With time running out for the regular session of the 83rd Texas Legislature, a primary focus of the House Insurance Committee has been on strengthening the Texas Windstorm Insurance Association, to insure the continued availability of windstorm and hail coverage for property owners in coastal areas.

The life settlements for Medicaid bill SB 1321 will likely not pass in the face of strong opposition from the Texas Conservative Coalition Research Institute. HB 2383 relating to life settlement contracts for the payment of long-term care services and the consideration of a life insurance policy in determining eligibility for medical assistance has been placed on the House calendar. It is opposed by ACLI. SB 840 by Senator Kelly Hancock has passed both the House and Senate. The measure which applies to all lines of insurance except title allows educational and promotional items valued under $25 to be given to potential customers and not be considered rebating. NAIFA-Texas supports passage of SB 1795 and HB 459, allowing the Texas Department of Insurance to establish standards to regulate navigators for health benefit exchanges established under the ACA. NAIFA-Texas supports passage of HCR 26 which urges the U.S. Congress to repeal Dodd-Frank Wall Street Reform and Consumer Protection Act.

Important dates: Thursday, May 9, 2013 is the last day for the House to consider House bills on second reading; Monday, May 27, 2013 is the last day of the regular session, with corrections only in both the House and Senate; Sunday, June 16, 2013 is the last day the Governor can sign or veto bills passed during the regular session; and Monday, August 26, 2013 (91st day following adjournment) is the date that bills without specific effective dates (that could not be effective immediately) become law.

Jay Thompson is a partner with Thompson, Coe, Cousins & Irons LLP in Austin, Texas.

In the aftermath of the federal Affordable Care Act imposing loss ratios on health insurers, many insurers have responded by cutting agent commissions in order to maintain their medical loss ratios within the limits set by federal law.

This has forced many agents to consider other options including whether they should charge agent fees for representing clients in negotiation and crafting health insurance policies.

This article will provide a brief overview of Texas law on the charging of agent fees and whether agents can also charge fees and receive commissions from an insurance company. The practice of charging fees and receiving commissions is often referred to as "dual compensation." Specific emphasis has been placed on the application of various Texas laws to agents who hold a general life, accident and health insurance agent license under Chapter 4054, Insurance Code and agents who also hold a life and health counselor license under Chapter 4052, Insurance Code.

This article is intended to provide a general overview and is not intended to give legal advice nor should it be relied upon as a complete representation of the law. Any decision to act or not act should be made only after thorough review of the law and after consulting with legal counsel. There are fact differences that could apply in any given situation. Agents should consult counsel if they have specific questions relating to specific fact situations unique to their own business or a particular customer.

General Overview of Texas Law

Life & Health Insurance Counselors License Provisions

Chapter 4052 provides for the licensing of life and health insurance counselors. This license was first added to Texas law in 1955 when it was codified as Art. 21.07-2. The prohibition on dual compensation was added in 1969 and codified as Art. 21.07-2 Sec. 4a. There is little legislative history on the addition of Section 4a.

The license for life and health counselors clearly seems aimed at requiring individuals who contract to act as advisers to insureds as opposed to acting as an agent. The type of services mentioned in the statute are services for insureds or prospective insureds such as examining life accident and health insurance policies to give advice or other information regarding the policy and advice relating to changes or rejection of a particular policy or plan. The second requirement to be considered a counselor is that the person uses a title in a public manner such as insurance adviser, analyst, counselor, specialist, policyholder adviser or counselor or other similar titles.

Chapter 4052 contains a specific exemption that the entire chapter does not apply to a "licensed agent for a life insurance company while acting as an agent for the company." Thus, this exemption should be applied to mean that the dual compensation prohibition does not apply in any situation where an individual is a licensed agent acting as an agent for a life insurance company. There could be some instances where a licensed agent under Chapter 4054 is acting as an agent for a health maintenance organization (HMO). In those instances, the dual compensation provisions may apply where an HMO is involved.

A counselor is not required to be appointed to act on behalf of an insurance company. Finally, contracts between a counselor and person, firm or corporation are enforceable if they are in writing, executed in duplicate and the agreement specifies the amount of the compensation paid or to be paid to the counselor for the services.

Section 4052.055, Insurance Code, prohibits dual compensation for a life insurance counselor. A counselor may not receive compensation for the "same service" if:

(1) The counselor also holds a general life and accident license under Chapter 4054; and

(2) Receives compensation for the service as an agent licensed under that chapter.

The term "same service" is not defined by statute or rule even though TEX. INS. CODE §4052.001 discusses generally the types or services contemplated for a counselor. It should also be noted that the "dual compensation" provision only applies if the individual is licensed as a counselor and an agent under Chapter 4054. Arguably, it would not apply if an individual was licensed as a counselor and a property casualty agent under Chapter 4051.

It seems clear that the counselor license is intended to cover situations where the counselor has an agreement with an insured or prospective insured to act as an advisor relating to insurance. Thus, a counselor is an advisor for the insured or prospective insured as opposed to acting as an agent for the company.

The definition of "agent" contemplates that an agent is performing certain acts on behalf of an insurer.

In short, the dual compensation prohibition seems to be aimed specifically at those situations where an individual is acting as a counselor as opposed to acting as an agent for the company.

General Life & Health Agent License Provisions

As stated before, a person must be licensed as a general life and health agent if they are performing the acts of an agent on behalf of an insurer. Section 4001.0009(b) provides that a person is the agent of the insurer for which the act is done or risk is taken as referenced in the list of items identified in Section 4001.051. The term agent is also defined in TEX. INS. CODE §4001.003(1) to mean a person who is an authorized agent of an "insurer."

Even though agents are acting on behalf of an insurer, there is also a type of dual agency where they are also acting as an agent for their customer, the insured. The distinction between life counselor and agents is not entirely clear under the present wording in the insurance code. The one difference is how a person who is licensed as both an agent and counselor represents or advertises to the public. It should seem clear that if a person is holding himself out as a counselor or advisor then this contemplates that the person may not be acting as an agent.

Agent Fees and Policy Fees

TEX. INS. CODE §550.001 permits an agent to charge a "policy fee" or an "agent fee" to be charged by an insurer or an insurer's agent. This section is not restricted to property and casualty agents and arguably broadly applies to all types of agents under the Insurance Code including general life and health agents under Chapter 4054.

It should be noted that our firm is aware of situations where "actuarial staff" at the department have felt or stated that this section only applies to property and casualty agents but this position is not supported by the language in the statute itself. The confusion on this issue may be based in part on rules adopted in 1992 on fees charged by local recording agents (now known as general property and casualty agents) that are codified in the administrative code at 28 TEX. ADMIN. CODE §19.1501, et. seq. These rules have not been amended since 1997, and the current statutory language does permit agent fees for all types of agents. The statutes referenced in the rules have all been repealed and replaced through recodification of the Insurance Code.

It is our general understanding that many different situations have been involved where agent fees have been charged without apparent objection from the department. These include situations where an agent charges a fee in lieu of or in addition to commission in connection with the sale of a particular policy.

Examples include where the insurer provides coverage at a "net" premium with no commission allowance or situations where the insurer allows commission at a rate that is inadequate to place or service an account and a fee is charged to fully compensate the agent for place of the coverage and service of the account. Other examples may include situations where an agent is paid an adequate commission by the insurer but charges an additional fee and agrees to perform additional services such as loss control activities, issuing certificates of insurance, or handling and tracking claims.

The majority of these examples have been seen in property casualty insurance even though we are aware of a number of health insurance agents that charge agent fees because of inadequate commission allowances after the passage of federal health care reform.

Disclosure Required if Dual Compensation is Received

TEX. INS. CODE §4005.004 provides that if an agent receives compensation from a customer for the "placement or renewal" of an insurance product and from the insurer, the agent must obtain the customer's written acknowledgement that the compensation will be received, and provide a description of the method and factors used to compute the compensation to be received from the insurer. The disclosure requirements include agents licensed under Chapters 4051, 4053, 4054 or 4056 of the Insurance Code. Thus, in situations where a general life and health agent charges an agent fee and receives a commission from the insurer, the agent should obtain a documented acknowledgement from a customer before the agent receives or accepts any compensation from an insurer.

There are some general exceptions to disclosure that are probably not applicable in most situations involving agents selling health insurance and receiving agent fees. The three exceptions mentioned in Section 4005.004 provide that this section does not apply to:

(1) Agents who act "only as an intermediary between an insurer and the customer's agent, including a managing general agent;"

(2) A reinsurance intermediary or surplus lines agent; or

(3) An agent whose sole compensation for the placement or "servicing" of an insurance product is derived from commissions or other remuneration paid by the insurer. TEX. INS. CODE §4005.004(c).

An agent receiving commissions and an "agent fee" would be receiving compensation from a customer, and it is advisable that this disclosure include a documented acknowledgement signed by the customer before the purchase of an insurance product.

The acknowledgment should also contain a brief description of the method and factors used to compute the compensation to be received from the insurer.

Our firm has provided a sample disclosure form that may be available to members of NAIFA-Texas.

There are several different forms that may be available. The important thing to remember is that any form should be signed by the customer and contain a brief description of the method and factors used to compute the compensation to be received from the insurer.

Conclusions

This article summarizes Texas laws on the issues relating to agent fees and disclosure if dual compensation is received. This is important for many agents still selling health insurance because it is difficult to continue business without charging agent fees in addition to the commissions health insurers are now paying after the Affordable Care Act.

With the NAIFA National Convention coming to the Lone Star State this fall, NAIFA-Texas is calling on its members to help show the meaning of Texas hospitality. 

Whether a brand new member or a 30+ year veteran, plan to be in San Antonio from September 28 to October 1 for an action-packed weekend of networking, education, association business, and fellowship. Register for the NAIFA 2013 Career Conference and Annual Meeting by July 18 to take advantage of discounted rates.  

While simply having a large member presence at the conference will speak volumes, NAIFA-Texas leadership wants to take it one step further, asking that all members volunteer their time during the conference. The four-day conference is a large-scale production, and volunteers are critical to its success. A variety of help is needed, ranging from directing foot traffic to distributing event materials, and commitments are as short as one hour; click here for a comprehensive list of volunteer opportunities. You will be asked to make a selection during the online registration process.

Finally, purchase a NAIFA-Texas embroidered shirt to identify your home state with pride. The wearing of uniforms on certain days is a tradition honored by many state associations, including Texas, and is a fun way to be more engaged at the conference. 

The Leadership in Life Institute (LILI) selection committee has announced the selection of the 2014 class of candidates. Eight students, chosen from applicants across the state, will take part in the program, which is slated to begin in Austin on August 19, 2013. The following eight (8) candidates were selected:

• Michael Aguirre, LUTCF of NAIFA-San Antonio
• Roland Barrera of NAIFA-Corpus Christi
• Davin Bell of NAIFA-Austin
• Laura Biesemeyer of NAIFA-Dallas
• Criss Crombie of NAIFA-Fort Worth
• Cecil Dolberry, LUTCF of NAIFA-Great Southwest
• Lindsey James, CFP of NAIFA-Houston
• Carrie Welch, CPCU, LTCP of NAIFA-Austin

In a new promotional video featured on the LILI page of the NAIFA website, NAIFA-San Antonio Secretary/Treasurer and 2013 LILI graduate Elizabeth Valenti remarks, "I think [LILI] will help any agent or advisor take their practice or firm to the next level."

Called "a true rising star" by Texas LILI Chair Karen Easterling, Valenti embodies the LILI principles and will certainly be "one to watch" in the coming years. If you are interested in growing your leadership abilities and your business, be on the lookout for next year's call for applicants in February 2014.

NAIFA-San Antonio is proud to be sponsoring an American College Intensive Live Review course on Income Taxation next month, June 7-9. The course, HS 321, may be used for both the CLU and ChFC designations. The Intensive Live Review format features 16 hours of review of all the major course concepts, led by a highly qualified American College faculty member. The Friday-Sunday program is capped with a paper and pencil final exam.

The format is ideal for the most challenging technical topics such as investments, estate planning, and taxation. Students benefit from the instructor interaction and as a result, the American College has seen higher pass rates for difficult courses taken as IRP's.

All Texas members are invited to attend. NAIFA-San Antonio President Ron Botello said of the program, "We held a course in March that was popular with our members and overall very successful. I encourage members from across the state to join us for the June course." For more information and to register, visit www.theamericancollege.edu/irp. Students must register by May 17.

The Texas Association of Health Underwriters (TAHU) held its annual convention in Fort Worth last week, May 2-3. The occasion marked the 25th anniversary of their convention, first held in 1988. At the opening ceremony, TAHU President Kelly Fristoe read a letter of congratulations from NAIFA-Texas President Doug Massey.

Should be a simple answer, right? It is, but it's important for an insurance agent to understand when a client is actually making an E&O claim against you to protect your rights under your E&O policy. For example, Paul the insurance producer sold a fixed annuity to a client. The client called Paul one day to say he didn't like the return on the product and he was unhappy with Paul for recommending it. Is this a claim? As an insured under an E&O policy, Paul is concerned about having an E&O claim against his policy. His client is also someone who calls and frequently complains about the market and investments in general. So what should he do?

Under most professional liability insurance policies, there are claim reporting provisions. Your obligation, usually a condition precedent to the insurer's obligations, is to provide timely, written notice of a claim to the insurer. Your policy will define a claim and your responsibilities. In Paul's policy, a "claim" is a "written demand for a monetary relief" or "notice of a civil proceeding demanding relief." So far, Paul doesn't need to report anything. However, many insurance companies, either through the application process or "awareness provisions" of the policy, seek to exclude claims arising out of incidents that could reasonably have been expected to give rise to a claim, so Paul needs to be careful that an insurer doesn't exclude coverage for a potential claim he should have reported. His policy allows for reporting incidents that could give rise to a claim. Paul could contact his insurance company and provide notice of a potential claim that would protect him if his client ultimately decides to file a claim and then he doesn't need to worry about whether or not it would be excluded for failure to timely report.

Tip: Familiarize yourself with your policy claim reporting provisions and definition of claim. Some policies may not offer an opportunity to provide notice of a potential claim. When in doubt, contact your E&O agent, broker or underwriter to discuss a claim or potential claim and the need to report it. As always, thoroughly document your discussions.

For more information about CalSurance E&O coverage and/or to apply online, visit www.naifaeo.com or call 888-833-2304.

Additionally, save 10% on your premium by completing a new online risk management course available exclusively to NAIFA members. The course is free, or pay a nominal fee to receive CE credit as well. For more information, click here.

INDUSTRY NEWS HIGHLIGHTS

If his latest memo is any indication, the Patient Protection and Affordable Care Act remains a big target for GOP leaders in Congress. Majority Leader Eric Cantor, R-Va., told House Republicans that they soon will have a chance to vote on repeal of the law. Full story.