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How to spot an unlicensed insurer

While insurance is a highly regulated industry, insurance imposters do sneak through the cracks. For instance, the Florida Department of Insurance (DOI) is currently investigating N.A.P.T., a Pennsylvania-based professional association that the Florida DOI says is not licensed in any state to sell insurance. The Florida DOI estimates that "tens of thousands" of Florida residents may have purchased bogus health insurance policies from N.A.P.T. since 1999.

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"The burglar doesn't ring your doorbell."

All insurance companies and their agents, as well as independent insurance brokers, must be licensed in each state they sell insurance.

So how is it that unlicensed insurance companies can operate undetected, sometimes for a year or more?

"The burglar doesn't ring your doorbell," says Lee Jones, a spokesperson with the Texas DOI. "These bogus companies don't write to the Insurance Commissioner to introduce themselves. They know what they're doing is illegal."

Unlicensed insurer ahead!

Some unlicensed insurers can be very cagey, according to Nina Bottcher, a spokesperson with the Florida DOI. "While they appear legit, many of them are fly-by-night operations," she says. "They take your premiums, make money, and run before you even know what hit you."

Insurance Fraud Primer

The Texas Department of Insurance Web site features an insurance fraud primer that contains information on avoiding auto and health insurance fraud, scams against the elderly, pyramid schemes, claim fraud, and scams against businesses.

According to Jones, unlicensed insurers can go undetected as long as they pay claims and their policyholders believe they have valid insurance coverage. It all unravels, he says, when suddenly the claims stopped being paid, premiums shoot up, and consumers — or legitimate brokers and agents — start complaining.

However, consumers — especially small- to medium-size employers looking for group health insurance — can protect themselves from unlicensed insurers by using common sense and by knowing the red flags that warn a potential insurer may be bogus. According to Bottcher and Jones, you should be suspicious if:

  • You don't recognize the insurer's name.An unfamiliar company name may signal trouble. It could mean either the company hasn't been in business for very long, or the company is unlicensed, or both.

    But also be aware that company names that sound familiar can also be a red flag. "These companies sometimes use words in their names that are associated with legitimate insurers," says Jones. Mission Cooperative Group, an unauthorized insurer that sold bogus auto policies in Texas in the late 1990s, is not related to Mission American Insurance Co., Mission American Life Insurance Co., Mission Insurance Co. of Texas Inc., or Mission Premium Finance Co., which are all legitimately licensed companies in Texas.

  • You receive a premium quote that is 30 to 50 percent below what other companies are charging for the same coverage.If it sounds too good to be true, it usually is, say Bottcher and Jones. The problem is that individuals and small employers often have difficulty finding affordable coverage, so when they finally receive an acceptance for a reasonable amount of money, they are so focused on the acceptance and the savings that they fail to question their good fortune.

    School districts are often vulnerable to insurance imposters who sell cheap "policies" because they're constantly under pressure to cut their budgets. In December 2000, seven Texas school districts discovered that their health insurer, SAI Plus of Rockville, Md., was not licensed to do business in their state. After a six-month investigation of SAI Plus, the Texas DOI ordered the company to stop selling health insurance in the state and reimburse employers for unpaid claims or face a $1 million fine, and to withdraw its application to become a third-party administrator for self-insured employer health plans.

  • The company's agent or customer service representative doesn't know the answers to your questions or seems reluctant to share information with you.It's possible the agent or customer service representative is new to the company, says Jones. But if you get a funny feeling for any reason about the information you've been given — or the lack of it — don't hesitate to call your state DOI to see whether the agent and/or the insurer is licensed to do business in your state.
  • The company's name is not registered with your state Department of Insurance. If you call your state's DOI and discover the agent or insurer is not on the list of those licensed to do business in your state, do not sign any applications or hand over any money, and report this fact immediately to your DOI.

In fact, the best way to ensure that you are buying a policy from a bona fide insurer is to call and check whether the insurer is licensed in your state before you purchase the policy. To find the contact information for your insurance department, select the state in which you live from the pull-down menu marked "Insurance in your state" from the top of this page.

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