First Substitute H.B. 393

Senator Evan J. Vickers proposes the following substitute bill:




Chief Sponsor: Jon E. Stanard

Senate Sponsor: Evan J. Vickers

             7      LONG TITLE
             8      General Description:
             9          This bill amends provisions of the Insurance Code related to insurance producers.
             10      Highlighted Provisions:
             11          This bill:
             12          .    exempts a health benefit plan placed with a small employer or an individual from
             13      the requirement that an insurance producer disclose to the insurance producer's
             14      customer that the insurance producer will receive compensation from an insurer or
             15      third party administrator for insurance placement; and
             16          .    makes technical and conforming amendments.
             17      Money Appropriated in this Bill:
             18          None
             19      Other Special Clauses:
             20          None
             21      Utah Code Sections Affected:
             22      AMENDS:
             23           31A-23a-501 , as last amended by Laws of Utah 2013, Chapter 341
             24           31A-30-202 , as last amended by Laws of Utah 2010, Chapter 68

             26      Be it enacted by the Legislature of the state of Utah:
             27          Section 1. Section 31A-23a-501 is amended to read:
             28           31A-23a-501. Licensee compensation.
             29          (1) As used in this section:
             30          (a) "Commission compensation" includes funds paid to or credited for the benefit of a
             31      licensee from:
             32          (i) commission amounts deducted from insurance premiums on insurance sold by or
             33      placed through the licensee; or
             34          (ii) commission amounts received from an insurer or another licensee as a result of the
             35      sale or placement of insurance.
             36          (b) (i) "Compensation from an insurer or third party administrator" means
             37      commissions, fees, awards, overrides, bonuses, contingent commissions, loans, stock options,
             38      gifts, prizes, or any other form of valuable consideration:
             39          (A) whether or not payable pursuant to a written agreement; and
             40          (B) received from:
             41          (I) an insurer; or
             42          (II) a third party to the transaction for the sale or placement of insurance.
             43          (ii) "Compensation from an insurer or third party administrator" does not mean
             44      compensation from a customer that is:
             45          (A) a fee or pass-through costs as provided in Subsection (1)(e); or
             46          (B) a fee or amount collected by or paid to the producer that does not exceed an
             47      amount established by the commissioner by administrative rule.
             48          (c) (i) "Customer" means:
             49          (A) the person signing the application or submission for insurance; or
             50          (B) the authorized representative of the insured actually negotiating the placement of
             51      insurance with the producer.
             52          (ii) "Customer" does not mean a person who is a participant or beneficiary of:
             53          (A) an employee benefit plan; or
             54          (B) a group or blanket insurance policy or group annuity contract sold, solicited, or
             55      negotiated by the producer or affiliate.
             56          (d) (i) "Noncommission compensation" includes all funds paid to or credited for the

             57      benefit of a licensee other than commission compensation.
             58          (ii) "Noncommission compensation" does not include charges for pass-through costs
             59      incurred by the licensee in connection with obtaining, placing, or servicing an insurance policy.
             60          (e) "Pass-through costs" include:
             61          (i) costs for copying documents to be submitted to the insurer; and
             62          (ii) bank costs for processing cash or credit card payments.
             63          (2) A licensee may receive from an insured or from a person purchasing an insurance
             64      policy, noncommission compensation if the noncommission compensation is stated on a
             65      separate, written disclosure.
             66          (a) The disclosure required by this Subsection (2) shall:
             67          (i) include the signature of the insured or prospective insured acknowledging the
             68      noncommission compensation;
             69          (ii) clearly specify the amount or extent of the noncommission compensation; and
             70          (iii) be provided to the insured or prospective insured before the performance of the
             71      service.
             72          (b) Noncommission compensation shall be:
             73          (i) limited to actual or reasonable expenses incurred for services; and
             74          (ii) uniformly applied to all insureds or prospective insureds in a class or classes of
             75      business or for a specific service or services.
             76          (c) A copy of the signed disclosure required by this Subsection (2) shall be maintained
             77      by any licensee who collects or receives the noncommission compensation or any portion of
             78      the noncommission compensation.
             79          (d) All accounting records relating to noncommission compensation shall be
             80      maintained by the person described in Subsection (2)(c) in a manner that facilitates an audit.
             81          (3) (a) A licensee may receive noncommission compensation when acting as a
             82      producer for the insured in connection with the actual sale or placement of insurance if:
             83          (i) the producer and the insured have agreed on the producer's noncommission
             84      compensation; and
             85          (ii) the producer has disclosed to the insured the existence and source of any other
             86      compensation that accrues to the producer as a result of the transaction.
             87          (b) The disclosure required by this Subsection (3) shall:

             88          (i) include the signature of the insured or prospective insured acknowledging the
             89      noncommission compensation;
             90          (ii) clearly specify the amount or extent of the noncommission compensation and the
             91      existence and source of any other compensation; and
             92          (iii) be provided to the insured or prospective insured before the performance of the
             93      service.
             94          (c) The following additional noncommission compensation is authorized:
             95          (i) compensation received by a producer of a compensated corporate surety who under
             96      procedures approved by a rule or order of the commissioner is paid by surety bond principal
             97      debtors for extra services;
             98          (ii) compensation received by an insurance producer who is also licensed as a public
             99      adjuster under Section 31A-26-203 , for services performed for an insured in connection with a
             100      claim adjustment, so long as the producer does not receive or is not promised compensation for
             101      aiding in the claim adjustment prior to the occurrence of the claim;
             102          (iii) compensation received by a consultant as a consulting fee, provided the consultant
             103      complies with the requirements of Section 31A-23a-401 ; or
             104          (iv) other compensation arrangements approved by the commissioner after a finding
             105      that they do not violate Section 31A-23a-401 and are not harmful to the public.
             106          (d) Subject to Section 31A-23a-402.5 , a producer for the insured may receive
             107      compensation from an insured through an insurer, for the negotiation and sale of a health
             108      benefit plan, if there is a separate written agreement between the insured and the licensee for
             109      the compensation. An insurer who passes through the compensation from the insured to the
             110      licensee under this Subsection (3)(d) is not providing direct or indirect compensation or
             111      commission compensation to the licensee.
             112          (4) (a) For purposes of this Subsection (4), "producer" includes:
             113          (i) a producer;
             114          (ii) an affiliate of a producer; or
             115          (iii) a consultant.
             116          (b) A producer may not accept or receive any compensation from an insurer or third
             117      party administrator for the initial placement of a health benefit plan, other than a hospital
             118      confinement indemnity policy, unless prior to the customer's initial purchase of the health

             119      benefit plan the producer discloses in writing to the customer that the producer will receive
             120      compensation from the insurer or third party administrator for the placement of insurance,
             121      including the amount or type of compensation known to the producer at the time of the
             122      disclosure.
             123          (c) A producer shall:
             124          (i) obtain the customer's signed acknowledgment that the disclosure under Subsection
             125      (4)(b) was made to the customer; or
             126          (ii) (A) sign a statement that the disclosure required by Subsection (4)(b) was made to
             127      the customer; and
             128          (B) keep the signed statement on file in the producer's office while the health benefit
             129      plan placed with the customer is in force.
             130          (d) (i) A licensee who collects or receives any part of the compensation from an insurer
             131      or third party administrator in a manner that facilitates an audit shall, while the health benefit
             132      plan placed with the customer is in force, maintain a copy of:
             133          (A) the signed acknowledgment described in Subsection (4)(c)(i); or
             134          (B) the signed statement described in Subsection (4)(c)(ii).
             135          (ii) The standard application developed in accordance with Section 31A-22-635 shall
             136      include a place for a producer to provide the disclosure required by this Subsection (4), and if
             137      completed, shall satisfy the requirement of Subsection (4)(d)(i).
             138          (e) Subsection (4)(c) does not apply to:
             139          (i) a person licensed as a producer who acts only as an intermediary between an insurer
             140      and the customer's producer, including a managing general agent; or
             141          (ii) the placement of insurance in a secondary or residual market.
             142          (f) Subsections (4)(b) and (4)(c) do not apply to a health benefit plan placed by a
             143      producer with:
             144          (i) an individual; or
             145          (ii) a small employer, as defined in Section 31A-1-301 .
             146          (5) This section does not alter the right of any licensee to recover from an insured the
             147      amount of any premium due for insurance effected by or through that licensee or to charge a
             148      reasonable rate of interest upon past-due accounts.
             149          (6) This section does not apply to bail bond producers or bail enforcement agents as

             150      defined in Section 31A-35-102 .
             151          (7) A licensee may not receive noncommission compensation from an insured or
             152      enrollee for providing a service or engaging in an act that is required to be provided or
             153      performed in order to receive commission compensation, except for the surplus lines
             154      transactions that do not receive commissions.
             155          Section 2. Section 31A-30-202 is amended to read:
             156           31A-30-202. Definitions.
             157          For purposes of this part:
             158          (1) "Defined benefit plan" means an employer group health benefit plan in which:
             159          (a) the employer selects the health benefit plan or plans from a single insurer;
             160          (b) employees are not provided a choice of health benefit plans on the Health Insurance
             161      Exchange; and
             162          (c) the employer is subject to contribution requirements in Section 31A-30-112 .
             163          (2) "Defined contribution arrangement":
             164          (a) means a defined contribution arrangement employer group health benefit plan that:
             165          (i) complies with this part; and
             166          (ii) is sold through the Health Insurance Exchange in accordance with Title 63M,
             167      Chapter 1, Part 25, Health System Reform Act; and
             168          (b) beginning January 1, 2011, includes an employer choice of either a defined
             169      contribution arrangement health benefit plan or a defined benefit plan offered through the
             170      Health Insurance Exchange.
             171          (3) "Health reimbursement arrangement" means an employer provided health
             172      reimbursement arrangement in which reimbursements for medical care expenses are excluded
             173      from an employee's gross income under the Internal Revenue Code.
             174          (4) (a) "Producer" [is as defined in Subsection 31A-23a-501 (4)(a).] means an insurance
             175      producer as defined in Section 31A-1-301 .
             176          (b) "Producer" includes:
             177          (i) an affiliate of a producer; or
             178          (ii) a consultant.
             179          (5) "Section 125 Cafeteria plan" means a flexible spending arrangement that qualifies
             180      under Section 125, Internal Revenue Code, which permits an employee to contribute pre-tax

             181      dollars to a health benefit plan.
             182          (6) "Small employer" is defined in Section 31A-1-301 .

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