Florida Makes Selling Unlicensed Coverage Felony

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Florida-licensed insurance agents who sell unlicensed insurance could face a felony charge and lose their license under a new law pushed by Treasurer and Insurance Commissioner Tom Gallagher during the 2002 legislative session.

The new law, which became effective Oct. 1, increases the violation of selling unauthorized insurance from a second-degree misdemeanor to a third-degree felony, punishable by up to five years in prison and a $5,000 fine per count.

Insurance department spokespeople said in interviews with National Underwriter that such activity has long been treated as a felony, but prosecuting alleged criminals is not always a priority for District Attorneys offices.

They also agree it is a difficult situation to quantify, because regulators generally dont discover the criminal activity until someone contacts them complaining of not having coverage.

Nanci Kramer, deputy press secretary, California Insurance Department, says this type of fraud tends to increase when there is an economic downturn.

“People have a hard time, then they cross the lines and become criminal,” she says.

Although the department is “as aggressive as we can possibly be” in apprehending agents who sell fraudulent policies, many cases are pleaded down to misdemeanors, Kramer says.

“Most people are focused on violent crime and people say with white collar crime who gets hurt? And thats what were fighting,” she says.

“We work with the District Attorneys whenever a case like this comes up and try to make this a priority and try to make them understand what an economic loss this is.”

Lee Jones, public information officer with the Texas Insurance Department, says agents who sell fraudulent policies in that state risk loss of their license and felony charges if the departments fraud unit feels such charges are warranted.

Texas is “very aggressive,” in its efforts to curtail the crime, Jones says.

“Unauthorized health plans we see as a real major problem and weve taken a number of actions in the last year and a half to notify the public and shut them down when were able to,” he says.

Terri Marchon, spokesperson, New York Insurance Department, says the fraud unit gets about 26,000 complaints annually. About 50 of those are typically of agents selling unlicensed coverage–a felony in New York.

Those complaints involve all different lines of insurance, Marchon says.

“This is a horrible crime because people think theyre insured, and they dont find out until after (they need it) that they arent,” she says.

Florida law already requires anyone who solicits, negotiates or sells an insurance contract for an unauthorized insurer to be held financially responsible for unpaid claims.

While investigating unlicensed entities, department regulators have determined that the operators of unauthorized entities would not have been able to reach potential buyers without the assistance of licensed agents.

Both employers and agents have been enticed by the low premiums unlicensed entities charge, but the rates are often not actuarially sound and money is not set aside for reserves, the Florida department says. Because unlicensed entities do not participate in a state guaranty fund– a fund covering unpaid claims in the event of an insolvency or bankruptcy–policyholders in unlicensed plans are usually left with unpaid claims when the businesses fold, the department says.

“A licensed insurance agent should know whether the product he or she is selling is illegal or properly licensed,” says Gallagher. “Although a majority of agents are not marketing unlicensed plans, the new law will hold unscrupulous agents accountable for leading their clients into buying unlicensed coverage.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 7, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.