17.3 State Regulation

Acts Constituting Insurance Transactions

The following activities are considered insurance transactions under Ohio law:

• Issuing or delivering insurance contracts to Ohio residents or to corporations authorized to do business in Ohio
• Making or proposing an insurance contract
• Soliciting, taking, or receiving an application for insurance
• Receiving or collecting premiums, commissions, membership fees, assessments, dues, or any other consideration related to an insurance contract
• Disseminating information regarding insurance coverage or rates, forwarding applications, inspecting risks, setting rates, investigating or adjusting claims or losses, or handling matters arising from an insurance contract after it has been issued
• Selling, soliciting, or negotiating insurance in Ohio without the appropriate license is prohibited. A person must be licensed for the applicable line of authority to perform these activities.

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

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

To negotiate insurance means to directly confer with or advise a person regarding the terms, benefits, or conditions of a specific insurance contract while acting on behalf of an insurer or insurance purchaser.

No insurance company may transact the business of insurance unless it is authorized under applicable state law and has complied with all applicable legal requirements.

Superintendent's General Duties and Powers

The Superintendent of Insurance serves as the chief executive officer and director of the Ohio Department of Insurance and exercises all powers and duties assigned to the Department. The Superintendent has the authority to adopt, amend, and rescind rules necessary to carry out the responsibilities and powers of the office. The Superintendent does not set insurance rates.

The Superintendent of Insurance is responsible for administering and enforcing Ohio insurance laws. In carrying out these duties, the Superintendent may:

• Take testimony under oath regarding alleged violations of insurance laws
• Order the arrest and prosecution of a person when sufficient evidence of a violation exists
• Provide prosecutors with all relevant available information to support the prosecution

The Superintendent of Insurance may:

• Establish procedures for the issuance, renewal, reactivation, and reinstatement of insurance agent licenses
• Establish fee schedules for license extensions, renewals, reinstatements, and reactivations
• Contract with nongovernmental entities, including the National Association of Insurance Commissioners (NAIC) and its affiliates or subsidiaries, to perform ministerial functions related to insurance agent licensing

In cases involving illegal, unfair, or deceptive insurance practices, the Superintendent of Insurance has the authority to:

• Maintain all books and records required by law
• Regulate the internal operations of the Ohio Department of Insurance
• Interpret and administer Ohio insurance laws
• Ensure insurer rates are adequate, not excessive, and not unfairly discriminatory
• Investigate violations of Ohio insurance laws, including consumer complaints
• Require any person to submit a written statement regarding facts or circumstances related to the conduct of insurance business in Ohio
• Administer oaths and issue subpoenas for witnesses, documents, and testimony in insurance-related investigations or hearings
  • A subpoena, notice, or order may be served by certified mail, return receipt requested.
  • If certified mail cannot be delivered or no return receipt is received within 30 days, service may be made by ordinary mail.
  • If ordinary mail is not returned within 30 days after mailing, service is deemed complete.
  • If ordinary mail is returned as undeliverable, the Superintendent may designate a person to make personal or residence service.
• Initiate criminal proceedings through the prosecuting attorney of the appropriate county.

Company Regulation

Certificate of Authority

No insurance company may transact insurance business in Ohio without first obtaining a Certificate of Authority from the Superintendent of Insurance.

To obtain a Certificate of Authority, an insurer must:

• Deposit the required amount of securities
• File a certified copy of its Articles of Incorporation
• File a copy of the Attorney General's approval
• File a copy of its bylaws or constitution

After an insurer certifies that it has met all Certificate of Authority requirements, the Superintendent of Insurance will examine the insurer's condition. If the Superintendent determines that the insurer:

• Is properly organized
• Has complied with all applicable laws authorizing it to transact insurance business and issue policies, and
• Has a name that is not confusingly similar to another insurer authorized to do business in Ohio, the Superintendent will issue the insurer a Certificate of Authority (license).

A Certificate of Authority must be filed with the county recorder and retained for at least 2 years after the date of filing.

The Superintendent of Insurance will annually renew the Certificate of Authority of a domestic insurance company upon application, provided the insurer continues to comply with all applicable laws.

Policy Forms/Rates/Exceptions

Insurers must file the following with the Superintendent of Insurance:

• All policy forms, including every policy, endorsement, and rider that the insurer uses or intends to use
• All rating rules, including every rating manual, minimum class rate, rating schedule or rating plan, and any modifications to those materials that the insurer uses or intends to use

Every filing submitted to the Superintendent of Insurance must include:

• The proposed effective date
• The type and extent of coverage
• Supporting information, including insurer or rating bureau experience or judgment, interpretations of statistical data, and any other relevant information supporting the filing

Inland marine risks generally do not use manual rates or rating plans, so their rates do not need to be filed with the Superintendent. However, when a rating bureau establishes a specific rate for a specially rated inland marine risk, that rate must be filed.

Insurers may meet these filing requirements by joining a licensed rating bureau and authorizing the Superintendent to accept the bureau’s filings on the insurer’s behalf.

Specific inland marine rates for specially rated risks become effective immediately upon filing. All other filings are subject to a 30-day waiting period. The Superintendent may approve an earlier effective date upon written request. If the Superintendent does not reject the filing within the waiting period, it is automatically considered approved.

If a filing lacks sufficient supporting information, the Superintendent may require the filer to provide additional information. The waiting period does not begin until the requested information is received.

A rate higher than the filed rate may be used for a specific risk if the insured submits a written request explaining the reasons and the Superintendent approves the higher rate.

Every policy issued by an insurer must follow the insurer’s current filings. The exception is specific inland marine coverage that is not written according to a rating plan.

Once a filing becomes effective, the filing and its supporting information are available for public inspection.

Superintendent's Authority

The Superintendent may suspend or modify filing requirements by written order without prior notice or a hearing. Any affected insurers and rating bureaus must be notified of the order.

Note

Too little market competition may result in excessive rates that are unfair to consumers. However, too much competition may lead to inadequate rates, increasing the risk of insurer insolvency.

When necessary to maintain appropriate market competition, the Superintendent may:

• Require review of rate increases or decreases for commercial casualty or liability insurance
• Impose a 30-day waiting period before the filing becomes effective
• Extend the waiting period once for up to 15 additional days

Any rule issued by the Superintendent for this purpose expires after 1 year, unless it is extended or rescinded earlier.

Financial Requirements

Capitalization Requirements

To receive a certificate of authority, an insurer must demonstrate that it has and can maintain the required capital and surplus. The required amounts vary by type of insurer.

A foreign or alien fidelity or surety company cannot be licensed in Ohio unless it deposits at least $50,000 in bonds to protect its policyholders. Alternatively, the Superintendent may permit a $100,000 deposit in approved securities.

A foreign or alien guaranty company cannot be licensed in Ohio unless at least $200,000 of its assets are invested in permitted securities and those securities are deposited with the Superintendent.

Annual Audit

To evaluate an insurer’s financial condition, the Superintendent requires an annual audit of its financial statements prepared by an independent certified public accountant (CPA).

The Superintendent evaluates whether an insurer’s continued operation could be financially hazardous to policyholders, creditors, or the public. Factors considered include:

• Adverse findings in financial examinations, audits, or actuarial reports
• NAIC financial analysis and solvency tools
• Whether the insurer has sufficient assets and cash flow to meet its contractual obligations and related expenses

An insurer is generally exempt from this requirement for a year if it has:

• Less than $1 million in direct written premiums, and
• Fewer than 1,000 policyholders at year-end.

However, the Superintendent may deny the exemption when necessary.

Insolvency

Most insurers, including stock insurance companies, are considered insolvent if they:

• Cannot pay their obligations when due; or
• Have assets below their total liabilities, plus the greater of:
  • The capital or surplus required by law, or
  • The stated value of their capital stock

The insolvency standard differs slightly for insurers that issue only assessable policies, such as mutual insurance companies. These insurers are considered insolvent when they are unable to meet a financial obligation within 30 days of either the obligation’s due date or the date stated in the first assessment.

Agent Regulation

Commissions and Compensation

An insurance company may pay commissions or other compensation only to an agent who is properly licensed and, when required, appointed by the insurer. Any compensation for activities that require an insurance license must be paid using the licensee’s legal name or registered trade name.

An unlicensed person may receive compensation for referring someone to a licensed insurance agent, provided the unlicensed person does not discuss specific policy terms or conditions. The referral payment must be a fixed dollar amount and cannot be based on whether the referred person actually purchases an insurance product.

A licensed insurance agent may pay a commission to another licensed agent for helping obtain insurance, as long as both agents are licensed in the same lines of insurance and the insurers involved are authorized to conduct business in the state. However, the compensation cannot be based on the amount of the policy premium.

An insurance agent may assign commissions to an unlicensed person or entity through a written agreement. However, the assignment must be legitimate and cannot be used as a way to disguise or avoid the rules against paying unlawful commissions or fees.

An agent or insurer may also pay an unlicensed person or organization for:

• Administrative services that have been performed, as long as the payment is reasonable and not based on insurance sales or production
• Production costs associated with an endorsement

Consumer Information and Fees

An agent may charge a consumer fee only when all of the following requirements are met:

• The fee is clearly disclosed to the consumer and is listed separately from the insurance premium
• The fee is not calculated as a percentage of the premium
• The consumer agrees to the fee
• The agent applies the fee fairly and without discrimination
• The fee is not refunded, waived, forgiven, reduced, or offset by any commission the agent earns from the sale of a policy or coverage
• The amount of the fee and the consumer’s responsibility to pay it cannot depend on a future event, such as the purchase, cancellation, lapse, or nonrenewal of a policy
• The agent must clearly disclose that:
  • The fee is charged by the agent, not the insurance company
  • The fee is not required by state law or the insurance company
  • The fee is nonrefundable

Fees cannot be charged for accepting or submitting an initial application, changing an existing policy, or processing a cancellation, claim, or renewal for any of the following personal lines of insurance:

• Private passenger automobile insurance
• Homeowners insurance, including:
  • Tenant or renters coverage
  • Condominium owner coverage
  • Owner-occupied fire or dwelling property coverage
  • Personal umbrella liability coverage
  • Other 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

If a dispute arises between an agent and a consumer regarding a fee, the agent is responsible for proving that the required fee disclosure was properly made to the consumer.

Anyone who violates these regulations is considered to have committed an unfair trade practice.

These fee restrictions do not apply to a surety bail bond agent who charges an expense fee to cover the actual costs incurred when executing a bail bond.

Reporting of Felony and Crimes of Moral Turpitude

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

A licensee must notify the Superintendent of any criminal prosecution brought against them in any jurisdiction, except for a misdemeanor traffic violation. The notification must be provided within 30 days after the licensee’s initial appearance before a judge or magistrate.

In addition, the licensee must provide the Superintendent with a certified copy of the court’s entry or order showing the final disposition of the criminal case. This documentation must be submitted within 30 days after the case is finally resolved.

The Superintendent may suspend, revoke, refuse to issue, or refuse to renew an insurance agent’s license, impose a civil penalty, or apply other authorized sanctions for reasons including:

• Being convicted of or pleading guilty or no contest to a felony, regardless of whether the court has formally entered a judgment of conviction
• Being convicted of or pleading guilty or no contest to certain misdemeanors, regardless of whether a judgment has been formally entered, when the offense involves:
  • Misuse or theft of another person’s money or property
  • Fraud, forgery, or dishonest acts
  • Breach of fiduciary duty related to insurance, securities, or financial services
  • Moral turpitude

Policy/Application Signature

The Superintendent may suspend, revoke, refuse to issue, or refuse to renew an insurance agent’s license, impose a civil penalty, or apply other authorized sanctions if the agent:

• Forges or causes the forgery of an insurance application
• Forges or causes the forgery of any document related to or used in an insurance transaction
• Submits or uses a forged document in the insurance business when the agent knew or should have known that the document contained a forgery

Appointment Procedures

Agent Appointment

An insurance agent may act on behalf of an insurer only if the agent has been officially appointed by that insurer.

An insurer must notify the Superintendent of an agent’s appointment within 30 days of whichever occurs first:

• The date the agency contract is executed, or
• The date the agent’s first insurance application is submitted

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

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

While an agent’s appointment is active, the insurer is legally bound by the agent’s actions when those actions fall within the agent’s actual or apparent authority. Generally, agent appointments and terminations must be submitted electronically. An appointment automatically renews on July 1 of each year unless the insurer terminates it.

The Superintendent will bill insurers for fees associated with agent appointments and terminations.

• Property and casualty licenses are subject to a single fee
• Life and health licenses are also subject to a single fee
• Variable life and variable annuity products require a separate fee

Cancellation of Appointment

If an agent’s license is surrendered, revoked, or suspended, all of the agent’s existing appointments automatically become void. If the agent later receives a new license or has the previous license reinstated, the prior appointments do not automatically return. Each appointment must be obtained again as a new appointment.

Termination Notification

When an insurer terminates its appointment, employment, contract, or other insurance business relationship with an agent, the insurer must notify the Superintendent within 30 days after the termination becomes effective. The insurer must also provide any relevant information, documents, or records related to the termination.

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

If an agent is terminated for conduct that could result in Department disciplinary action, the insurer has additional responsibilities:

• The termination notice must be sent to the agent by certified mail, with return receipt requested and postage prepaid, or by overnight delivery through a nationally recognized carrier
• The insurer must promptly provide the Superintendent with any additional relevant information it discovers after the initial notification

An agent has 30 days after receiving the termination notice to submit written comments to the Superintendent.

• A copy of the comments must be provided to the insurer at the same time
• The comments become part of the Department’s official file on the agent
• The comments must accompany any future report made about the agent