Insurance Regulation, Licensing, and Producer Responsibilities
Who regulates whom
Insurance is regulated by the states, not the federal government. In Virginia the regulator is the Bureau of Insurance, a division of the State Corporation Commission, headed by the Commissioner of Insurance. Insurers must hold a certificate of authority and are either admitted (authorized) or nonadmitted (surplus lines). Producers must be licensed for each line they sell (property & casualty, life & health, personal lines, etc.), and must be appointed by each insurer they represent.
Producer duties
- Fiduciary duty: premiums belong to the insurer or the insured, never the producer. Commingling premium funds with personal funds is prohibited.
- Only licensed and appointed producers may solicit, negotiate, or sell.
- Prohibited practices: rebating any part of the commission, twisting (misrepresentation to induce replacement), misrepresentation, false advertising, and transacting without a license.
- Producers must report address changes, administrative actions, and criminal convictions to the Bureau; insurers must notify the Bureau when a producer is terminated for cause.
Traps the exam sets
- The producer is the agent of the insurer, not the insured. Statements within the producer's actual or apparent authority can bind the insurer.
- Charging the client a fee on top of commission generally requires written disclosure and authorization.
- A client who asks for a rebate does not make the rebate legal.
- Being licensed is not enough - soliciting for an insurer that never appointed the producer is a violation even if the coverage was perfect.
Rule of thumb: License → Appointment → Solicit. If a fact pattern skips a step, the answer is nearly always a licensing violation.