HCS HB 1651 & 1608 -- DEPARTMENT OF INSURANCE

SPONSOR:  Yates

COMMITTEE ACTION:  Voted "do pass" by the Committee on Insurance
Policy by a vote of 15 to 0.

This substitute revises the laws pertaining to insurance and the
Department of Insurance's enforcement of violations of the state
insurance code.  The substitute:

(1)  Synchronizes the penalties, administrative orders, civil
actions, and other remedies available to the Director of the
Department of Insurance;

(2)  Allows the director, upon determining that a person has
violated or attempted to violate provisions of the insurance
laws, to order the following relief:

(a)  An order directing the person to cease and desist from
engaging in the act, practice, omission, or course of business;

(b)  A curative order or order directing the person to take other
action necessary to comply with insurance laws;

(c)  Order a civil penalty or forfeiture; and

(d)  Award reasonable costs of the investigation;

(3)  Authorizes fines of up to $100,000 and imprisonment up to 10
years if a person violates a cease and desist order.  Currently,
a person may be punished by a maximum $1,000 fine and up to one
year in jail;

(4)  Allows the director to suspend or revoke a corporation's or
insurer's certificate of authority for violating insurance laws
or for felony or misdemeanor convictions.  The director must
provide 30 days' notice and a hearing, if requested, before
revocation;

(5)  Allows the director to seek redress in county circuit
courts.  The court can issue injunctions, freeze assets, or take
other action as specified.  A consumer restitution fund is
created for preserving and distributing disgorgement or
restitution funds obtained through enforcement procedures to
aggrieved consumers;

(6)  Classifies various violations of insurance laws into five
categories from level one through level five.  Maximum fines are
established at each level with level one being the least and
level five the highest.  All fines collected will go to fund
public schools as required by Article IX, Section 7, of the
Missouri Constitution;

(7)  Allows any applicant who is refused a license to sell
insurance to file a petition with the Administrative Hearing
Commission.  The director will retain discretion in refusing a
license or renewal;

(8)  Allows administrative hearings before the director for
persons aggrieved by any order of the director;

(9)  Authorizes the director to consult and share information
with other members of the National Association of Insurance
Commissioners, the Commissioner of Securities within the Office
of Secretary of State, state securities regulators, the Division
of Finance within the Department of Economic Development, the
Attorney General, federal banking and securities regulators, the
National Association of Securities Dealers (NASD), the United
States Department of Justice, the Commodity Futures Trading
Commission, and the Federal Trade Commission to effectuate
greater uniformity in insurance and financial services regulation
among state and federal governments and self-regulatory
organizations.  The cooperation, coordination, consultation, and
sharing of records and information authorized by the substitute
include:

(a)  Establishing or employing one or more designees as a central
electronic depository for licensing and rate and form filings
with the director and for records required or allowed to be
maintained;

(b)  Encouraging insurance companies and producers to implement
electronic filing through a central electronic depository;

(c)  Developing and maintaining uniform forms;

(d)  Conducting joint market conduct examinations and other
investigations through collaboration and cooperation with other
insurance regulators;

(e)  Holding joint administrative hearings;

(f)  Instituting and prosecuting joint civil or administrative
enforcement proceedings; and

(g)  Sharing and exchanging personnel;

(10)  Modifies various fees charged by the Department of
Insurance for the regulation of insurance companies and the
operation of the Division of Consumer Affairs within the Office
of the Attorney General.  The expenses for an examination of a
company will be paid by the company.  The department director
will assess the company for all reasonable expenses including the
cost of compensation and travel for the examiners, analysts,
actuaries, and attorneys directly contributing to the examination
of the company.

POLICE AND FIREMEN'S RETIREMENT SYSTEMS

Currently, the board of trustees of police and firemen's pension
systems are not subject to investment limitations established in
Section 376.305, RSMo.  The substitute makes these systems
subject to the limitations.

INVESTMENT PRACTICES OF DOMESTIC INSURERS

The substitute:

(1)  Exempts insurers organized under Chapter 376 from several
requirements in Chapter 375 including that:

(a)  Notification be given on interest due on an insurance policy
loan;

(b)  Insurance companies not deal or trade in goods, wares,
merchandise, commodities, or certain real estate purchases,
sales, or trades;

(c)  No officer, stockholder, agent, or employee use company
funds for private profit or gain;

(d)  Beneficial owners of a company selling any equity securities
of the company must own the security sold and deliver the
security sold as required;

(e)  Domestic insurers invest in stocks or shares having at least
the second highest designation or quality rating conferred by the
Securities Valuation Office of the National Association of
Insurance Commissioners;

(f)  Investments in foreign governments or corporations are
permitted as long as the investments are allowed in United States
companies; and

(g)  Insurance companies follow the provisions of Sections
375.1070 - 375.1075, Investments in Medium and Lower Quality
Obligations Law;

(2)  Allows insurers organized under Chapter 376 to engage in
derivative transactions through an investment subsidiary;

(3)  Establishes Sections 376.291 - 376.307 which applies to
investments and investment practices of domestic insurers
organized under the provisions of Chapter 376.  Terms relative to
these sections are defined;

(4)  Requires an insurer's board of directors to adopt a plan for
acquiring investments and for engaging in investment practices
appropriate for the business conducted by the insurer, its
liquidity needs, and its capital and surplus needs.  Prohibited
investments are also specified;

(5)  Prohibits insurers, without prior approval of the Director
of the Department of Insurance, from:

(a)  Making a loan or investment in an officer of the insurer or
a person in which the officer has any financial interest;

(b)  Making a guarantee for the benefit of or in favor of an
officer of the insurer or a person in which the officer has a
financial interest; and

(c)  Entering into an agreement for the purchase or sale of
property from or to an officer of the insurer or a person in
which the officer has any financial interest;

(6)  Allows an insurer, without prior approval of the director,
to:

(a)  Make policy loans in accordance with the terms of the
contract;

(b)  Advance reasonable expenses expected in the course of
business to directors or officers;

(c)  Make loans secured by the principal residence of an existing
officer in connection with the officer's relocation at the
insurer's request; and

(d)  Make loans or advances to officers or directors which comply
with state and federal law pertaining to loans made to a
regulated noninsurance subsidiary or affiliate of the insurer in
the normal course of business;

(7)  Requires investments to be valued based on published
accounting and valuation standards of the National Association of
Insurance Commissioners;

(8)  Prohibits insurers from investing more than 3% of its
admitted assets in investments issued by a single person.  This
limitation will not apply to amounts insured by a single
financial guaranty insurer having the highest generic rating
issued by a nationally recognized statistical rating organization
or to asset-backed securities.  Requirements are established for
medium-grade, low-grade, and Canadian investments;

(9)  Allows an insurer, subject to certain limitations, to
acquire rated credit instruments issued, assumed, guaranteed, or
issued by the United States, Canada, government-sponsored
enterprises of the United States or Canada, a government or class
one money market mutual fund, a class one bond mutual fund, or
general obligation instruments of the state;

(10)  Allows an insurer to invest in tangible personal property
if the resulting ownership of the property returns to the insurer
the cost of the investment plus a return deemed adequate by the
insurer.  Investments in tangible property cannot exceed 2% of
admitted assets or .5% on any single item;

(11)  Allows insurers to acquire obligations secured by mortgages
on real estate situated within a domestic jurisdiction.  A
mortgage loan secured by other than a first lien cannot be
acquired unless the insurer is the holder of the first lien and
it meets certain requirements.  The real estate must be income
producing or intended for improvement or development to produce
income;

(12)  Allows insurers to enter into securities lending,
repurchase, reverse repurchase, and dollar roll transactions
subject to the board of directors adopting a written plan
detailing how cash received will be invested or used, operational
procedures used to manage investments risk, and the extent an
insurer may engage in these transactions; and

(13)  Establishes conditions and requirements for insurers to
invest in foreign markets.

MOTOR VEHICLE SERVICE CONTRACTS

The substitute:

(1)  Defines "fronting company" as a dealer that authorizes a
third-party administrator or provider to use its name or business
to evade or circumvent a sale, an offer for sale, or a
solicitation of a sale of a service contract to a consumer;

(2)  Prohibits an unlicensed motor vehicle or boat dealer from
selling a motor vehicle service contract to a consumer;

(3)  Prohibits a dealer from acting as a fronting company; and

(4)  Creates penalties for violation of these provisions.

PRODUCT SERVICE AGREEMENT

The substitute:

(1)  Prohibits any person from issuing or selling a product
service contract without registering and paying a fee with the
Director of the Department of Insurance;

(2)  Requires providers of service contracts to maintain at least
one of the following:

(a)  A funded reserve account of at least 40% of gross
consideration received less claims paid;

(b)  A financial security deposit with the department director of
at least 5% of the gross consideration received less claims paid;

(c)  A net worth of $100 million; or

(d)  A reimbursement insurance policy covering 100% of the
service contract obligations;

(3)  Prohibits provider fees collected from being subject to
premium taxes and exempts the person selling the contract from
other state licensing laws if all requirements are met;

(4)  Requires providers of service contracts to furnish a written
statement to the consumer outlining their obligations and
conveying terms and restrictions.  Misleading advertising is
prohibited;

(5)  Requires providers of service contracts to maintain accurate
records of every transaction for a period of at least three years
after the specified period of coverage has expired.  Records must
be made available to the department upon request;

(6)  Prohibits insurers who issue reimbursement insurance
policies from terminating a policy without notifying the
department director.  Insurers have the right to seek
indemnification against a provider if the insurer pays amounts
under the service contract that the provider was obligated to
pay; and

(7)  Creates penalties for violation of the provisions of the
substitute.

ANATOMIC PATHOLOGY SERVICES

The substitute prohibits licensed health care professionals from
charging, billing, or soliciting payment for anatomic pathology
services, unless the services are rendered personally by the
health care professional or under his or her direct supervision.
Any patient, insurer, third-party payor, hospital, public health
clinic, or non-profit health clinic will not be required to
reimburse any licensed health care professional for charges or
claims submitted in violation of this provision.  Nothing will
prohibit the billing of a referring laboratory for services when
samples must be sent to another specialist.

State licensing boards having jurisdiction over health care
professionals who request or provide these services may revoke,
suspend, or deny a license to anyone who violates these
provisions.

INSURANCE PRODUCER CONTINUING EDUCATION

Currently, life insurance producers who are limited to writing
policies with an initial face amount for any individual of $5,000
or less are exempt from the continuing education requirements.
The substitute changes the amount to a cumulative initial face
amount of $10,000 or less for any individual.

FISCAL NOTE:  Estimated Income on General Revenue Fund of Unknown
less than $270,763 in FY 2007, Unknown less than $324,915 in
FY 2008, and Unknown less than $324,915.  Estimated Cost on Other
State Funds of Unknown less than $754,279 in FY 2007, Unknown
less than $899,441 in FY 2008, and Unknown less than $903,509 in
FY 2009.

PROPONENTS:  Supporters say that the bill is important for
consumers, the Department of Insurance, and the insurance
industry.  The bill gives the department the tools it needs to
protect the consumer.  Penalties, administrative orders, civil
actions, and other remedies are synchronized.

Testifying for the bill were Representative Yates; Department of
Insurance; and William Anthony.

OPPONENTS:  There was no opposition voiced to the committee.

OTHERS:  Others testifying on the bill say the bill will
standardize the enforcement and penalties of the Department of
Insurance.  The procedures seem adequate.

Others testifying on the bill was Missouri Insurance Coalition.

Marc Webb, Legislative Analyst

Missouri House of Representatives
93rd General Assembly, 2nd Regular Session
Last Updated November 29, 2006 at 9:44 am