As a massive public agency with 320,000 licensed agents in California, the Department of Insurance (DOI or CDI) has an extensive infrastructure for the investigation and discipline of insurance producers. As is often true of financial industry regulators, there are marked trends in investigations and discipline in certain areas of public concern.

“Affinity Group” Discount Cases

The Department of Insurance has seen numerous affinity group discount cases reported by insurance carriers against terminated insurance producers. An example of an affinity group discount would be, for example, a student discount, a veteran’s discount, or an educator discount. Agents may apply affinity group discounts without valid proof of eligibility. Some affinity group cases resulted in premium savings for consumers and losses for carriers. Other, more egregious cases, have involved the forgery of eligibility documents, which could open consumers to allegations of fraud and identity theft. Although affinity group discount cases often result in no alleged consumer harm, CDI may characterize these cases as a theft of premiums from the carrier.

Illegal Vehicle Extended Warranty and Home Protection Warranty Sales

The Department of Insurance has strict regulatory requirements for vehicle service contracts (VSCs) sold in California. As for home protection warranties, there are only 14 CDI-licensed home protection warranty companies doing business in California. In California, vehicle service contracts (VSCs) may only be sold by a DMV licensed car dealer. However, in the case of home protection warranties and vehicle service contracts, out-of-state companies sometimes unlawfully sell these products over the internet. Since these companies may operate lawfully in other states, a small number of sales to California consumers may be the result of an unintentional error by the warranty company. However, some entities intentionally target the California market due to its size, risking regulatory punishment. As to these companies, CDI will typically file a Cease and Desist Order to stop sales to consumers, seek fines of $5,000.00 per day of illegal sales in California, and ask for restitution to California consumers.

Annuity Sales to Senior Citizen Consumers

The sales of annuities to consumers 65 years of age or older is strictly regulated by the California Department of Insurance. Violations commonly occur when an agent recommends to a consumer aged 65 or older that they replace an annuity unnecessarily, thereby incurring a surrender charge to the consumer and generating commissions for the agent. Unnecessary replacement of annuities for senior consumers carries a penalty of $1,000.00 for each violation on the part of an agent ($10,000.00 if it is the carrier), and if there is a pattern of such conduct, the fine can rise to between $5,000.00 and $50,000.00 per instance for an agent, and between $30,000.00 and $300,000.00 per violation for a carrier. There are also specific regulations covering the solicitation of senior consumers for the purchase of annuities.

Ray & Bishop, PLC, represents insurance industry agents, brokerages and companies in matters both complex and routine. Our long and extensive experience in insurance regulatory matters shows in the results for our clients.