Unauthorized Insurer What It is How It Works Example
Unauthorized Insurer: What It is, How It Works, Example
Skylar Clarine, a fact-checker and expert in personal finance, specializes in veterinary technology and film studies.
What Is an Unauthorized Insurer?
The term “unauthorized insurer” refers to a fraudulent business posing as a legitimate insurance company. Unauthorized issuers are not registered with their state’s insurance regulator and, therefore, cannot legally sell insurance products.
Purchasing insurance from an unauthorized insurer is dangerous because the entity may not have the intention or capacity to fulfill its obligations.
Key Takeaways
– An unauthorized insurer operates without the permission or oversight of their state insurance regulator.
– Operating an unauthorized insurer is illegal and can result in legal or financial penalties.
– Customers sold insurance by unauthorized insurers may be entitled to compensation.
How Unauthorized Insurers Work
Operators of unauthorized insurance companies commit fraud on the public. Customers relying on insurance companies to protect against personal or commercial risks may find themselves unprotected if their insurer fails to honor their end of the transaction. The customer may have little or no recourse with unauthorized insurers since they may lack the assets to fulfill their claims.
Unauthorized insurers can fool professional intermediaries and policyholders. Insurance agents may unwittingly recommend or resell products offered by unauthorized insurers. In these instances, the insurance broker might be held responsible for losses or unpaid claims, incur penalties, and have their license revoked.
To protect against these risks, both individual customers and insurance professionals should check with their state insurance regulator before doing business with a new insurance issuer. Other best practices include paying attention to warning signs indicating an insurer’s illegitimacy, such as aggressive agents or brokers who pressure customers to sign up immediately, unrealistically low premiums, and the absence of listed phone numbers or customer service mechanisms.
Example of an Unauthorized Insurer
Emma, the owner of a small retail store, seeks commercial insurance to protect her business. She consults a local insurance broker who claims expertise in the options available in her region. The broker recommends a product sold by a new insurer with rates nearly half of the nearest-priced competitor. Influenced by the limited-time offer, Emma purchases the insurance.
A year later, Emma experiences a burglary at her store, resulting in months’ worth of lost inventory. Expecting reimbursement for her losses, Emma files a claim. After weeks without a reply, she reports the unresponsive insurer to her state insurance regulator. To her surprise, the regulator has no record of her insurance company, revealing that she was sold insurance by an unauthorized insurer.
In Emma’s case, she may be entitled to compensation from the state insurance regulator or another governing body. However, she may also be responsible for covering her business’s losses personally. The insurance broker who sold her the fraudulent policy will likely be investigated by the insurance regulator and potentially ordered to compensate Emma for her loss.
