-by Ron Hartsock
Recently, the Department of Insurance has become aware that more producers are charging increasingly higher service fees for a wider range of reasons including:
procuring and binding insurance coverage;
renewing coverage;
endorsing changes (e.g., adding or deleting an auto or driver);
reinstating cancelled policies; and
adding or deleting insurance coverage.
Section 507.1 (215 ILCS 5/507.1) of the Illinois Insurance Code states in part:
Except as to commissions deductible from premiums on insurance policies or contracts for insurance, no insurance producer, . . . , has any right to compensation from an insured or prospective insured for or on account of the transaction of insurance business unless such right to compensation is stated on a separate written memorandum that is signed by the applicant or insured, which clearly specifies the amount or extent of such service fee and is provided to the applicant or insured prior to the performance of such service or the issuance of such policy, whichever is first. A copy of the signed memorandum must be maintained by each producer who collects or receives the service fee or any portion of the service fee.
Service fees provide producers with a legitimate method of recovering extraordinary expenses incurred when trying to place difficult risks or providing a client extraordinary services not otherwise compensated through commissions. Service fees are not, however, an appropriate means of routinely increasing revenue.
The Department of Insurance takes the position that unnecessary or excessive service fees not only contradict the intent of 507.1, but improperly increase insurance costs to consumers. We urge producers to limit additional fees to appropriate services and caution that continued abuses may require the Department to take steps to restrict or eliminate such fees.
Illinois Insurance Director Mark Boozell has issued a Stipulation and Consent Order and levied a $250,000 fine against American Ambassador Insurance Company, Schaumburg, IL, for improper claims practices identified in a market conduct examination. The automobile insurer was cited for a number of violations including:
failure to settle collision claims in a timely manner;
failure to promptly investigate claims;
underpaying on total loss vehicles; and
receiving excessive complaints throughout the year.
Under the terms of the Order, American Ambassador must pay $100,000 by May 30, 1997, and the remaining $150,000 if a follow-up examination reveals that the company has failed to comply with the Order. The re-examination will commence on or after July 1, 1998.
"The Illinois Department of Insurance is taking a hard look at the business practices of insurance companies and we intend to crack down on those that historically have had the highest complaint ratios," Boozell said. "This two-tiered fine not only requires immediate compliance, but reinforces our regulatory leverage. Our action should send a clear message that insurance is first and foremost a service industry."
The regulatory Order requires American Ambassador to correct all deficiencies cited in the examination report. Boozell said the Department would also expect to see a reduction in consumer complaints against the company.
The Cook County Circuit Court issued an Order of Liquidation with a finding of insolvency against Merit Casualty Company, Chicago, on April 1, 1997. Licensed in seven states, Merit Casualty primarily wrote nonstandard auto, garage keepers' general liability and dram shop coverages until it was placed in rehabilitation on December 19, 1994.
A Rehabilitation Plan entered by the court on January 11, 1995, contemplated, among other things, that: Merit Casualty would cease writing insurance; investors would infuse capital into the parent company, Merit Financial Corporation, to create and fund an affiliated insurance company, Merit Insurance Company; and the infused capital, together with earnings from existing affiliated entities, would fund the runoff of Merit Casualty's business. However, because revenues transferred to Merit Casualty have been insufficient to cover the volume and magnitude of policyholder claims, claim related expenses and other obligations, the Director concluded that liquidation was the most prudent course of action.
The Illinois Insurance Guaranty Fund and similar funds in other states will be responsible, within statutory limits, for the covered claims of and against Merit Casualty's policyholders. Merit Insurance Company was sold to Pembridge Insurance Services Corp. on December 31, 1996, and is unaffected by the liquidation.
Questions about the liquidation proceedings should be directed to the Director's Office of the Special Deputy, 222 Merchandise Mart Plaza, Suite 1450, Chicago, IL 60654; (312) 836-9500.
The 1997 Kenneth W. Smith Memorial Golf Outing will be held on Monday, August 4 at the Jacksonville Country Club, Jacksonville, IL. Participation is limited to the first 144 golfers and 200 dinner guests who submit their reservations.
Proceeds from the golf outing support The Kenneth W. Smith Memorial Fund, a not for profit fund administered by the Insurance Center of Drake University for the improvement of state regulation of insurance through education. Last year's outing raised over $29,000.
The scramble tournament begins with lunch at 11:00 a.m. and a shotgun tee-off at 11:30 a.m., followed by cocktails and dinner at the end of the day. Fees are as follows:
Dinner only $ 75.00 Golf and dinner (per person) $ 200.00 3 Golfers/Dinner & a Sign on the Tee $1600.00 Tennis and dinner $ 125.00
Reservations and checks made payable to the Kenneth W. Smith Golf Outing should be mailed to:
Illinois Insurance Information Service Attn.: Shelly Todd 217 E. Monroe St., Suite 110 Springfield, IL 62701
The Illinois Senior Health Insurance Program has received the Beneficiary Services Honor Award from the Health Care Financing Administration. The May 22 ceremony in Baltimore, MD, recognized individuals, groups, organizations and programs that have played an exceptional role in assuring that beneficiaries have access to high quality health care. HCFA Administrator Bruce C. Vladeck presented the Certificate of Merit to SHIP Coordinator Kathy Claunch on behalf of the Illinois Department of Insurance.
Terminations
Gulf Atlantic Life Insurance Company, TX, voluntary withdrawal, 3/19/97
Mid-Continent Life Insurance Company, OK, suspended due to financial impairment, 5/9/97
American Eagle Insurance Company, TX, suspended due to deteriorating financial condition, 6/1/97
Revocation of Licensing Authority
Cancorp, Inc. 1701 Lake Avenue Glenview, IL Effective 4/10/97 Harry J. Cantwell 1334 Somerset Drive Glenview, IL Effective 4/10/97 Jeri S. Hill 1522 East Clay Decatur, IL Effective 3/13/97 Robert L. McGavran 1021 18th Street Rockford, IL Effective 3/27/97 State All Driver Insurance Agency 1620 South Sixth Street Springfield, IL Effective 3/13/97 George A. Stemple 502 South LaSalle St. Aurora, IL Effective 3/17/97 Brian R. Subatich 3712 North Broadway, Suite 311 Chicago, IL Effective 3/13/97 Gerald D. Wilson 4170 Irving Drive Decatur, IL Effective 3/13/97 Windy City Brokers 3712 North Broadway, Suite 311 Chicago, IL Effective 4/11/97 Voluntary Revocation Peter J. Rumsavich 4 Cypress Street Lake in the Hills, IL Effective 4/18/97 Jesus M. Sanchez 2104 South 48th Court, 2nd Floor Cicero, IL Effective 4/18/97 Denial of Request for License William P. Starkey 110 North Kenilworth Oak Park, IL Effective 4/11/97 Kimberly Townsend 7245 South Wabash Chicago, IL Effective 4/11/97 Stipulation and Consent Order - Civil Forfeiture Paid Assurance Brokers, Ltd. 1 Ginger Creek Meadows Edwardsville, IL Effective 4/21/97 Patrick Joseph Browne 900 West Sunset Drive, #412 Glenwood, IL Effective 4/23/97 Centro Hispano Insurance Agency Corp. 5409 North Clark Chicago, IL Effective 2/20/97 John A. Cunningham 2547 North 74th Court Elmwood Park, IL Effective 3/31/97 Early American Insurance Agency, Inc. 7366 North Lincoln Avenue Lincolnwood, IL Effective 2/20/97 Samir M. Elmosa 7811 Teton Road Orland Park, IL Effective 3/6/97 Sharon K. Harre 664 East Adams Nashville, IL Effective 2/28/97 Donald John Kelly 1409 North Sheridan Road Peoria, IL Effective 4/25/97 Ray M. Londo 3517 Dorchester Gurnee, IL Effective 1/27/97 Daniel E. McGivern 32 Post Road Iowa City, IA Effective 3/4/97 William Peretti, Jr. 15019 Parkside Avenue Oak Forest, IL Effective 3/14/97 Charles R. McQuiggan 101 Glenwood Drive Glen Carbon, IL Effective 4/21/97 Ronald Wayne Miller 517 South 74th Street Belleville, IL Effective 3/14/97 Arnold Ira Redman 9125 North Kilbourne Skokie, IL Effective 2/20/97 Terrance L. Simmons 3005 Sunset Hills Blvd. Edwardsville, IL Effective 4/21/97 R.W. Miller Insurance Agency, Inc. 6897 West Main Belleville, IL Effective 3/14/97 Blas Vera 5825 North Washtenau, 2nd Floor Chicago, IL Effective 2/20/97 Maxine Williams d/b/a Action Insurance Agency 3913 West North Avenue Chicago, IL Effective 1/27/97 Stipulation and Consent Order - Civil Forfeiture Not Paid Melvin K. Johnson 7349 South Kenwood Chicago, IL Effective 4/14/97 Order of Suspension Levester Shepherd 2504 Waldron Road Kankakee, IL Effective 3/8/97
Back to the topHearings
Scheduled Hearings: Discount Development Services Cease and desist 5/14/97 Hearing No. 3535 American Businessowners Assoc. Ltd. Cease and desist 5/19/97 Hearing No. 3524 Maggie Ree Frazier American Service Ins. Co. Cancellation 5/20/97 Hearing No. 3533 Ernest and Dorothy Brooks Prudential Property & Casualty Co. Nonrenewal 5/21/97 Hearing No. 3534 Irma Williams Chicago Motor Club Insurance Co. Nonrenewal 5/28/97 Hearing No. 3537 Jeffrey Scott Zalay Revocation 5/28/97 Hearing No. 3531 Industrial Casualty Insurance Co. Demutualization 5/29/97 Hearing No. 3539 Sharon F. Amos Economy Fire & Casualty Co. Nonrenewal 6/3/97 Hearing No. 3536 Matters Settled without Hearing: Alan M. Cruzan State Farm Mutual Automobile Ins. Co. Dismissed 3/10/97 Hearing No. 3510 Roy and Anita Simmons State Farm Fire & Casualty Co. Dismissed 3/17/97 Hearing No. 3485 Mike Tapscott Trucking Great West Casualty Co. Dismissed 3/25/97 Hearing No. 3522 Casimir & Cecilia Zydron St. Paul Fire & Casualty Co. Dismissed 3/25/97 Hearing No. 3517 Rheinholder A. Finn General Casualty Insurance Co. Dismissed 4/16/97 Hearing No. 3513 Alsip Firefighters Pension Fund Dismissed 5/1/97 Hearing No. 3527 Alsip Police Pension Fund Dismissed 5/1/97 Hearing No. 3524 Donald L. Kraft Illinois Farmers Insurance Co. Dismissed 5/1/97 Hearing No. 3532 Darreyl M. Young-Gibson State Farm Fire & Casualty Co. Dismissed 5/2/97 Hearing No. 3506 Completed Hearings: William and Eileen Zeplin State Farm Mutual Automobile Ins. Co. Nonrenewal effective 4/10/97 Hearing No. 3514 Susan J. Robbins State Farm Fire & Casualty Co. Nonrenewal effective 4/28/97 Hearing No. 3515 Thomas E. Krupa State Farm Fire & Casualty Co. Nonrenewal effective 5/1/97 Hearing No. 3520
Back to the topExamination reports filed
Financial Abraham Lincoln Insurance Company 2/19/97 Home Owners Life Insurance Company 2/26/97 Old Republic Life Insurance Company 2/26/97 Nunda Algonquin Mutual Fire Insurance Company 4/16/97 Association of Trial Lawyers Assurance (A Mutual Risk Retention Group) 4/17/97 Bankers Multiple Line Insurance Company 4/17/97 First Non-Profit Insurance Company, A Reciprocal 4/17/97 The Point Mutual Insurance Company 4/17/97 Mt. Pleasant Mutual Insurance Company 4/22/97 Mt. Sterling Mutual Fire Insurance Company 4/22/97 Progressive Universal Insurance Company 4/22/97 Woodford County Mutual Insurance Company 4/22/97 Progressive Premier Insurance Company 4/25/97 Western States Insurance Company 5/02/97 Mercury Indemnity Company of Illinois 5/22/97 Mercury Insurance Company of Illinois 5/22/97 RLI Insurance Company 5/22/97 The Travelers Indemnity Company of Illinois 5/22/97 Market Conduct American Ambassador Casualty Company 4/30/97 Anthem Health & Life Insurance Company 5/15/97 Equitable Life Assurance Society of the U.S. 5/15/97 Universal Guaranty Life Insurance Company 5/15/97
The full text of Department rules is printed in the Illinois Register published weekly by the Illinois Secretary of State's Index Department, 111 E. Monroe St., Springfield, IL 62756. Subscriptions are available from that source for an annual fee of $290. Issue numbers and a Department contact person are listed below after each rule summary.
Copies of rules are also available upon written request to the Department of Insurance at a $1 per page charge. Adopted rules are codified in Title 50 of the Illinois Administrative Code.
Rule 951 (Access to Public Records) was amended effective April 15, 1997, to reflect current Department practices in administering the Freedom of Information Act. (Vol. 21, #17; Denise Hamilton)
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