Alabama's insurance law is Title 27 of the Code of Alabama, with regulations in chapter 482-1 of the Alabama Administrative Code. The Alabama law questions on every exam come from the same core: the Department and Commissioner, producer licensing and appointments, continuing education, trust funds, unfair trade practices, fraud, and the guaranty associations. This guide covers those rules with citations. The general regulatory concepts are in the national Insurance Regulation guide.

About the exam

Alabama's producer exams are given through the University of Alabama testing program for the Alabama Department of Insurance. The exams have no series numbers, and the passing grade is 70. Questions carry weighted values that total 100, so a passing score is a weighted 70 or more (Ala. Admin. Code 482-1-147-.06(4)).

Alabama sells all seven exams, including combined Life & Health and Property & Casualty exams. On the property and casualty exams, the Alabama law section supplies 16 questions on the Property exam, 16 on Casualty, 20 on the combined P&C exam, and 22 on Personal Lines, per the Department's 2023 content outline.

Retakes. After two failures for the same line, the candidate waits at least 90 days. After two more failures, the wait is 180 days before each further attempt. Waiting periods expire 24 months after the last failed exam. A wait triggered by the Property exam also applies to the Personal Lines and combined P&C exams. An exam results certificate is valid for one year.

Prelicensing education rules were repealed effective January 1, 2024, so passing the exam is the competence requirement.

The regulator

• The Alabama Department of Insurance regulates insurers and licenses producers (Ala. Code 27-2-1).
• It is headed by the Commissioner of Insurance, appointed by the Governor for a term concurrent with the Governor's (27-2-2). If the Commissioner becomes a candidate for another public office, the office is immediately vacated.
• The Commissioner examines every insurer at least once every five years (27-2-21). Possible crimes are referred to the Attorney General or district attorney (27-2-19).
• A rule adopted after a required hearing takes effect only after 10 days on file (27-2-17).
• Hearings. A demanded hearing is held within 30 days of the demand (27-2-28), with at least 10 days' notice (27-2-29). The order follows within 30 days after the hearing (27-2-31). An appeal must be filed within 30 days, to the Montgomery County Circuit Court. A licensee appealing a license denial, suspension, or revocation may choose the circuit court of the county where the licensee lives or does business instead (27-2-32).

Insurers

• An insurer needs a certificate of authority to transact insurance in Alabama (27-3-1). An authorized insurer holds one.
• Domestic = formed in Alabama; foreign = formed in another U.S. jurisdiction; alien = formed outside the United States (27-1-2).
• Authorized insurers file their annual statement by March 1 (27-3-26).
• Rates must not be unreasonably high, inadequate, or unfairly discriminatory between risks of essentially the same hazard (27-13-27).
• A life or health policy form not acted on within 30 days of filing (plus any extension) is deemed approved (27-14-8).
• Any contract for which the application is taken in Alabama is deemed made in Alabama and subject to its laws (27-14-22).

Producer licensing

Lines of authority (27-7-14.1):

• life (which includes annuities)
• accident and health or sickness, also called disability
• property
• casualty (which includes surety)
• variable life and variable annuity
• personal lines (property and casualty sold to individuals and families for primarily noncommercial purposes)

The variable line has no separate insurance exam. It requires the life line plus securities licensing and registration.

Resident applicants (27-7-5; 27-7-4.4):

• must be at least 18
• must be a U.S. citizen or legally present in the United States
• must pass the exam for each line
• must submit fingerprints for state and FBI background checks

A business entity must designate a licensed producer responsible for its compliance. A sole proprietor using a trade name is licensed only as an individual. Since January 1, 2024, no new service representative licenses are issued.

Exam waiver for relocating producers. A producer moving to Alabama is exempt for the same lines if the prior license is current or was cancelled within 90 days, and the producer is in good standing.

Nonresidents are licensed on a reciprocal basis (27-7-28). A producer who moves out of Alabama keeps the license as a nonresident by filing a change of address and the new home state's certification within 30 days.

Renewal.

• Individual licenses renew every two years at the end of the birth month. People born in odd years renew in odd years, and those born in even years renew in even years.
• A new license won't expire within its first 90 days.
• A late renewal within 30 days is retroactive, with a late fee. The penalty is double the unpaid renewal fee (27-7-14.1).
• A license lapsed 12 months or more requires passing the exam again.
• Business entity licenses expire December 31 of even-numbered years.

Continuing education (27-8A-1):

• Residents complete 24 hours every two years, including 3 hours of ethics. Holding several lines doesn't increase the requirement.
• Office-only employees not licensed as nonresidents elsewhere complete 12 hours, including 2 of ethics.
• Excess hours do not carry over.
• Exempt: new licensees for their first 12 months, limited lines licensees, and lines that require no exam.
• A nonresident meets Alabama CE by meeting home-state CE, if the home state reciprocates.
• A classroom hour is at least 50 minutes.
• Compliance is the producer's responsibility alone (27-8A-6). A false CE certificate can bring a fine of up to $10,000.

Temporary licenses (27-7-23, -24):

• A temporary license may go to the surviving spouse or personal representative of a deceased or disabled producer, a business entity after the death or disability of its designated producer, or the designee of a producer entering military service.
• It lasts up to six months. It can be renewed once, only for a producer's disabling illness or injury, and the Commissioner may require a licensed sponsor.
• A separate insurer-sponsored temporary license pending examination also lasts up to six months. An individual may hold only one per line in a lifetime, and the sponsoring insurer is responsible for the licensee's acts.

Reporting.

• Changes of name, mailing address, or email address are reported within 30 days. There is no fee, but late reporting carries a $50 penalty (27-7-17).
• Administrative actions in another jurisdiction are reported within 30 days of final disposition. Criminal prosecutions are reported within 30 days of the initial pretrial hearing (27-7-39).
• Department rules also require notice within 30 days of a felony arrest, indictment, or conviction (482-1-054).

Appointments

• A license alone gives no authority to represent an insurer (27-7-1). A producer may act for an insurer only if appointed by it (27-7-4(b)).
• The insurer files the appointment within 15 days after the agency contract is executed or the first application is submitted, whichever is first (27-7-30).
• An insurer terminating an appointment for any reason notifies the Commissioner within 30 days (27-7-30(e)). It sends the producer a copy within 15 days, by certified mail or overnight carrier if the termination was for cause.
• The producer may file written comments within 30 days. Termination information the insurer gives the Commissioner is privileged.
• Occasional placements. A producer may place business with an insurer that hasn't appointed her by going through a producer that insurer has appointed (27-7-34).
• An insurer accepting business from someone neither licensed nor appointed can be fined up to three times the premium (27-7-4).

Commissions, records, and trust funds

• Commissions may be shared only with producers licensed for the same kinds of insurance (27-7-35).
• Paying an unlicensed person can bring a fine of up to three times the commission. Renewal commissions on business written while licensed may still be paid.
• Producers keep transaction records at least three years and must show an insured the records on that insured's policies on request (27-7-33).
• Premiums and return premiums are trust funds held in a fiduciary capacity. Diverting them to personal use is theft of property (27-7-36).
• A producer may charge a collection fee of up to 1.5% per month on unpaid premium balances (27-12-17).

Discipline

Grounds for discipline (27-7-19) include:

• fraud and misrepresentation
• forging a name on an application
• using notes during an exam
• a felony conviction, or license action in another state
• failing to pay state income tax or child support as ordered

The Commissioner may impose a civil fine of up to $10,000 per violation after a hearing. A licensee who doesn't answer a complaint within 30 days is deemed to admit it (27-7-37). A revoked licensee may seek permission to reapply after two years. A voluntary surrender in lieu of revocation counts as a revocation. Licenses are state property.

Willful violations of the code not otherwise penalized are misdemeanors with up to a $1,000 fine and a year in jail (27-1-12). Transacting insurance without a license is a Class A misdemeanor (27-12A-5).

Unfair trade practices (27-12)

• Misrepresentation of policy terms, benefits, or dividends, and false advertising (27-12-2).
• Twisting: misrepresentations or misleading incomplete comparisons to induce a policyholder to lapse, forfeit, surrender, retain, exchange, or convert a policy (27-12-6).
• False financial statements, with fines of $500 to $5,000 (27-12-7), and malicious statements about an insurer's finances (27-12-9).
• Boycott, coercion, or intimidation (27-12-8).
• Unfair discrimination in life rates between people of the same class and equal expectation of life, and in disability insurance premiums, benefits, or terms (27-12-11).
• Rebating. For life, annuity, and disability insurance, rebates are prohibited (27-12-12). Exceptions include discounts reflecting actual savings from payroll deduction or bank draft, and dividends (27-12-13). For property and casualty, a rebate is lawful only if provided in a filed and approved rating system, and an insured who knowingly accepts an illegal rebate also violates the law (27-12-14).
• Coercion by lenders: a lender may not require insurance through a particular insurer or agent (27-12-15).
• False statements on an application by an agent or anyone else (27-12-23).
• Refusing without just cause to pay claims, often enough to show a general business practice, is an unfair claims practice. Rising complaints and lawsuits are evidence of it (27-12-24).

Cease and desist. The Commissioner serves a statement of charges with a hearing at least 10 days later, then may order the person to cease and desist (27-12-18).

Domestic abuse. Insurers may not deny, cancel, refuse to renew, restrict, or surcharge coverage because of abuse status (27-55-3). Adverse action based on an abuse-related condition must be explained in writing. The Commissioner enforces the law with penalties up to $5,000 per violation, and the Act creates no private right to sue.

Insurance fraud (27-12A)

• First-degree insurance fraud involves a loss over $1,000 and is a Class B felony. Second-degree fraud involves $1,000 or less and is a Class C felony.
• A person convicted of either is barred from the insurance business.
• Prosecution must begin within seven years after the violation is detected.
• Insurers that know of or reasonably believe fraud occurred must report it to the Department. People who report in good faith are immune from civil liability unless they act with actual malice.
• A fraud warning must appear on applications, claim forms, or similar documents. Its absence is no defense.
• The Department's Insurance Fraud Unit can issue subpoenas and make arrests (27-12A-40).

Life sales rules

• Before a presentation, a life agent identifies himself or herself as a life agent and names the insurer (482-1-131).
• The Buyer's Guide goes out before the initial premium is accepted. If the policy has an unconditional refund right of at least 10 days, it may come with the policy.
• In a replacement, the producer gets a signed statement on existing coverage, reads the Important Notice Regarding Replacements aloud (unless the applicant declines), and leaves copies of sales material (482-1-133).
• The replacing insurer notifies the existing insurer within five business days, and the new policy carries a 30-day right to return.

Surplus lines

• Surplus lines are placed through a licensed surplus line broker, who must hold a resident P&C license and a $50,000 bond, after a diligent effort with authorized insurers (27-10-20, -24).
• Surplus lines may not be used just to get a lower rate.
• Each contract carries the statutory surplus lines stamp. The broker pays a 6% premium tax by March 1 (27-10-31) and keeps records five years.
• Surplus lines law does not apply to life or disability insurance.

Policyholders Bill of Rights (27-22-42)

Property and casualty policyholders have the right to:

• written notice of contract language changes at renewal
• reject a claim settlement offer
• choose their licensed contractor to repair or rebuild after a covered loss
• file a complaint with the Department and have it reviewed

Guaranty associations

Alabama Life and Disability Insurance Guaranty Association (27-44):

It does not cover non-guaranteed amounts, such as variable subaccounts, or Medicare Part C and Part D plans.

Alabama Insurance Guaranty Association (27-42) pays covered P&C claims of insolvent insurers:

• $300,000 per claim or the policy limit, whichever is less
• workers' compensation in full
• unearned premium up to $10,000 per policy

It does not pay fidelity or surety bonds, punitive damages (except under the Wrongful Death Act), or first-party claims of insureds worth more than $25 million. Claims must be filed within 25 months of the liquidation order, and a claimant must first exhaust any solvent insurer's coverage.

Common exam traps

• The Commissioner is appointed by the Governor and serves a term concurrent with the Governor's.
• The exams are given through the University of Alabama testing program. The pass mark is a weighted 70.
• Appointments are filed within 15 days; terminations are reported within 30 days.
• CE is 24 hours with 3 of ethics, with no carryover.
• Address changes are due in 30 days, with a $50 late penalty.
• The P&C guaranty cap is $300,000, with workers' comp paid in full.
• The surplus lines tax is 6%.
• Fraud over $1,000 is first degree.