Agency websites vary in content and design. Some offer information, while others are capable of binding insurance and delivering policy forms to insureds.
Some states have promulgated rules, guidelines and commentary designed to lead insurance producers through the potential traps and complications involved with the solicitation, sale and servicing of insurance through the internet. Navigation of the current regulatory environment requires attention to the basic constraints that have been imposed by these regulators.
Constraints
These basic constraints appear to reflect an overall concern with a given state’s need to protect its citizens from unregulated insurance sales, as well as a professed intent to allow its citizens to reap the benefits of web-based insurance transactions. While some states have moved to the forefront of the regulatory pack, others remain virtually silent on the subject of electronic insurance transactions.
A survey of the basic positions of the various insurance regulators does yield useful information for the agent who seeks some measure of safety in an untested area.
No. 1: All state statutes, rules and regulations remain applicable, whether a transaction takes place over the internet or through conventional channels. Almost universally, the states that have discussed the subject of internet insurance sales have opined that filing, form, licensing, notice and payment regulations remain operative for these, as well as for conventional sales.
No. 2: Contracts, policies and insurance forms should be displayed on the website in the form approved by the regulating state. In similar fashion, some states have required that any insurance form displayed, printed or delivered over the internet be conveyed in precisely the same form as would be received by the insured in the course of a paper transaction.
No. 3: Licensing and registration requirements generally compel an agent to display the states where the agent is authorized to do business prominently. While there is some question as to whether an insurance producer has solicited insurance by simply maintaining a website that is passively accessible to the residents of a given state, there appears to be little doubt that an agent would be held to have solicited a prospective client once a response has been received over the internet from a potential insured. Given the uncertain regulatory nature of internet sales, it is advisable that agents include prominent disclaimers on their websites, indicating that there is no intent to solicit sales of insurance from the residents of any states other than those states where the agent holds a resident license. Accordingly, if a response or question is received from a resident of a state where the agent does not hold a resident license, any further communication should be refused, informing the individual that the agent is not licensed in the state.
No. 4: Websites should ensure adequate security and privacy of sensitive insurance information. Many insurance transactions require significant privacy, either by virtue of the subject matter or by operation of state law. As a result, insurance application information submitted over the internet should be protected from disclosure to third parties by virtue of website design and procedures established by the agent or broker on an internal basis.
No. 5: Insurance purchasers should be alerted to insurance policy features that are not available in their state. Agents should give a resident insured accurate information concerning the forms, rates and provisions that would be applicable in the resident’s state. This would require a significant level of sophistication on the part of any individual responding to email inquiries. It would require that the forms and information be available through the website.
No. 6: In all probability, insurers will be held responsible for their agents’ internet marketing practices. Some regulators have commented that the conduct of agents—while they use the internet—will be imputed to insurers. It would be logical for agents to review the hold-harmless language of their agency contracts, and, if necessary, clarify the responsibilities of agents and insurers for compliance with the continual growth of regulations relating to the conduct of internet insurance sales.
Conclusion
All of the above, together with certain additional considerations, should compel agents to give serious thought to weighing the potential benefits of internet sales against the obvious risks. Without question, continued diligence as to the developing requirements of each state’s law is essential to developing a reasoned and informed approach to electronic insurance sales.
Robert M. Sullivan, Esq.
Robert M. Sullivan, Esq., senior partner, Sullivan & Klein LLP.
