Chief Sponsor: Jon E. Stanard

Senate Sponsor: Curtis S. Bramble


8     Committee Note:
9          The Business and Labor Interim Committee recommended this bill.
10     General Description:
11          This bill modifies the Insurance Code to address licensees.
12     Highlighted Provisions:
13          This bill:
14          ▸     addresses the amount and type of noncommission compensation;
15          ▸     modifies the disclosure requirements related to health benefit plans; 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 2014, Chapters 290 and 300

25     Be it enacted by the Legislature of the state of Utah:
26          Section 1. Section 31A-23a-501 is amended to read:
27          31A-23a-501. Licensee compensation.

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

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

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

121     plan year:
122          (A) employed an average of at least 100 eligible employees on each business day
123     during the preceding calendar year; and
124          (B) employs at least two employees on the first day of the plan year.
125          (ii) "Producer" includes:
126          [(i)] (A) a producer;
127          [(ii)] (B) an affiliate of a producer; or
128          [(iii)] (C) a consultant.
129          (b) A producer may not accept or receive any compensation from an insurer or third
130     party administrator for the initial placement of a health benefit plan, other than a hospital
131     confinement indemnity policy, unless prior to [the] a large customer's initial purchase of the
132     health benefit plan the producer discloses in writing to the large customer that the producer will
133     receive compensation from the insurer or third party administrator for the placement of
134     insurance, including the amount or type of compensation known to the producer at the time of
135     the disclosure.
136          (c) A producer shall:
137          (i) obtain the large customer's signed acknowledgment that the disclosure under
138     Subsection (4)(b) was made to the large customer; or
139          (ii) (A) sign a statement that the disclosure required by Subsection (4)(b) was made to
140     the large customer; and
141          (B) keep the signed statement on file in the producer's office while the health benefit
142     plan placed with the large customer is in force.
143          (d) [(i)] A licensee who collects or receives any part of the compensation from an
144     insurer or third party administrator in a manner that facilitates an audit shall, while the health
145     benefit plan placed with the large customer is in force, maintain a copy of:
146          [(A)] (i) the signed acknowledgment described in Subsection (4)(c)(i); or
147          [(B)] (ii) the signed statement described in Subsection (4)(c)(ii).
148          [(ii) The standard application developed in accordance with Section 31A-22-635 shall
149     include a place for a producer to provide the disclosure required by this Subsection (4), and if
150     completed, shall satisfy the requirement of Subsection (4)(d)(i).]
151          (e) Subsection (4)(c) does not apply to:

152          (i) a person licensed as a producer who acts only as an intermediary between an insurer
153     and the customer's producer, including a managing general agent; or
154          (ii) the placement of insurance in a secondary or residual market.
155          (f) (i) A producer shall provide to a large customer listed in this Subsection (4)(f) an
156     annual accounting, as defined by rule made by the department in accordance with Title 63G,
157     Chapter 3, Utah Administrative Rulemaking Act, of all amounts the producer receives in
158     commission compensation from an insurer or third party administrator as a result of the sale or
159     placement of insurance to a large customer that is:
160          (A) the state;
161          (B) a political subdivision or instrumentality of the state or a combination thereof
162     primarily engaged in educational activities or the administration or servicing of educational
163     activities, including the State Board of Education and its instrumentalities, an institution of
164     higher education and its branches, a school district and its instrumentalities, a vocational and
165     technical school, and an entity arising out of a consolidation agreement between entities
166     described under this Subsection (4)(f)(i)(B);
167          (C) a county, city, town, local district under this Title 17B, Limited Purpose Local
168     Government Entities - Local Districts, special service district under Title 17D, Chapter 1,
169     Special Service District Act, an entity created by an interlocal cooperation agreement under
170     Title 11, Chapter 13, Interlocal Cooperation Act, or any other governmental entity designated
171     in statute as a political subdivision of the state; or
172          (D) a quasi-public corporation, that has the same meaning as defined in Section
173     63E-1-102.
174          (ii) The department shall pattern the annual accounting required by this Subsection
175     (4)(f) on the insurance related information on Internal Revenue Service Form 5500 and its
176     relevant attachments.
177          (g) At the request of the department, a producer shall provide the department a copy of:
178          (i) a disclosure required by this Subsection (4); or
179          (ii) an Internal Revenue Service Form 5500 and its relevant attachments.
180          (5) This section does not alter the right of any licensee to recover from an insured the
181     amount of any premium due for insurance effected by or through that licensee or to charge a
182     reasonable rate of interest upon past-due accounts.

183          (6) This section does not apply to bail bond producers or bail enforcement agents as
184     defined in Section 31A-35-102.
185          (7) A licensee may not receive noncommission compensation from an insured or
186     enrollee for providing a service or engaging in an act that is required to be provided or
187     performed in order to receive commission compensation, except for the surplus lines
188     transactions that do not receive commissions.

Legislative Review Note
     as of 10-16-14 12:59 PM

Office of Legislative Research and General Counsel