HCS SS SCS SB 895 -- DEPARTMENT OF INSURANCE

SPONSOR:  Engler (Wilson, 130)

COMMITTEE ACTION:  Voted "do pass" by the Committee on Insurance
Policy by a vote of 13 to 0.

This substitute changes the laws regarding insurance and the
Department of Insurance's enforcement of violations of the state
insurance code.

DEPARTMENT OF INSURANCE

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 of 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 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;

(11)  Prohibits insurers from canceling or non-renewing a
homeowner insurance policy based on an inquiry or one weather
related claim in the proceeding five years;

(12)  Requires insurers providing group health insurance to
employers with at least 51 employees to provide the employer,
upon request, with a report containing the total dollar amount
paid under the plan for each of the prior three years of
coverage.  The information cannot individually identify any
person covered under the plan; and

(13)  Allows insurers selling life insurance policies to exclude
or limit their liability if a policy holder, whether sane or
insane, commits suicide within the first year of the date of
issuance of the policy.

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.

INTERSTATE INSURANCE PRODUCT REGULATION COMPACT

The substitute provides the statutory framework for states to
enter into the Interstate Insurance Product Regulation Compact.
The compact establishes a single point of filing for certain
insurance products and rate filings which are subject to uniform
national standards developed by members of the compact; however,
companies are still allowed the option to file products in the
individual states through the existing form filing processes.
Unless a state opts out, approval of a product by the compact
will be the same as approval by a member state.  Individual
states will continue to regulate market activities and allow for
coordination among states and the Interstate Insurance Product
Regulation Commission, established in the substitute, to
determine instances of violations of uniform standards subject to
the final order of the commission.

The commission becomes operational if 26 states or states
representing 40% of the premiums for life, annuities, disability,
and long-term care insurance join the compact.  The commission
will make an annual report to the legislature and governor of
each state in the compact.

BAIL BOND AGENTS

The substitute changes the laws regarding the licensure of bail
bond agents.  The substitute:

(1)  Requires the Department of Insurance to notify any bail bond
agent who is listed as having a forfeited bond;

(2)  Requires all licenses issued to bail bond agents to include
a photograph of the licensee;

(3)  Requires all bail bond agents to provide the department with
the name, address, and telephone number of each employer which
they work for or contract with;

(4)  Requires any newly appointed surety bail bond agent to file
an affidavit with the department stating that all forfeitures or
judgments on previously written bonds have been satisfied;

(5)  Requires all applicants for licensure to be fingerprinted
and have a criminal background check;

(6)  Authorizes the department to have a cause of action brought
against a licensee who has been found guilty of a dangerous
felony or has filed bankruptcy as an owner of a bail bond
business;

(7)  Allows bail bond agents to write bonds in municipal or
circuit courts if the general bail bond agent who employs them is
qualified to write bonds in these courts;

(8)  Allows bail bonds agents to be released from a bond if the
agent can prove the defendant is incarcerated in another
jurisdiction or that it is physically impossible for the
defendant to appear through no fault of the bail bond agent; and

(9)  Requires any bail bond agent arrested for a felony to notify
the department of the arrest within 10 days.

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 department
director, 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 form 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.

REGULATION OF CAPTIVE INSURANCE COMPANIES

Captive insurance companies:

(1)  Are allowed, when permitted, to apply for a license to
provide insurance and annuity contracts under Section 376.010 to
parent, affiliated, or controlled unaffiliated companies;

(2)  Cannot adopt a name that is likely to be confused or
mistaken with an existing company;

(3)  Must maintain adequate paid-in capital and surplus as
required in order to be issued a license.  No dividend can be
paid without prior approval from the Director of the Department
of Insurance;

(4)  Are allowed to be incorporated under Section 379.1310;

(5)  Must annually report their financial condition to the
director as required;

(6)  Will be examined at least once every three years by the
director or his or her agent;

(7)  Can have their license suspended or revoked by the director
for cause;

(8)  Must comply with investment requirements contained in
Chapter 375 and Sections 379.080 and 379.082 as applicable;

(9)  May reinsure risks or portions of risks with prior approval
of the director;

(10)  Cannot be required to join a rating organization or be
allowed to join or contribute financially to a plan, pool,
association, guaranty, or insolvency fund for claims arising out
of the operation of the company; and

(11)  Must pay the Director of the Department of Revenue on or
before May 1 of each year the taxes required under Section
379.1326.  Fees and assessments received by the Department of
Insurance will be paid into the Insurance Dedicated Fund.

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
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 nonprofit 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.

MERCHANDISING PRACTICES

The substitute requires Missouri courts to take guidance in its
decisions from the policies and interpretations given by the
Federal Trade Commission and the federal courts regarding unfair
trade practices under the Federal Trade Commission Act.

FISCAL NOTE:  Estimated Income on General Revenue Fund of Up to
$143,265 in FY 2007, Up to $187,298 in FY 2008, and Up to
$183,737 in FY 2009.  Estimated Cost on Other State Funds of
Unknown less than $745,668 in FY 2007, Unknown less than
$1,027,864 in FY 2008, and Unknown less than $1,035,179 in FY
2009.

PROPONENTS:  Supporters say that the bill is important for
consumer protection and gives the department the tools it needs
to protect consumers.  Examinations of insurance companies will
be quicker and less costly.  The provisions regarding releasing
claims information need to be reviewed.

Testifying for the bill were Senator Engler; Department of
Insurance; Missouri Professional Bailbonding Association; United
Healthcare; Coventry Health Care; Missouri Association of
Independent Insurance Agents; Missouri's Health Insurance Plans;
and America's Health Insurance Plans.

OPPONENTS:  Those who oppose the bill say that the Department of
Insurance can already take administrative action against bail
bond agents so there is no need for additional laws.  If an agent
wants to change jobs, he or she will need to have a release
signed from the first employer.  If the first employer won't sign
the form, it could really cause problems.

Testifying against the bill were Dave Strassner; and Angela Park.

Marc Webb, Legislative Analyst

Missouri House of Representatives
93rd General Assembly, 2nd Regular Session
Last Updated November 29, 2006 at 9:46 am