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15.3 State Regulation

Acts Constituting Insurance Transactions​

The following activities are considered to constitute an insurance transaction:

  • Issuing or delivering insurance contracts to residents of Ohio or to corporations authorized to conduct business in the state.
  • Making or proposing to make any insurance contract.
  • Soliciting, taking, or receiving applications for insurance coverage.
  • Receiving or collecting premiums, commissions, membership fees, assessments, dues, or any other form of consideration related to an insurance contract.
  • Disseminating information regarding coverage or rates; forwarding applications; inspecting risks; setting rates; investigating or adjusting claims or losses; or handling any matters that arise after a contract is in effect and are connected to that contract.

No individual may sell, solicit, or negotiate insurance in Ohio unless they hold a valid license for the appropriate line of authority.

To sell insurance means to provide or transfer an insurance contract to a purchaser on behalf of an insurer in exchange for monetary consideration.

To solicit insurance means to attempt to sell insurance to an individual or to encourage, request, or persuade a person to apply for a specific type of insurance from a particular insurer.

To negotiate insurance means to directly confer with, or provide advice to, an individual regarding the terms, benefits, or conditions of a specific insurance contract, provided that the person offering such advice either represents an insurer in the sale of insurance (as an agent or solicitor) or assists a purchaser in obtaining coverage (as a broker or counselor).

No company, corporation, or association may engage in the business of insurance unless it has been expressly authorized under applicable state law and is in full compliance with those legal requirements.

Superintendent's General Duties and Powers​

The Superintendent of Insurance serves as the chief executive officer and director of the Department of Insurance and is responsible for exercising all powers and carrying out all duties assigned to the Department. The Superintendent is authorized to adopt, amend, and rescind rules as necessary to fulfill these responsibilities and carry out the functions of the office. However, the Superintendent does not have authority to set insurance rates.

The Superintendent of Insurance is responsible for ensuring that insurance laws are properly executed and enforced. This authority includes the ability to conduct investigations and take testimony under oath concerning suspected violations. If sufficient evidence is found, the Superintendent may initiate action to have the individual arrested and formally charged. In such cases, the Superintendent will provide the appropriate prosecutor with all relevant and available information to support the case.

The Superintendent of Insurance has the authority to perform the following functions:

  • Establish procedures for the issuance, renewal, reactivation, and reinstatement of insurance licenses.
  • Establish and implement a schedule of fees associated with license extensions, renewals, reinstatements, and reactivations.
  • Enter into contracts with nongovernmental entities, including the National Association of Insurance Commissioners (NAIC) and its affiliates or subsidiaries, to perform ministerial tasks related to insurance agent licensing.

In matters involving illegal, unfair, or deceptive acts related to insurance, the Superintendent has both the authority and responsibility to:

  • File and preserve all books, documents, and records as required by law.
  • Regulate and manage the internal affairs of the Department of Insurance.
  • Provide guidance and assist in the interpretation of state insurance laws.
  • Verify that insurer rates are adequate, not excessive, and not unfairly discriminatory.
  • Examine and investigate all alleged violations of Ohio insurance laws, including consumer complaints.
  • Direct any individual to submit a written statement detailing facts or circumstances related to their conduct in the business of insurance within the state.
  • Administer oaths and compel the attendance of witnesses and the production of documents through subpoenas in connection with any insurance-related matter or hearing.
    • A subpoena, notice, or order may be served by certified mail, return receipt requested.
    • If delivery is unsuccessful, or no return receipt is received within 30 days, service may be made by ordinary mail.
    • If no response is received within 30 days after mailing by ordinary mail, service is considered complete.
    • If the item is returned as undeliverable, the Superintendent may designate an individual to complete personal or residence service upon the witness.
  • Initiate criminal proceedings by referring the matter to the prosecuting attorney of the appropriate county.

1. Which of the following is NOT a power of the Superintendent of Insurance?

A. Conducting investigations and taking testimony under oath

B. Adopting and amending rules

C. Setting insurance rates

D. Referring cases for criminal prosecution

Correct Answer: C

Rationale: While the Superintendent has broad regulatory and enforcement authority, they do not have the power to set insurance rates.

Company Regulation​

Certificate of Authority​

No insurance company may conduct insurance business in Ohio until it has obtained a certificate of authority from the Superintendent of Insurance.

To obtain authorization, insurers must complete the following certification requirements:

  • Deposit the required amount of approved securities.
  • File a duly certified copy of the insurer's Articles of Incorporation.
  • Submit documentation evidencing approval from the Attorney General.
  • File a copy of the insurer's bylaws or constitution.

After an insurance company notifies the Superintendent that it has satisfied all certification requirements, the Superintendent will conduct an examination of the company's condition. If the Superintendent determines that the company is properly organized, has complied with all applicable laws, and is qualified to transact business and issue policies—and provided that the company's name is not so similar to that of another insurer as to cause public confusion or uncertainty—the Superintendent will issue the company a license (certificate of authority).

Certificates must be filed with the county recorder and retained for a minimum of two years from the date of filing.

The Superintendent will renew a domestic insurance company's certificate of authority on an annual basis, upon application, provided the company remains in compliance with all applicable laws.

Policy Forms/Rates/Exceptions​

Ohio law limits the fixed interest rate on policy loans to a maximum of 8% per year. As an alternative, insurers may apply an adjustable (variable) interest rate, which must not exceed the lower of the following:

  • The published monthly average interest rate, determined two months prior to the rate determination date; or
  • The interest rate used to calculate the policy's cash surrender value during the loan period, plus 1% per year

Adjustable interest rates must be reviewed and determined at least once every 12 months, but not more frequently than once every three months. The rate may be increased when the applicable published rate rises by 0.5% or more per year, and must be decreased when the published rate declines by 0.5% or more per year.

When a policy loan is issued, the insurer must disclose the current interest rate to the policyholder. The insured must also receive advance notice of any increase in the interest rate. Additionally, premium rates for credit life insurance and credit accident and health insurance may not exceed the rates filed with and approved by the Superintendent.

No health insurance policy or evidence of coverage may be delivered, issued for delivery, renewed, or used unless it includes a clear, concise, and complete statement of the applicable premium rate for individual and conversion policies, as well as all relevant copayment and deductible provisions for all types of contracts. The required premium rate information may be provided in a separate attachment or insert, if applicable.

Rates for Credit Life and Accident and Health​

Insurers that issue credit life and/or credit accident and health insurance are required to file their premium rate schedules with the Superintendent. They must also submit the formulas used to calculate refunds when a debtor repays a loan early. These refund formulas must receive approval from the Superintendent before use.

If a creditor requires a debtor to pay for credit life insurance or credit accident and health insurance, and no individual policy or group certificate is issued, the creditor must promptly provide written notice to the debtor and issue an appropriate credit to the debtor's account without delay.

The amount charged to a debtor for credit life insurance or credit accident and health insurance may not exceed the premium charged by the insurer, as calculated at the time the charge is determined. In addition, no dividends or rate credits related to premiums for a given calendar or policy year may be granted before the end of that period. Any such dividends or credits may only be applied retrospectively based on actual experience.

Forms​

An insurer may not issue or furnish any policy, certificate, endorsement, rider, or application until the form, applicable premium rates, and risk classifications have been filed with the Superintendent. No such form may be delivered until at least 30 days after filing. If the Superintendent disapproves the form, the insurer will receive written notice outlining the reasons for disapproval.

Even after granting written approval, the Superintendent may withdraw approval of a policy form if it is found to contain inconsistent, misleading, or unlawful provisions, or for any other valid grounds for disapproval. Such action may only be taken after a hearing, for which the insurer must be provided with at least 20 days' prior written notice.

Financial Requirements​

Capitalization Requirements​

As a condition of receiving a certificate of authority, insurers must demonstrate that they possess and can maintain the required levels of capital and surplus. The specific requirements vary depending on the type of insurer.

A life insurer may not be incorporated in Ohio until the Superintendent certifies to the Secretary of State that the insurer has deposited $100,000 in paid-in capital and $150,000 in contributed surplus into escrow.

Annual Audit​

To assess an insurer's financial condition, the Superintendent requires insurers to file an annual audit of their financial statements, prepared by independent certified public accountants (CPAs).

In evaluating whether an insurer's continued operation may be hazardous to policyholders, creditors, or the public, the Superintendent may consider a variety of factors, including but not limited to:

  • Negative findings identified in financial condition examinations, statutory audit reports, and actuarial opinions, reports, or summaries.
  • Results and indicators derived from the National Association of Insurance Commissioners (NAIC) financial analysis and solvency monitoring tools and reports.
  • Whether the insurer has sufficiently provided for expected cash flows needed to meet contractual obligations and related expenses, in comparison to the insurer's available assets.

Insurers with direct premiums written of less than $1 million and fewer than 1,000 policyholders at the end of a given year are exempt from this requirement for that year. However, the Superintendent retains the authority to deny this exemption if deemed necessary.

Insolvency​

Most insurers, including all stock insurance companies, are considered insolvent if either of the following conditions exists:

  • The insurer is unable to pay its financial obligations as they become due; or
  • The insurer's assets are less than its liabilities plus the greater of:
    • The minimum capital and surplus required by law, or
    • The total stated value of its capital stock.

For insurers that issue only assessable policies, such as mutual insurance companies, the standard for insolvency differs slightly. These insurers are considered insolvent if they fail to pay any obligation within 30 days after the due date or the date specified in the initial assessment.

Agent Regulation​

Commissions and Compensation​

An insurance company may pay commissions or other compensation only to an individual who is properly licensed (and appointed, if required) to act on behalf of the insurer. All compensation for activities that require a license must be paid in the licensee's legal name or registered trade name.

An unlicensed individual may receive compensation for referring a prospective customer to a licensed insurance agent, provided the individual does not discuss specific policy terms or conditions. The compensation must be a fixed amount per referral and may not be contingent upon whether the referred individual purchases insurance.

A licensed agent may pay commissions to another licensed agent for the procurement of insurance, provided that both agents are licensed in the same line of authority and the insurer involved is authorized to conduct business in the state. Such compensation may not be based on the amount of the policy premium.

An agent may assign commissions to an unlicensed individual or entity under a written agreement, provided the arrangement is legitimate and not used as a means to circumvent laws prohibiting improper commission or fee payments.

An agent or insurer may compensate an unlicensed person or organization under the following conditions:

  • Payment may be made for administrative services actually performed, provided the compensation is reasonable and not based on sales production.
  • Payment may be made to reimburse costs associated with producing an endorsement, as long as the payment reflects actual expenses rather than compensation for selling insurance.

Consumer Information and Fees​

An agent may charge a consumer a fee only if all of the following conditions are satisfied:

  • The fee must be disclosed in a manner that clearly separates it from the premium.
  • The fee may not be calculated as a percentage of the premium.
  • The consumer must agree to the fee.
  • The fee must not be charged in a manner that is unfairly discriminatory.
  • The fee may not be refunded, waived, reduced, or offset by any commission earned from the sale of a policy or coverage.
  • The fee and the consumer's obligation to pay it must not depend on any future event or condition, such as the purchase, cancellation, lapse, or nonrenewal of insurance.
  • The agent must clearly inform the consumer that:
    • The fee is charged by the agent, not the insurance company
    • The fee is not required by state law or the insurer
    • The fee is nonrefundable

Agents are prohibited from charging fees for accepting or submitting an initial application, modifying an existing policy, or processing a cancellation, claim, or renewal for the following personal lines of insurance:

  • Private Passenger Automobile Insurance
  • Homeowners Insurance, including:
    • Tenant or condominium coverage
    • Owner-occupied fire or dwelling coverage
    • Personal umbrella liability
    • Any other related personal lines coverage, whether issued as a separate policy or as an endorsement
  • Individual Life Insurance
  • Individual Sickness or Accident Insurance
  • Disability Income Insurance
  • Credit Insurance Products

In any dispute between an agent and a consumer regarding required disclosures, the agent bears the burden of proof to demonstrate that the disclosure was properly made.

Any individual who violates these regulations is deemed to have engaged in an unfair trade practice.

This section does not apply to any expense fee charged by a surety bail bond agent to cover the costs incurred in executing a bail bond.

Reporting of Felony and Crimes of Moral Turpitude​

A licensee must notify the Superintendent of any administrative action taken against them in another jurisdiction or by another governmental agency within 30 days of the final disposition of the matter.

A licensee must notify the Superintendent if they are subject to any criminal prosecution in any jurisdiction, excluding misdemeanor traffic offenses. The notice must be provided within 30 days of the licensee's initial appearance before a judge or magistrate.

The licensee must also provide the Superintendent with a certified copy of the court's entry or order reflecting the final disposition of the case within 30 days after the disposition becomes final.

The Superintendent may suspend, revoke, refuse to issue or renew a license, assess civil penalties, or impose other authorized sanctions for any of the following reasons:

  • Being convicted of, or entering a plea of guilty or no contest to, a felony offense, regardless of whether a formal judgment of conviction has been entered by the court.
  • Being convicted of, or entering a plea of guilty or no contest to, a misdemeanor involving:
    • The misuse or theft of another person's money or property
    • Fraud, forgery, dishonest acts, or breach of fiduciary duty related to the business of insurance, securities, or financial services
    • Acts involving moral turpitude (immoral or unethical conduct), regardless of whether a formal judgment has been entered by the court

Policy/Application Signature​

The Superintendent may suspend, revoke, refuse to issue or renew a license, assess civil penalties, or impose other authorized sanctions if an insurance agent engages in any of the following conduct:

  • Forging, or causing the forgery of, an application for insurance.
  • Forging, or causing the forgery of, any document used in or related to an insurance transaction.
  • Submitting or using any document in the conduct of insurance business when the agent knew, or reasonably should have known, that the document contained forged information.

Appointment Procedures​

Agent Appointment​

An insurance agent may not act on behalf of an insurer unless the agent has been properly appointed by that insurer.

An insurer must file a notice of appointment with the Superintendent within 30 days of the earlier of the following: the execution of the agency contract or the submission of the first insurance application.

An insurer must pay the Superintendent a $20 fee for each agent appointment.

By appointing an insurance agent, an insurer affirms that the individual is competent, financially responsible, and suitable to represent the insurer. The insurer must also certify that the appointment is not intended for the purpose of writing controlled business.

While an appointment is in force, the insurer is bound by the acts of the agent acting within both their actual and apparent authority. In general, appointments and terminations must be filed electronically. Appointments automatically renew each year on July 1, unless the insurer terminates the appointment.

The Superintendent will invoice insurers for applicable appointment and termination fees. A single fee applies to property and casualty license holders and to life and health license holders, while a separate fee is assessed for variable life and variable annuity products.

Cancellation of Appointment​

All of an agent's appointments are automatically terminated if the agent's license is surrendered, revoked, or suspended. If the agent later obtains a new license or has their prior license reinstated, all appointments must be reestablished as new appointments.

Termination Notification​

An insurer that terminates an agent's appointment, employment, contract, or other insurance business relationship must notify the Superintendent within 30 days of the effective date of termination. The notice must include all relevant information, documents, and records related to the termination.

Within 15 days after notifying the Superintendent, the insurer must send a copy of the termination notice to the agent at the agent's last known address.

If the termination is based on conduct that may warrant Department disciplinary action, the insurer must also:

  • Send the termination notice to the agent by certified mail (return receipt requested, postage prepaid) or by overnight delivery through a nationally recognized carrier.
  • Promptly provide the Superintendent with any additional information discovered after the initial report.

An agent has 30 days from receipt of the termination notice to submit written comments to the Superintendent. A copy of these comments must be provided to the insurer at the same time. The submitted comments become part of the Department's official file on the agent and must be included with all future reports concerning the agent.

Quiz​

1. Which of the following is considered an insurance transaction?

A. Only issuing policies

B. Collecting premiums or adjusting claims

C. Providing unrelated financial advice

D. Filing tax returns

Correct Answer: B

Rationale: Insurance transactions include activities such as collecting premiums, adjusting claims, and handling matters arising from an insurance contract.

2. What is required for an individual to legally sell insurance in Ohio?

A. Approval from the Superintendent

B. A college degree

C. A valid license for the appropriate line of authority

D. Registration with a private insurer

Correct Answer: C

Rationale: Ohio law requires individuals to be properly licensed in the appropriate line of authority before selling, soliciting, or negotiating insurance.

3. Which of the following best describes “negotiating” insurance?

A. Delivering a policy to a customer

B. Advising a client on policy terms and conditions

C. Collecting premiums

D. Filing insurance claims

Correct Answer: B

Rationale: Negotiating involves conferring with or advising an individual about the terms, benefits, or conditions of an insurance contract.

4. Which statement about the Superintendent of Insurance is correct?

A. The Superintendent sets insurance rates

B. The Superintendent cannot investigate violations

C. The Superintendent enforces insurance laws and may conduct investigations

D. The Superintendent only issues licenses

Correct Answer: C

Rationale: The Superintendent is responsible for enforcing insurance laws and has authority to investigate violations and take testimony under oath.

5. What must an insurer obtain before conducting insurance business in Ohio?

A. Approval from a local agent

B. A certificate of authority from the Superintendent

C. A business license from the county

D. A contract with another insurer

Correct Answer: B

Rationale: Insurers must obtain a certificate of authority from the Superintendent before transacting insurance business in Ohio.