We’ve probably all heard the suggestion that the end of the year, or beginning of a new year, is a good time to review various aspects of our lives, including our financial security. Among such things to consider are our insurance policies and coverages. Such a review, however, is only as beneficial as the diligence with which it is performed. In that regard, we sometimes overlook the most basic considerations. In the area of insurance, that can be costly. For instance, while it’s a good practice to review the types and amounts of insurance coverages you have and need, when is the last time you checked the financial stability of your carrier, or even more basic, its compliance with insurance statutes and regulations?

Perhaps because the insurance industry is perceived to be highly regulated and monitored, many of us just assume that if a company is offering to sell us insurance, it must be doing so in compliance with the applicable laws. In most instances, that is probably true, but it is not always true. Despite the efforts of the regulatory and enforcement agencies, some insurance companies — or more precisely, some companies that appear to be insurance companies — are still selling insurance, or insurance-like products, in violation of applicable insurance laws.

One manner in which such companies continue to operate is by claiming to be exempt from the state licensing requirements that most insurance companies are subject to. Among other things, the licensing requirement helps ensure that the companies selling insurance are financially stable and are not engaged in any misleading or fraudulent sales practices. Some insurers are exempt from the licensing requirement and are permitted to sell insurance partly because they have demonstrated their financial stability; such companies are referred to by various names, including “eligible excess” or “alien” carriers, and “qualified unauthorized” or “surplus lines” insurance companies.

An important point to remember is that all insurance companies licensed to sell insurance in your state or that have qualified as surplus lines or “alien” insurers are included on such lists maintained by the National Association of Insurance Commissioners (“NAIC”). Your state insurance department may also maintain such lists, or more likely, its website will have a link to the NAIC website where you can find the lists for your state.

Despite the best efforts of our state and federal regulatory and enforcement agencies, some companies continue to sell insurance, or insurance-like products, without being properly licensed or qualified to do so. The companies I am aware of that do so claim to be exempt from the licensing requirements. While there are certain exemptions, they are very few and limited, and generally do not pertain to the types of insurance that are widely available, such as basic property insurance.

However, some companies claiming to be exempt from the licensing requirements offer basic property insurance, typically at premiums significantly below what a licensed or surplus lines carrier would charge for the same property. While the lower premiums may be enticing, the upfront savings can be costly if a loss occurs. In the instances I know of, the policyholders experienced inordinate and unreasonable delays in obtaining payments for claims, especially for large claims.

In summary, the points I am trying to make are that (1) you should regularly review your insurance coverages and policies, at least annually, and (2) you should also confirm that your insurance company, or what you believe to be your insurance company, is included on the NAIC lists of licensed and surplus lines (i.e., “alien”) carriers permitted to issue insurance in your state. Be especially suspicious if the premium you are paying or have been quoted by the company is substantially lower than what other companies have charged or quoted you for the same property. If the company’s not on either of the NAIC lists for your state, seek “independent” professional advice and counsel before proceeding with that company. By “independent,” I mean a qualified professional who was not involved in the sale or marketing of the policy to you. Some insurance agents may not be aware that a company is not in compliance with insurance laws; others may turn a blind eye to such illegality so they (the agents) can get your insurance business.

Best Wishes for the New Year. Let’s make it a good one.

  • shirley heflin

    Dear Attorney Moon:

    Your article contains multiple suggestions for people to check on the “financial status” of their insurance company but, in reality, most won’t. Unfortunately, many people buy insurance policies off the internet and the only thing they’re interested in is a carrier’s name, policy number and the cheapest quote.

    Further, for those that “…assume that if a company is offering to sell us insurance…it must be doing so in compliance with applicable laws…”, they may not have had their promptly and correctly submitted claim(s) delayed, denied and/or underpaid in violation of applicable laws. In short, they haven’t been the unfortunate “victim” of an insurance company yet. Until they endure said victimization, their interest in investigating their carrier’s status and reputation, may not seem important.

    Respectfully,
    SHIRLEY HEFLIN
    Tampa, FL