43 States Limit or Prohibit Insurance Agency Fees

Can Your Insurance Agency Charge a Fee in Addition to Premiums

Having read through all the state insurance codes, bulletins, advisory opinions, notices, regulations and related material I can find - don't I know how to have fun - I have complied an extensive list on how an insurance agency needs to operate to be in compliance with its state's insurance regulators.

43 states have one or more specific rules or laws regarding insurance agency's ability to charge any fee in addition to the insurance premium.

The basic reason for these rules is to require the actual insurance rate to be meaningful. When insurance rates have to be filed and/or approved, allowing additional charges to be added on to the customer bill defeats the purpose of the regulation of the insurance rates. In today's jargon, it provides a hack of the insurance regulatory process.

We Know and Care About Your Compliance

At Simply Easier Payments we spend a great deal of effort understanding your business so we may provide our service in a way that never puts you or your business at risk.

We will never be perfect, but we will work hard and diligently.

We believe any long term business relationship requires this of us.

Premium Payments Deposited to Bank in Your State

Nine States Require You to Use a Bank in Their State

When an insurance agent accepts a premium payment from a customer it always creates a fiduciary responsibility for the insurance agent.

Most states have laws outlining many specifics of how these premium payments must be handled.

These states all require that the premium payments be deposited in a bank or other depository institution with a physical presence in the agent's state or at a minimum regulated by the agent's state's banking regulators.

States Requiring Bank Account in Agency’s State

1. California – see note
2. Hawaii
3. Illinois
4. Maryland
5. Nevada
6. New York
7. Utah
8. Washington
9. Wyoming

NOTE: California requirement is limited to cash payments received at agency. Checks and card payments can be out of state.

Minnesota Insurance Agency Fees Charged to Customers

Minnesota is Wide Open for Insurance Agency Fees

Here is the link to the pertinent law...

https://www.revisor.mn.gov/statutes/cite/60K.46

I have read every state's insurance code with a particular focus on what fee insurance agents can charge their insureds in addition to the policy premium. Minnesota is about as accommodating as any state.

Minnesota does require written disclosure, but the disclosure does not require the insured's signature.

The final clause that "all fees charged are reasonable in relations to the services rendered" may also create some theoretical upper limit on the dollar amount.

Here is the text of the law as of this writing.

"Subd. 2.Fees for services.

No person shall charge a fee for any services rendered in connection with the solicitation, negotiation, or servicing of any insurance contract unless:

(1) before rendering the services, a written statement is provided disclosing:

(i) the services for which fees are charged;

(ii) the amount of the fees;

(iii) that the fees are charged in addition to premiums; and

(iv) that premiums include a commission; and

(2) all fees charged are reasonable in relation to the services rendered."

Kansas Insurance Department Ahead of the Times in 1995

Kansas Insurance Department Policy on Credit Card Payment

On November 6, 1995 the Kansas Department of Insurance issued what I believe to be the VERY FIRST in the nation statement on accepting credit card payments for insurance premiums.

Here is a link to the Bulletin

file:///C:/Users/Duke/Desktop/Card%20Fees%20Summary%20June%202018/Kansas/1995-19%20Accepting%20Credit%20cards%20for%20Premiums%20Bulletin.pdf

The Department was responding to the complaint that the transaction cost of accepting a card payment constituted a REBATE since a significant portion of the premium went to the credit card transaction cost.

I find this to be a wonderfully creative approach to the issue of the high cost of card transactions.

Apparently some agencies and carriers felt it was a marketplace advantage for some companies to offer to accept credit card payments but resisted accepting cards themselves because of the reduction in NET PREMIUM received after the transaction cost.

Looking back on this argument I would suggest they should have taken the position that the rewards points created by payment with a credit card could be considered a rebate since those points can be used as funding to pay for a wide variety of benefits - like airline tickets.

Insurance Agency Fees in Tennessee

Tennessee and What Are Services Associated with an Insurance Policy

The Tennessee law regarding fees an insurance agent can charge an insured brings up the most common issue related to agents charging fees.

Here is a link to a Bulletin from 1998...

https://www.tn.gov/content/dam/tn/commerce/documents/insurance/bulletins/1-08-98.pdf

The issues revolve around what are services that the insured should expect to be included in the premium?

Here is the text of the Bulletin

"“A fee which is not connected with the sale, solicitation, or negotiation of a policy of insurance, and which therefore, would not be included in the term “rate”, may be charged by an agent. Some factors which may be useful in analyzing whether a fee is connected with the sale, solicitation, or negotiation of a policy of insurance are:

1 – Whether the services performed by the agent are associate with the sale, underwriting, issuance, or servicing of a policy of insurance;

2 – Whether compensation is dependent upon the purchase of a policy of insurance;

3 – The date of payment of the fee in relation to the date a policy of insurance was issued.

Although these factors are provided for guidance, the department will continue to review each transaction on a case-by-case basis."

What do you think should be included in normal policy services?

Florida Insurance Agency Fees and Car Insurance

What Fees Can Be Charged in Florida on Car Insurance

Florida allows two fees to be charged by Licensed General Lines Agents related to car insurance policies.

• The agent / agency can charge the cost of obtaining a motor vehicle report - with limitations
• The agent /agency can charge $10 a policy with only PIP and Property Damage - with limitations

The rules for both are at this link...

http://www.leg.state.fl.us/statutes/index.cfm?App_Mode=Display_Statute&Search_String=&URL=Ch0627/Sec7295.htm&StatuteYear=1998

Cost of MVR

This rule is in Section 5(b). The key take away is your cost for the MVR cannot not be "otherwise compensated". In other words, the insurance company your place this business with cannot reimburse you for the cost.

You cannot charge more than the actual cost of the MVR.

You cannot include in the cost subscription or access fee you may pay.

PIP and Property Damage Only Policies

This rule is in Section 5(a). there are two important issues.

1. The "policy covers only personal injury protection coverage as provided by s. 627.736 and property damage liability coverage as provided by s. 627.7275 and if no other insurance is sold or issued in conjunction with or collateral to the policy."
2. "The per-policy fee must be a component of the insurer's rate filing and may not be charged by an agent unless the fee is included in the filing."

It is your responsibility to know if your carrier's rate filing includes this fee.

Florida and Insurance Agency Fees Charged to the Insured

Florida, Rebating and Health Insurance Consulting Fees

Here is the link...
http://www.leg.state.fl.us/STATUTES/index.cfm?App_mode=Display_Statute&Search_String=&URL=0600-0699/0626/Sections/0626.593.html

Did you know Rebating is not only legal, but required in Florida if a licensed insurance agent charges a fee for providing advice on any health or health benefit plan?

Not only is it required, but if you do receive a fee payment, then...

"all commissions received by an insurance agent from an insurer in connection with the issuance of a policy, when a separate fee or other consideration has been paid to the insurance agent by an insured, shall be rebated to the insured or other party being charged within 30 days after receipt of such commission by the insurance agent."

I guess the lesson here is if you are going to charge a fee, be sure it is more than the commission you would have received.

Signed Contract for Fee Required

In addition to rebating your commission, you can only charge the fee if you have a signed contract for the fee.

"such compensation is based upon a written contract signed by the party to be charged and specifying or clearly defining the amount or extent of such compensation and informing the party to be charged that any commission received from an insurer will be rebated to the party in accordance with subsection (3). In addition, all compensation to be paid to the insurance agent must be disclosed in the contract."

Insurance Agency Fees in Maine

Maine Allows Fees for Only Two Things

From this document - http://www.maine.gov/pfr/insurance/faq/producers.html#chargingfees

The basic rule is that fees are not allowed.

Charges for placing insurance must be as indicated in the company's filings; in other words, the regular premiums as filed, and the resulting commissions.

However, there are two circumstances allowing producers to charge fees. 

• First, producers with surplus lines authority may charge a nominal service charge in connection with surplus lines placements. 
• Second, fees in addition to or in lieu of commissions may be charged for large commercial property and casualty risks. 

This category is defined in Bureau Regulation Chapter 900: http://www.maine.gov/sos/cec/rules/02/031/031c900.doc

What Qualifies as Large Commercial

Based on the above linked document...

A large commercial risk is defined as one whose aggregate annual premiums for commercial property and casualty insurance sold by a producer totals $150,000 or more.

Arkansas Insurance Agency Charging Fees to Insured

Limits on Fees Charged by Insurance Agents in Arkansas

Arkansas does allow agents to charge their customers fees for a wide variety of reasons.

Arkansas places several unique limits on the fees they allow.

Here is the link to the portion of the Arkansas Insurance Code...

https://law.justia.com/codes/arkansas/2017/title-23/subtitle-3/chapter-66/subchapter-3/section-23-66-310/

Here is a link to a very relevant FAQ from the Arkansas Insurance Department...

https://insurance.arkansas.gov/pages/industry-regulation/licensing/frequently-asked-questions/producer-frequently-asked-questions/

Highlights

• All fees must be shown separately on the invoice or bill
• Total of all fees and commission cannot exceed 20% of premium
• In the FAQ, the Department takes the position that an agent can only charge fees once per policy period

With all this said, it seems to me that under the Arkansas insurance rules an insurance agent in Arkansas can charge a convenience fee or surcharge under Visa's rules, but only once - or for one payment.

Since Visa requires that these fees be charged the same on all payments, it does not seem under the Visa rules an insurance agent in Arkansas can charge a convenience fee or surcharge themselves.

Illinois and Fees Allowed by Insurance Agents

Illinois Insurance Agents Can Charge Fees with these Limitations

Here is the link...

http://www.ilga.gov/legislation/ilcs/fulltext.asp?DocName=021500050K500-80

The agency may charge fees under the following conditions:

1. Agent provides written disclosure
2. If Fee exceeds 10% of premium, disclosure must be signed by insured
3. If policy is cancelled within 90 days, pro rata portion of fee must be refunded
4.  No fee can be made for cancellation of policy

If documented that fee was for a service the producer performed corresponding to applicable coverage or policy, the disclosure can state the fee is fully earned immediately

Arizona Insurance Agency Fees

In Arizona Agents Rules on Fees Differ Based on Line of Business

Arizona seems to allow an insurance agency to charge fees on Personal Lines insurance if they get a signed disclosure from the insured and the fee is reasonably related to the service provided.

The law allowing this states "This section does not apply to insurance producers transacting commercial insurance." Does that mean no fees can be charged for commercial lines policies or that commercial policy fees can be charged without a signed disclosure? I do not know.


Life insurance, annuity, long-term care or medicare supplement insurance are lines of business fro which an Arizona insurance agent cannot charge any additional fee.

Here is the link to this section of the Arizona Insurance Code...

https://law.justia.com/codes/arizona/2017/title-20/section-20-465/

Compliance

Simply Easier Payments is very concerned and aware of the compliance requirements for your agency.

Agency Fees in Kentucky

What Fees can Kentucky Insurance Agents Charge?

Based on the information I was able to find in the Kentucky Insurance Code, there is a contradiction.

Underwriting Fees are specifically mentioned as being allowable as “related to underwriting expenses for a property or casualty insurance contract”. I assume this is reimbursement for items such as accident reports or Motor Vehicle Reports.

Here is a link to that part of the Code - http://www.lrc.ky.gov/statutes/statute.aspx?id=17088

Clearly a “Consultant” is allowed to charge fees. Here is the link http://www.lrc.ky.gov/statutes/statute.aspx?id=16929

Just as clearly, the consultant cannot accept commissions or act as the agent and also charge fees.

Finally, the “Illegal Dealing in Premiums” seems to state that only premium amounts can be collected. Here is a link to that part of the Kentucky Code - http://www.lrc.ky.gov/statutes/statute.aspx?id=17031

Based on these items I assume fees for a surcharge based on the use of a credit card for payment of premiums is not allowed to be charged by an insurance agency in Kentucky.

Iowa Electronic Transactions

Electronic Insurance Transactions in Iowa

Iowa is a state which has kept more current than most in its laws regarding electronic commerce.

Here is the Iowa Code outlining what is required for a legal electronic receipt...

https://law.justia.com/codes/iowa/2016/title-xiii/chapter-554d/section-554d.117/

Here is the text. Are you compliant?


Time and place of sending and receipt.

1. Unless otherwise agreed between the sender and the recipient, an electronic record is sent when all of the following occur:

a. The electronic record is addressed properly or otherwise directed properly to an information processing system that the recipient has designated or uses for the purpose of receiving electronic records or information of the type sent and from which the recipient is able to retrieve the electronic record.

b. The electronic record is in a form capable of being processed by that information processing system.

c. The electronic record enters an information processing system outside the control of the sender or of a person who sent the electronic record on behalf of the sender or enters a region of the information processing system designated or used by the recipient which is under the control of the recipient.

2. Unless otherwise agreed between a sender and the recipient, an electronic record is received when both of the following occur:

a. The electronic record enters an information processing system that the recipient has designated or uses for the purpose of receiving electronic records or information of the type sent and from which the recipient is able to retrieve the electronic record.

b. The electronic record is in a form capable of being processed by that information processing system.

3. Subsection 2 applies even if the place the information processing system is located is different from the place the electronic record is deemed to be received under subsection 4.

4. Unless otherwise expressly provided in the electronic record or agreed between the sender and the recipient, an electronic record is deemed to be sent from the sender’s place of business and to be received at the recipient’s place of business. For purposes of this subsection, both of the following apply:

a. If the sender or recipient has more than one place of business, the place of business of such person is the place having the closest relationship to the underlying transaction.

b. If the sender or the recipient does not have a place of business, the place of business is the sender’s or recipient’s residence, as the case may be.

5. An electronic record is received under subsection 2 even if no individual is aware of its receipt.

6. Receipt of an electronic acknowledgment from an information processing system described in subsection 2 establishes that a record was received but, by itself, does not establish that the content sent corresponds to the content received.

7. If a person is aware that an electronic record purportedly sent under subsection 1, or purportedly received under subsection 2, was not actually sent or received, the legal effect of the sending or receipt is determined by other applicable law. Except to the extent permitted or required by the other law, the requirements of this subsection shall not be varied by agreement.

2000 Acts, ch 1189, §17
Referred to in §505B.1

Compliance and Simply Easier Payments

At Simply Easier Payments we take your compliance seriously.

Massachusetts Internet Practices for Insurance

Internet Practices for Insurance Agents

Massachusetts is one of the few states which have directly addressed insurance and the internet.

That is amazing to me.

Equally amazing is how they have addressed it.

The only mention I can find is a 2001 Bulletin from the Massachusetts Division of Insurance.

https://www.mass.gov/files/documents/2017/12/14/2001-02.pdf

As was appropriate for the times, it addresses only the advertising potential of the Internet, not the current functions of sales and customer service.

Maryland Insurance Agents and Convenience Fees

Limits on Insurance Payment Convenience Fees in Maryland

Convenience fees are the surcharge a business adds to a payment if the person making the payment is using a credit or debit card to make the payment.

Maryland makes a specific exception for convenience fees for insurance agents.

Here is the link...

http://insurance.maryland.gov/Insurer/Documents/bulletins/17-10-Credit-Cards-Accepted-for-Insurance-Payment-Premiums.pdf

The document says this:

Bulletin 17-10

Date Sept 22, 2017

Guidance in Determining the Charge for Actual Expenses by a Licensed Insurance Producer or Qualified Surplus Lines Broker

A licensed insurance producer or a qualified surplus lines broker may set the charge for making payments by credit card at a rate equal to:

1 - the actual expense to be charged at the time of the transaction; or

2 – an amount that is less than or equal to the actual expenses incurred.

Visa Rules on Convenience Fees

Visa's rules on convenience fees require the business (merchant) to make the same flat dollar amount charge on every convenience fee regardless of the amount of the payment.

Example under Visa's Rules:

1 - Customer pays business $100. The business charges a $5.00 convenience fee.

2 - Customer pays business $1,000. The business must charge the same $5.00 convenience fee.

NOTE: Visa does not allow a percentage to be charged for convenience fees.

Here is the Conflict Between Maryland and Visa

Credit card transaction cost are made up of several fees. The largest and most discussed of these fees is the "Discount Rate"

"Discount Rates" are always a percentage.

The actual "Discount Rate" charged fro each payment varies based on the brand of card - Visa, MasterCard, AMEX, DiscoverCard - and the issuing bank or the card, and whether the card is a business or personal card, etc.

The business accepting the card payment has no way of knowing the actual cost of the card transaction in real time.

Maryland only allows the actual expense or less to be charge.

Problems:

1 - You have no way of knowing this amount
2 - Visa requires you to charge the same flat amount for every payment

These two requirements simply cannot both work.

Solution

Using Simply Easier Payments moves the fee away from the agency. You are not charging the fee. That frees us to only have to comply with the Visa Rules - which we do.

California Premium Trust Accounts and Insurance Payments

California Requires Use of In State Bank for Cash Payments?

On July 18, 2017 Jerry Brown signed into law AB 1460.

It allows insurance agents to use out of state banks for Premium Trust accounts.

But, it had an interesting twist if the agent received the premium payment in cash.

Here is the quote from this overview article...

"The bill would also require any licensee who receives fiduciary funds as cash to initially maintain those funds in a trust account in a bank or savings and loan association in California, licensed by the State of California or the United States government and insured by the FDIC."

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB1460

What do you think? 

Is this how you are operating your agency?

South Carolina Limits on Insurance Agency Convenience Fees

South Carolina Insurance Agents Fees

Can South Carolina insurance agents charge a convenience fee when their customers pay premiums using a credit card?

Yes - BUT - the maximum amount they can charge is $3.00 unless they get specific written approval for for a higher fee from the Insurance Commissioner.

Also, they must get the insured to sign a written agreement for these fees and show the fee as separate from the insurance premiums.

https://www.doi.sc.gov/DocumentCenter/View/7241/2013-11-Service-and-Policy-Fees

Compliance

We -  Simply Easier Payments - take your compliance very seriously. That means we do our best to keep current on laws and regulations in every state to do our best to never create a compliance issue for you using our service.

Can North Carolina Insurance Agents Charge a Fee fro Credit Card Payments

North Carolina Insurance Premium Payments and Credit Cards

Can an insurance agent charge a fee for accepting premium payments by credit card in North Carolina.

I believe the answer is it depends on the Merchant Contract the agent has with the Processor. If the Merchant contract shows a cost of zero for all transactions, then the agent is complying with the portion of the North Carolina Insurance Code shown here...

https://www.ncleg.net/…/BySecti…/Chapter_58/GS_58-3-145.html

§ 58-3-145. Solicitation, negotiation or payment of premiums on insurance policies.
An insurer, agent, or broker may accept payment of an insurance premium by credit card or debit card if the insurer accepting payment by credit card or debit card meets the following conditions:
(1) The insurer complies with the prohibition against unfair discrimination contained in G.S. 58-63-15(7).
(2) The insurer pays the fees charged by the credit card company or debit card issuer for the payment of premiums by credit card or debit card. (1967, c. 1245; 1979, c. 528; 1991, c. 720, s. 7; 1999-365, s. 1; 2011-215, s. 1.)

Compliance

Simply Easier Payments complies with this by having all the Merchant contracts used by its agency partners agree to zero fees and charges for the agency accepting payments by credit or debit cards.

This includes no fees for charge backs.

We take your compliance very seriously. That means we do our best to keep current on laws and regulations in every state to do our best to never create a compliance issue for you using our service.

Insurance Premium Collection in Pennsylvania

Insurance Premium Collection Certificate

Like many states, Pennsylvania has addressed collecting insurance premiums very specifically. Take a quick look at my two previous posts to see some of the details.

If you use a third party to accept ACH, Credit Cards, Debits Cards or e-checks, this specific section of the law needs to be considered.

https://www.pacode.com/secure/data/031/chapter37/s37.17.html

§ 37.17. Collection of premiums requires certificate or license.

 A person who is responsible for the collection and forwarding of premiums for insurance policies shall be deemed to be performing as an agent and shall be required to obtain a certificate and appointment from the insurance entity on whose behalf collection is being performed, or hold a license as a broker. This section does not apply to employes of agents or agencies who exclusively provide clerical support as described in the definition of agent in §  37.1 (relating to definitions). 

Money in Transit or Money at Rest

Is the third party you are using holding the funds at anytime?

If they are this is called "money at rest".

It is our opinion that once a third party holds your funds at rest they fall under this requirement in Pennsylvania to have a certificate or license.

How Do You Know

If you have your own Merchant Account with a bank or other third party for processing electronic payments, then it is our opinion the money processed is in transit, not at rest.

If you have an agreement with an payment aggregator or payment facilitator, then that third party is the actual party collecting and holding the premiums before funding your bank account. In this case it is our opinion that third party needs to be certified or license under this Pennsylvania Law.

You will have an agreement with an aggregator or payment facilitator, but that will not be a true Merchant Agreement. You need to be sure in writing.

Compliance

At Simply Easier Payments we take compliance with all State insurance laws and regulations very seriously. We spend time each year updating our understanding of these issues to be certain we never put our users at risk.


Let me now you thoughts and questions.