The Insurance School | #NeverHuntAlone
Jason L. Perez | The Insurance School .com
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The First Unauthorized Entities Issue.5
[K, (2.3.1) p. 21]
In Ancient America, the insurance marketplace was regulated by the states without federal interference. To say this was a marketplace in dismay is putting it mildly. The need to regulate the industry had become obvious so, in 1868 Virginia became the first state to place restrictions on Foreign Insurance Entities.
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*Foreign = Non-Resident, based in a state other than Florida (home state).
The new requirements weren’t drastic at all. Basically, if you wanted to conduct the business of insurance in Virginia, you now needed to comply with non-resident licensing procedures and *surety bond requirements.
On average, surety bonds ranged from thirty to fifty thousand dollars. These bonds were deposited with the state and intended to protect consumers from losses in the event their insurer didn’t pay claims.
If an entity didn’t comply with state guidelines, they were now deemed an #Un-Authorized entity and subject to penalties.
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In comes our antagonist, Mr. Samuel Paul. America’s First Unauthorized Entity.
Mr. Paul, a resident of Virginia was appointed as a fire insurance agent. The problem was, his appointments were with New York based insurers selling to the Virginia marketplace.
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Foreign Insurers based out of New York, NOT Paul’s HOME STATE of Virginia.
Mr. Paul complied with most of Virginia’s requirements however, he didn’t submit a surety bond with his application. Since no surety bond was submitted, his application for licensure was incomplete and therefore declined.
Despite not being Authorized to sell fire insurance in Virginia, Mr. Paul continued operating as an agent and was eventually fined $50 by the state.
Here’s where conflict enters our story.
Mr. Paul argued to the local circuit courts that his $50 fine wasn’t valid because, Federal commerce laws prevented states from treating citizens of other states in a discriminatory manner.
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Mr. Paul argued the business of insurance was considered a commerce matter and therefore under the regulation of federal laws – Not State Laws.
Virginia’s local circuit and Supreme Court didn’t agree with Mr. Paul and upheld the state’s decision to impose a fine. The ruling declared business entities were not a citizens and the business of insurance was not a typical transaction of commerce.
The 1868 Paul -vs- Virginia ruling officially moved the business of insurance beyond federal legislation until 1944.
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1944, United States – vs – Southeastern Underwriters (SEUA)
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Business of insurance is a form of interstate commerce = Federal Regulation.
[K, (2.3.1) p.21]
Paul vs Virginia was upheld for 75 years until the State – vs – Federal regulation needed to be re-addressed.
The United States Supreme Court overturned the previous 1868 Paul vs Virginia ruling and determined the business of insurance was in fact subject to certain federal regulations. This new Supreme Court ruling rendered many state laws void or ineffective because, they contradicted the NEW superseding federal insurance laws which now ruled over the lands.
The US Supreme Court ruling didn’t take away a state’s ability to regulate the business of insurance. It did, however, overrule conflicting state laws and helped begin framing the marketplace we have today.
The United States -vs- Southeastern Underwriters case signifies a tipping point and marks the beginning of a regulatory shift toward federal regulations, despite the fact insurance marketplaces are regulated on the state level today.
In case you didn’t notice…
I’m your ghost of marketplaces past, present, and future.
This means before we jump into discussions about 2020’s version of insurance regulation, we’re going to stop in on the old McCarren and Ferguson farm in the year of 1945. Just one year after the Federal Government stepped in to straighten things out.
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1945, McCarran – Ferguson Act
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McCarran – Ferguson didn’t have a farm e-i-e-i-o.
[K, (2.3.1) p. 21]
The McCarran Ferguson Act did however resolve the chaos which followed South-Eastern Underwriters Association (SEUA) case.
In a nutshell…
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To ensure the business of insurance remained focused on the best interest of the local communities, the industry should be governed by the states us locals live in… NOT THE FEDERAL GOVERNMENT.
On Flip Side, the ruling still found it necessary to leave some wiggle room to subject the industry to Federal Anti-Trust laws – If necessary. Despite leaving the regulation of the insurance industry in the hands of the individual states, they were still forced to comply with new federal guidelines.
In 2010, the House of Representatives voted 406 to 19 to repeal the McCarran – Ferguson Act to specifically introduce stiffer anti-trust guidelines and take a larger role in healthcare. Historically, Democrats want social everything and Republicans want to deregulate everything.
I don’t care where you stand on the topic. Just remember, the business of insurance is regulated at the state level, NOT on the federal. If you have a problem with healthcare in your state, take it up with your Governor. Stop looking to the federal government for support and answers which should be provided by our local government and communities.
Not part of your community?
Becoming an agent can help you with that.
Now you’re up to speed on who governs things so… let’s transition into who’s running things out here in the Florida marketplace.
*Licensing & Education requirements are types of consumer protections.
Continuing Education Requirements
- Compliance Period = Every 2 Years
- ALL NEWLY Licensed Insurance Agents in Florida MUST complete #24–hours of Continuing Education every two (2) years.
USA Patriot Act – 2001
*Purposed with helping to identify money laundering activities.
3Because of the September 11th tragedy, congress enacted what’s now known as the USA Patriot Act. By eliminating certain aspects of our American civil liberties and privileges, the “Patriot” Act granted the Federal government the authority to better address potential money laundering activities which may be utilized to fund domestic and foreign terrorism.
In theory, the authority to “provide guidance to financial institutions and increase regulation on financial services when deemed necessary” has made conventional methods of money laundering and terrorist funding difficult. In addition to the regulatory authority to require unconditional compliance from financial institutions, other key components of the Patriot Act are purposed with;
Improving the ability for financial institutions to better ensure employee integrity,
Seize known laundered assets,
Requiring individuals and domestic (especially licensed financial & risk management professionals) entities to report potential money laundering activities,
Investigate US Officials and prosecute for attempts to use the US Financial system for unauthorized personal gain.
Take notice: A reoccurring theme of self-regulation developing.
As stated, the scope of the Patriot Act is designed to help regulators promote and facilitate, uniform method of communication between insurers and financial institutions. As a result, since 2001, both insurers and financial institutions have been required to continuously maintain internal compliance systems, develop professional compliance/anti money laundering officers as well as specialized trainings focused on identifying “abnormalities” which may (or may not) be related to illegal money laundering activities.
Basic identification requirements have also been re-defined by the Patriot Act. Now any person seeking to open a banking or investment type account, attempting to obtain insurance or any other financial related services must verify their identity. This verification process is typically accomplished by the consumer furnishing two (2) forms of approved identification. Although it is impossible to eliminate terrorist funding completely, it is possible to reduce the ease in which money is transferred by rendering conventional methods of transferring money ineffective.
Annuities and Life Insurance strategies are known as efficient ways to transfer wealth from one individual or entity to another.
Licensees who turn a blind eye to potential illegal activities and choose to stay commission over duity focused, may eventually be used as pawns by someone with bad intentions. Hopefully once you’ve completed the course the similarities between the Patriot Act and our professional responsibilities to verify, identify & retain client records will be clear.
Let’s briefly discuss the use of the word REQUIRED…
The regulation of our Financial and Insurance marketplace is the professional responsibility of every licensee participating within it, a theme reflected within the Patriot Act. “If You See Something, Say Something”, is the message broadcasted and displayed throughout our nation’s busses, trains and airports in hopes of preventing another disaster of 911 magnatuide.
Reporting financial anomalies and intercepting terrorist funding is equally as important as identifying a suspicious package.
Behavior which undermines a strong professional or social environment should never be tollerated. By accepting the Agent’s Code of Ethics, we assume a certain amount of professional responsibility over the protection of our marketplace. As professionals/licensees, we’re not expected to physically interviene, our responsibility is to report unfair behavior and improper business practices.
The Patriot Act in comparison to the Agent Code of Ethics can be seen as a way to extend professional responsibility into the public sector in order to promote regulation as a social responsibility.
Page BreakFair Credit Reporting Act – 1970
www.FTC.gov, Defining the Individuals Right to Privacy.
#Identity Theft victims and Active military have additional rights, for more information visit the Federal Trade Commission website; www.ftc.gov/credit.
These days, our consumer purchase history is archived by the business we interact with, from credit reporting agencies, banking institutions and landlords, to the Medical Information Bureau (MIB) which documents the outcome of our doctor and hospital visits.
Regardless who is doing the reporting, it’s important to understand our personal consumer history is being used by companies to judge our worthiness as a consumer and potential employee. The Fair Credit Reporting Act is purposed with ensuring the information and claims being reported on us is accurate and within the authority of the entity doing the reporting.
All consumers have a right to know what information is contained within their personal file provided the request is accompanied by proper identification. Below is a list of consumer matters specifically addressed by the Fair Credit Reporting Act.
If an entity utilizes information contained within your profile and as a result, denies your application for; credit, insurance or employment, the applicant has the right to know where the information used in the decision was obtained.
Transparency in reporting gives us consumers an opportunity to address the claims being made against us. When necessary, the law grants consumers the ability to correct inconsistencies and inaccuracies which may exist.
Consumers are entitled to a “File Disclosure” which as of 2005 is free to consumers upon request once every twelve (12) months. This “File Disclosure” is also available to consumers who are,
The focus of a legal action, initiated by an individual utilizing information contained within the profile,
A victim of Identity Theft and as a result have placed a fraud alert on your personal file,
Addressing inaccurate information within your profile due to some type of Fraud committed against you,
On public assistance or,
Currently unemployed but expect to apply for a job within 60 days.
Consumers also have the right to,
Request a credit score,
Dispute incomplete or inaccurate information being reported,
Limit “prescreened” offers for credit,
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Jason L. Perez - The Florida Local
