Property and Casualty Insurance · Texas statutes and rules common to property and casualty insurance · 10 min read
Texas insurers, Texas Lloyds and property and casualty license types
- Identify the qualifications, operational rules, and statutory boundaries that govern insurers, foreign and alien companies, and Texas Lloyd's plans under the Texas Insurance Code.
- Explain the activities constituting the business of insurance, the statutory definition and authority of an insurance agent, and the exceptions for unlicensed referrals and salaried personnel.
- Determine the licensing qualifications, controlled business thresholds, business entity requirements, and criminal history guidelines applicable to Texas property and casualty agents.
Authority to Conduct the Business of Insurance in Texas
An insurer is defined as the issuer of an insurance policy that is issued to another in consideration of a premium and that insures against an insurable loss under the law (Tex. Ins. Code §801.001(2)). An insurance company means a company engaged as a principal in the business of insurance (Tex. Ins. Code §982.001(5)). Under Texas law, an insurer includes a stock company, a mutual company of any kind, a fraternal benefit society, and a Lloyd's plan (Tex. Ins. Code §801.001(2)). The department shall approve, deny, or disapprove an application for a certificate of authority to act as an insurer (Tex. Ins. Code §801.051(a)).
If the department determines that the applicant has complied with the law, it shall approve the application and issue under the department's seal a certificate of authority to act as an insurer (Tex. Ins. Code §801.051(b)). A certificate of authority issued to an insurer authorizes the insurer to engage in the business of insurance (Tex. Ins. Code §801.052). The certificate must state the specific kinds of insurance authorized under the certificate (Tex. Ins. Code §801.052). Once issued to an insurer, the certificate of authority is effective until it is suspended or revoked (Tex. Ins. Code §801.053). If the department denies an application, the commissioner shall hold a hearing on the denial upon the applicant's request (Tex. Ins. Code §801.051(c)). Not later than the 30th day after the date of the applicant's request for a hearing, the commissioner shall request a hearing date (Tex. Ins. Code §801.051(c)).
Texas law establishes explicit boundaries defining what constitutes the business of insurance in Texas. Making or proposing to make an insurance contract as an insurer constitutes the business of insurance in Texas (Tex. Ins. Code §101.051(b)(1)). Taking or receiving an insurance application constitutes the business of insurance in Texas (Tex. Ins. Code §101.051(b)(3)). Receiving or collecting any consideration for insurance, including a premium, commission, membership fee, assessment, or dues, constitutes the business of insurance in Texas (Tex. Ins. Code §101.051(b)(4)). Issuing or delivering an insurance contract to a Texas resident or a person authorized to do business in Texas constitutes the business of insurance in Texas (Tex. Ins. Code §101.051(b)(5)). Directly or indirectly acting as an agent for or assisting an insurer in soliciting, negotiating, procuring, or effectuating insurance constitutes the business of insurance in Texas (Tex. Ins. Code §101.051(b)(6)(A)). Furthermore, inspecting a risk or setting a rate constitutes the business of insurance in Texas (Tex. Ins. Code §101.051(b)(6)(E)-(F)), as does investigating or adjusting a claim or loss (Tex. Ins. Code §101.051(b)(6)(G)). An act constituting the business of insurance by an unlicensed or unauthorized person or insurer that occurs in Texas and affects a person in another state also constitutes the business of insurance in Texas (Tex. Ins. Code §101.051(c)).
For example, if Brenda operates from an office in Dallas and inspects commercial properties or sets property rates for an unauthorized insurer, her conduct constitutes the business of insurance in Texas (Tex. Ins. Code §101.051(b)(6)(E)-(F)). Even if Brenda transacts these unauthorized activities exclusively with property owners living across the state border in Oklahoma, her actions occurring in Texas constitute the business of insurance in Texas (Tex. Ins. Code §101.051(c)).
Common mistakes
- Assuming a Texas Lloyd's plan can write any policy line without restriction; Texas law explicitly prohibits a Lloyd's plan from writing life insurance (Tex. Ins. Code §941.002(b)).
- Believing that an unlicensed person commits an act of an agent merely by referring a customer to an agent; the referral is not an act of an agent unless the unlicensed person discusses specific policy terms or conditions (Tex. Ins. Code §4001.051(d)).
- Thinking that part-time agent status is a valid ground for license denial; the department may not deny an application solely because the applicant will act only part-time (Tex. Ins. Code §4001.104(c)).
- Believing that an agent has the legal authority to alter or waive terms in an insurance contract; Texas law expressly states that the statutory agency provisions do not authorize an agent to alter or waive a policy term or condition (Tex. Ins. Code §4001.051(c)).
Key points
- A certificate of authority is approved and issued under the department's seal, states the specific kinds of insurance authorized, and remains effective until suspended or revoked (Tex. Ins. Code §801.051(b), §801.052, §801.053).
- The business of insurance in Texas encompasses proposing contracts, taking applications, collecting premiums or commissions, issuing policies to Texas residents, inspecting risks, adjusting claims, and acts occurring in Texas affecting persons in other states (Tex. Ins. Code §101.051(b)(1), (3), (4), (5), (6)(E)-(G), (c)).
- A foreign insurer is organized under another U.S. state, an alien insurer is organized under a foreign country, and a Texas Lloyd's plan consists of at least 10 underwriters who may write any lawful line except life insurance (Tex. Ins. Code §941.001(4), §941.002(b), §941.051(b), §982.001(2), (4)).
- Soliciting insurance or collecting premiums makes a person an agent of the insurer, but does not grant authority to alter or waive policy terms, while customer referrals remain exempt if specific terms or conditions are not discussed (Tex. Ins. Code §4001.051(b)(1), (6), (c), (d)).
- Individual agent licensing requires being at least 18 years of age, passing the qualifying exam within the past 12 months, paying nonrefundable fees, and intending to produce at least 25 percent non-controlled premium volume (Tex. Ins. Code §4001.006(a), §4001.104(b), §4001.105(1)-(2)).
- A corporate or partnership agency must have at least one individually licensed officer or active partner, respectively, and must individually license all others who perform acts of an agent on its behalf in Texas; it must maintain the specified financial responsibility through a qualifying errors and omissions policy or surety bond (Tex. Ins. Code §4001.106(b)(2), (c)(1)-(2)).
- After notice and an opportunity for hearing, and consideration of applicable factors, the department may refuse to issue an original license or suspend, revoke, or refuse to renew a license for a conviction or deferred adjudication described in 28 TAC §1.502(d); its guidelines identify fraud-related offenses, unauthorized insurance, and felonies involving moral turpitude or breach of fiduciary duty as relevant to licensing fitness (28 TAC §1.502(d), (f)).
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