registration document

red or licensed to do business, the category of each registration,

and the date on which the registration approval was granted.

Employer:•••••••••••••••

Jurisdiction/SRO Category

Status

HI

Agent

Approved

Invest. Co and

NASO

Variable

Approved

Contracts '

s~r-te..s r.a

Document Title

Status As Of Date

06/11/2002

06/04/2002

Page l of l

__Jfile for:

securities registration document.

Data Current as of: 07 /23/2002

CRD#···

MICHAEL····

Registrations

This section provides the jurisdictions with which the broker is .curre.ntly

registered or licensed to do business, the category of each reg1strat1on,

and the date on which the registration approval was granted.

Jurisdiction/SRO Category

HI

Agent

General

Status

Approved

Status As Of Date

10/14/1997

NASO

Securities

Approved

01/01/1997

Representative

~

Sert~s !+

http://pdpi3.nasdr.com/pdpi/display.asp

10

7/23/2002

Attachment