Insurance, Administration

Rule R590-154

Unfair Marketing Practices Rule

Notice of Proposed Rule

(Amendment)

DAR File No.: 36596
Filed: 08/01/2012 03:21:45 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

This rule is being updated to comply with changes made in H.B. 333, Unfair Inducements Related to Insurance Products, that was passed in the 2011 General Session.

Summary of the rule or change:

The following changes are being proposed in this rule: adding the new Section 31A-23a-402.5 Inducements, citation to the Authority Section of the rule; Definition Section adds "Arms length," "Discrimination testing," "Fair market value," and "Social courtesy," and eliminates a definition for "Producer;" Re-numbers the rule to comply with rulemaking guidelines; Eliminates section entitled "Inducements, Gifts and Merchandise Given in Connection with Solicitation or Sale of Insurance;" Adds new section entitled "Electronic Platform and Application Systems;" Amends Severability section to follow the wording we are now using in all of our new rules.

State statutory or constitutional authorization for this rule:

• Section 31A-2-201
• Section 31A-23a-402.5
• Section 31A-23a-402

Anticipated cost or savings to:

the state budget:

The changes to this rule will have no fiscal impact on the department. They will not affect filings, workload, revenues to or costs of the department. The rule affects the relationship between agent/producer and the employers they insure.

local governments:

This rule and its changes will have no fiscal impact on local governments since they deal solely with the department, their licensees and the licensee's clients.

small businesses:

Prior to these changes, human resource services and legal services provided by an agency to a client were not allowed. The rule and law still consider such services as unfair inducements but allows them when producers charge a fair market value for them. If producers provide such services employers will be required to pay and if the producer stops providing such services they may lose business.

persons other than small businesses, businesses, or local governmental entities:

Prior to these changes, human resource services and legal services provided by an agency to a client were not allowed. The rule and law still consider such services as unfair inducements but allows them when producers charge a fair market value for them. If producers provide such services employers will be required to pay and if the producer stops providing such services they may lose business.

Compliance costs for affected persons:

Prior to these changes, human resource services and legal services provided by an agency to a client were not allowed. The rule and law still consider such services as unfair inducements but allows them when producers charge a fair market value for them. If producers provide such services employers will be required to pay and if the producer stops providing such services they may lose business.

Comments by the department head on the fiscal impact the rule may have on businesses:

Producers may lose business when they are no longer able to provide improper free services to employers they insure. Employers who received these free services will have the option to pay for them or find cheaper insurance coverage elsewhere to help defray the additional cost of the service they will now have to pay for. For those producers that did not provide services as an unfair inducement, there will probably be no impact, unless they see some business come their way from those employers looking for new coverage.

Neal T. Gooch, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Insurance
Administration
Room 3110 STATE OFFICE BLDG
450 N MAIN ST
SALT LAKE CITY, UT 84114-1201

Direct questions regarding this rule to:

• Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at [email protected]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

09/14/2012

Interested persons may attend a public hearing regarding this rule:

• 09/11/2012 11:00 AM, State Office Bldg, 450 N State Street, Room 3112, Salt Lake City, UT

This rule may become effective on:

09/21/2012

Authorized by:

Jilene Whitby, Information Specialist

R590. Insurance, Administration.

R590-154. Unfair Marketing Practices Rule.

R590-154-1. Authority.

This rule is adopted pursuant to Subsection 31A-2-201(3) in which the commissioner is empowered to adopt rules to implement the provisions of the Utah Insurance Code and [Subsection]Sections 31A-23a-402[(8)] and 31A-23a-402.5, which provides that the commissioner may find certain practices to be misleading, deceptive, unfairly discriminatory, provide an unfair inducement, or unreasonably restrain competition, and to prohibit them by rule.

 

R590-154-3. Definitions.

[A.](1) "Agency" means :

[1.](a) A person other than an individual, including a sole proprietorship by which a natural person does business under an assumed name; and

[2.](b) An insurance organization licensed or required to be licensed under Section 31A-23a-301.

[B.](2) "Arm's length" means a transaction between two or more parties who are unrelated and unaffiliated by family, marriage or commercial enterprise. This transaction entails that the contract or price has been negotiated by parties, each party acting in his or her own self-interest, and that the sale price is based on fair market value.

(3) "Barter" means the sale of an insurance or annuity contract for anything of value other than cash or other negotiable instruments.

(4) "Discrimination testing" in 31A-23a-402.5(5)(b)(xii)(K) means either eligibility testing or utilization testing.

(a) Eligibility test results must demonstrate that eligibility is not limited to or weighted in favor of key or highly compensated employees. Self-funded plans (such as a cafeteria plan) may not exclude non-highly compensated employees from participating in favor of highly compensated or key employees. In accordance with Internal Revenue Service 26 USC 125(4) and 26 USC 410 the exclusion of certain groups of employees is allowed, including:

(i) employees with less than three years of service;

(ii) employees under age 25;

(iii) part-time or seasonal employees;

(iv) non-resident aliens;, and

(v) collective bargaining employees.

(b) Utilization test results must demonstrate that comparable benefits are utilized by a fair number of employees at all compensation levels and for all positions. See 26 CFR Part 1-41, REG-156518-04, RIN 1545-BE10.

(5) "Fair market value" means what a knowledgeable, willing, and unpressured buyer would pay for a product or service to a knowledgeable, willing, and unpressured seller in the open market without any connection to other goods, services or contracts sold by the licensee.

[C. "Producer" means a person licensed or required to be licensed under the laws of this state to sell, solicit, or negotiate insurance. With regards to the selling, soliciting, or negotiating of an insurance product to an insurance customer or an insured:

1. "Producer for the insurer" means a producer who is compensated directly or indirectly by an insurer for selling, soliciting, or negotiating any product of that insurer.

2. "Producer for the insured" means a producer who is compensated directly and only by an insurance customer or an insured and receives no compensation directly or indirectly from an insurer for selling, soliciting, or negotiating any product of that insurer to that insurance customer or insured.](6) "Social courtesy" means a respectful act or expression of generosity that is not connected with the sale or retention of an insurance product, the fair market value of which is less than or equal to $25.00.

 

R590-154-5. Producer, Limited Lines Producer or Consultant Agency Name.

[A.](1) An insurance producer, limited lines producer or consultant agency licensed under the laws of this state shall not use any name that is:

[(1)](a) misleading or deceptive;

[(2)](b) likely to be mistaken for another licensee already in business; or

[(3)](c) implies association or connection with any other organization where actual bona fide association or connection does not exist.

[B.](2) A producer, limited line producer or consultant agency licensee shall comply with either of the following:

[1.](a) The agency shall include words such as "insurance agency" or "insurance consultant" or other similar words in the agency's name.

[(a)](i) Other similar words such as "insurance services", "insurance benefits", "insurance counselors", or "insurance advisors" may also be used.

[(b)](ii) "Insurance consulting," "insurance consultants" or similar words shall only be used if the agency is licensed as a consultant.

[2.](b) The agency shall state that the licensee is an insurance agency in any letterhead, business cards, advertising, slogan, emblem, or other promotional material used or distributed by the agency in the State of Utah.

 

R590-154-6. Individual Licensee Name.

[A.](1) An individual shall be licensed using the individual's full legal name - first name or initial, middle name or initial, last name, suffix, jr/sr/II/III/etc.

[B.](2) An individual may file with the department a preferred name or nickname to use in combination with the individual's full legal name.

 

R590-154-7. Sale, Solicitation, or Negotiation of Insurance.

[A.](1) An individual licensee and a producer, limited line producer or consultant agency licensee shall not mislead or deceive a person or organization through oral contact or through any letterhead, business cards, advertising, slogan, emblem, or other promotional material used or distributed in Utah by:

[1.](a) failing to disclose that the licensee is an individual insurance licensee or a producer, limited line producer or consultant agency licensee in every oral or written contact;[ or]

[2.](b) using or implying license classifications not held by the individual licensee or natural persons designated to the producer, limited line producer or consultant agency licensee;[ or]

[3.](c) using a name other than the exact name appearing on the producer, limited line producer or consultant agency license;[ or]

[4.](d) using a name other than the individual licensee's full legal name exactly as filed with the department; or

[5.](e) using an individual's preferred name or nickname when the preferred name or nickname has not been filed with the department.[; and]

[B.](2) [the]The use of an initial letter, rather than the full first or middle name is not a violation of this section.

[C.](3) An individual may only use the name of a producer, limited line producer , or consultant agency that has its own separate agency license if the individual licensee is designated to act under that agency's license.

[D.](4) An individual may not sell, solicit, or negotiate insurance as a producer, limited line producer, or consultant agency; unless the individual has a separate producer, limited line producer, or consultant agency license, and the individual is designated to act under the agency's license.

 

R590-154-8. Claiming or Representing Department Approval.

[A.](1) A licensee may not represent, either directly or indirectly, that the department, the insurance commissioner, or any employee of the department, has approved, reviewed, endorsed, or in any way favorably passed upon any marketing program, insurance product, insurance company, practice or act.

[B.](2) A licensee may report the fact of the filing of any form, financial report, or other document with the department, or of licensure, examination or other action involving the department, or the commissioner but may not misrepresent their effect or import.

 

R590-154-11. [Inducements, Gifts and Merchandise Given in Connection With Solicitation or Sale of Insurance.

A. A licensee may not give or offer to give any prizes, goods, wares, merchandise or item of value as an inducement to enter into any insurance or annuity contract or as an inducement to receive a quote, submit an application or in connection with any other solicitation for the sale of an insurance or annuity contract. However, anything with an acquisition cost of $3.00 or less shall not be considered an inducement.

B. Subsection A of this section does not prohibit the giving of promotional gifts or merchandise that is generally available to the public and not given in a manner to constitute an inducement to receive a quote or other solicitation or to purchase any insurance or annuity contract, nor does it prohibit insurers from providing sales incentives to producers.

C. This section does not prohibit the usual kinds of social courtesies as long as they are not related to a particular transaction as stated in Subsection 31A-23a-402(2)(a). If the receiving of the social courtesy is dependent on obtaining a quote, submitting an application or purchasing a policy or contract, it is related to a particular transaction.

D. This section does not apply to title insurers or producers. Rule R590-153 is the applicable rule for the marketing of title insurance.]Electronic Platform and Application Systems.

Producers or agencies may provide electronic platforms that provide directly related services of the insurance products to the employer. Fair market value must be charged for items such as human resources and legal services whether electronic or paper.

 

R590-154-15. Use of Comparative Information.

[A.](1) Every insurer marketing insurance in the State of Utah shall establish written marketing procedures to assure that any comparison of insurance contracts, annuities or insurance companies by its producers will be fair and accurate.

[B.](2) A licensee may not use any published rating information regarding an insurer in connection with the marketing of any insurance contract or annuity unless that person also provides at the same time an explanation of what the rating means as defined by the rating service.

 

R590-154-16. Disclosure of Insurer in Group Insurance.

Every certificate of insurance or booklet describing coverage of a group insurance policy shall prominently state on the cover of the certificate or booklet the name and address of the actual insurer.

 

R590-154-17. Enforcement Date.

The commissioner [will]shall begin enforcing the revised provisions of this rule [45 days from]on the rule's effective date.

 

R590-154-18. Severability.

If any provision of this rule or the application [thereof to any person or circumstance is for any reason held to be invalid, the remainder of the rule and the application of such provision to other persons or circumstance shall not be affected thereby]to any person or situation is held to be invalid, that invalidity shall not affect any other provision or application of this rule which can be given effect without the invalid provision or application, and to this end the provision of this rule are declared to be severable.

 

KEY: insurance unfair marketing practices

Date of Enactment or Last Substantive Amendment: [August 7, 2002]2012

Notice of Continuation: April 9, 2008

Authorizing, and Implemented or Interpreted Law: 31A-2-201; [31A-23-302; ]31A-23a-402; 31A-23a-402.5