Don't Fall Prey to Phony Insurance

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March 22, 2002

Commissioner Jose Montemayor today warned Texas insurance agents that they risk license revocation, felony prosecution and personal financial liability if they sell health care plans offered by unauthorized insurers.

Montemayor issued a bulletin spelling out the dangers of unauthorized insurers and describing the subterfuges commonly used by them in recruiting agents to sell their health care plans. The bulletin went to all Texas licensed insurance companies, which were told to distribute it to all agents appointed to represent them.

The Texas Department of Insurance has taken action against three unauthorized health plans in the past 12 months. Each plan had recruited licensed agents to market its product to unsuspecting employers, including school districts. Several more such plans are under investigation.

Montemayor's bulletin said selling such plans "not only jeopardizes the security and health of Texas consumers but also subjects agents to disciplinary action, which can include suspension or revocation of their licenses, restitution and monetary penalties."

"The solicitation or sale of unauthorized insurance also subjects agents to other serious consequences, including personal liability for unpaid claims and losses," Montemayor said. The Commissioner also pointed out that an agent who solicits or sells unauthorized insurance also may be subject to criminal prosecution. Unauthorized insurance is a third-degree felony in Texas.

He emphasized that each agent is responsible for diligently investigating an insurance entity before agreeing to represent it.

Agents can verify whether insurance entities recruiting them are licensed by calling TDI toll-free at 1-800-252-3439. Company profiles of all licensed companies and eligible surplus lines carriers also are available on TDI's Web site, www.tdi.state.tx.us. Agents and others with information about unlicensed health coverage plans should contact TDI's Fraud Unit at 1-888-327-8818.

Montemayor's bulletin lists some circumstances and product characteristics that should prompt agents to closely scrutinize a health plan before marketing it. These include:

• The product operates like insurance but claims that it is not, or claims it is only providing "benefits," and not insurance.
• Agents are asked to avoid using certain insurance terminology, even though the plan operates like insurance. For example, individuals selling the product may be instructed to refer to commissions as "consultant fees" or to refer to premiums as "contributions." The individuals selling the product are referred to as "labor consultants" or "business agents" who "enroll" or "negotiate" with potential members.
• Agents have no commission schedule or fixed commission rate(s). For example, the entity informs individuals selling the product to determine commission rates based upon the customer's ability to pay.
• Agents are asked to market and sell an "ERISA" plan or "union" plan. The coverage provided by legitimate single-employer ERISA plans "arises from the employer/employee relationship and is not marketed or sold by insurance agents," the bulletin notes.
• The product claims to be "fully-funded," "fully insured" or "reinsured" but agents are not told the name of the carrier insuring or underwriting the product.
• Agents are instructed to market and sell the plan to both individuals and employers who are required to join and pay dues to a trade, occupational or consumer "association," solely to obtain health coverage. Also, the enrollees do not control or sponsor the activities of the association, or are not given association by-laws or voting rights.
• Agents are asked to market and sell an "employee leasing" arrangement. For example, agents are instructed to enroll individuals and groups into a "professional employer organization" or "PEO" which provides self-funded health coverage. However, the PEO is not licensed by the Texas Department of Licensing and Regulation as a staff leasing services company or does not pay the wages of the enrollees.
• The product accepts and covers individuals or groups with pre-existing conditions, even though the individuals and groups have no creditable coverage.
• The product advertises unusually low premiums and/or unusually generous benefits, low (or no) minimum requirements for participation, and loose (or no) underwriting guidelines.

Remember, check with us...
before you send a check to them!

More to Read   Phony Insurance • Unauthorized Plans • Unauthorized Health Care
Alert to   Insurance Agents • Insurance Companies

For more information contact: PIO@tdi.state.tx.us