INSURANCE RUMINATIONS

YOUR INSURANCE COULD BE FAKE!!

          Buying and understanding insurance can be confusing. But once you have worked through the process, and “transferred the risk” a lawful, “authorized” insurer (one with a license to transact insurance business) will generally be there to “cover your back” for events stated in the policy, subject to the terms and conditions of the policy. However, there also exist fraudulent, unlicensed entities that, rather than “covering your back”, exist for the sole purpose of picking your pocket and have no intention of paying claims.

          Licensed insurers are required by law to charge premiums sufficient to cover anticipated claims, to make prudent investments, and to keep expenses, including profit, within reasonable limits. State insurance regulators exist, among other reasons, to ensure that those requirements are met, both when an insurance entity first seeks a license (sometimes called a “certificate of authority”), and thereafter. There are more factors involved in establishing and maintaining a licensed insurer, but those are some basic ones. State regulators also have the responsibility of checking the background of the proposed insurer’s management to make sure that they are experienced and honest, and that they handle claims and deal with consumers according to law.

          In an effort to make a “quick buck”, scam artists sometimes establish entities which appear on the surface to be legitimate insurers, but which do not meet the legal requirements necessary for approval by insurance regulators to operate as insurers. Instead, they merely set up shop and, through a network of agents, sell “policies”. Often, they claim that they do not need a license because they fit within some exception to State insurance licensure requirements (for example, a body of Federal law called the Employee Retirement Income Security Act-“ERISA”), or that they are an “association” that is “self-insured” or “self-funded”. The reality is that an entity that assumes risk for more than one unrelated third party is acting as an insurer, and must comply with licensing laws.

          Licensed, legitimate insurers will not insure just anyone or everyone. This is because insurance companies have “underwriting requirements” which define the scope of the risks that they will take. While insurers have leeway in establishing underwriting guidelines, State insurance regulators examine the guidelines to determine whether they are discriminatory (the law prohibits certain types of underwriting limitations), or overly lax relative to the premium charged. Conversely, the scam operations will “insure” just about anyone for the right price—because they are in it only for the money and do not intend to pay claims according to the policy or according to law. Therefore, persons with health conditions that make it difficult to obtain insurance from a legitimate insurer are the potential prey of the fake insurers, as are those who may not be able to afford real insurance through a real insurer.

Each State insurance department maintains a comprehensive listing of insurers that are authorized to transact business. Unless you know for certain that the insurer to which you are applying is a licensed insurer, you must, at a minimum, contact the insurance department in your State to determine whether the entity is authorized to transact insurance business there. If the coverage will be through an association or some other type of group, you must also determine the identity of the insurer that is financially responsible for the payment of claims, and ensure that it is authorized to do business in your State. It is not enough that the association or group is a corporation or other type of legal entity (whose name may sound familiar). Frequently, the scam organizations will make up names that sound like other, genuine ones, or profess to be associated with a legitimate insurer when in fact, it is not. You must confirm that for yourself, at the risk of not just losing your premium dollars, but worse, being left with unpaid claims.

Copyright 2010, Luke S. Brown (Used with permission)