Arizona's insurance code is Title 20 of the Arizona Revised Statutes (A.R.S.), with rules in Title 20, Chapter 6 of the Arizona Administrative Code (A.A.C. R20-6). The Arizona questions on each exam come from licensing, CE, unfair practices, fraud, claims handling, and the guaranty funds. Arizona has a few features that differ from many states, notably 48 hours of CE on a four-year license and no requirement that producer authority depend on an insurer appointment. This guide covers those rules with citations; the national Insurance Regulation guide covers the general concepts.

About the exam

Arizona's producer exams are delivered by PSI for the Department of Insurance and Financial Institutions. The passing score is 70%.

Arizona offers both single-line and combined exams.

Exam rules (A.R.S. 20-284):

• A resident applicant must have passed the exam within one year before the Director receives the application.
• A candidate may take the exam for a line no more than four times in 12 months. After a fourth failure, the wait is one year.
• Failing a combined exam counts as failing each line it covers.
• A candidate who fails or misses a scheduled exam must reapply and pay again before rescheduling.
• No one may test for a line they already hold.

The regulator

• Insurance is regulated by the Arizona Department of Insurance and Financial Institutions (DIFI), headed by the Director, who must enforce Title 20 (20-142).
• DIFI was formed in 2020 by combining the Department of Insurance, the Department of Financial Institutions, and the Automobile Theft Authority.
• The Director examines each domestic insurer at least once every five years (20-156) and may examine and investigate producers.

Insurers

• An insurer needs a certificate of authority (20-217; 20-401.01). Lawful surplus lines business and reinsurance are exceptions. The certificate stays in effect until the insurer ends it or the Director suspends or revokes it.
• Domestic = formed in Arizona (20-203); foreign = formed in another state (20-204); alien = formed in another country (20-201).
• A rental car collision damage waiver is expressly not insurance (20-103).
• A non-insurer may not use a name suggesting it is an insurer (20-444(B)).

Licensing

Lines of authority (20-286(A)):

• life
• accident and health or sickness
• property
• casualty
• variable life and variable annuity
• personal lines
• credit
• crop

Resident applicants (20-285):

• must be at least 18
• must document lawful presence in the U.S. (41-1080)
• must pass the exam for each line
• may be required to submit fingerprints. Fingerprints aren't needed to add a line to an existing license.

Business entities must designate a licensed producer responsible for compliance. Each office must have at least one individually licensed producer for the lines transacted (20-290).

Exemptions from licensing (20-283) include insurer or agency employees doing clerical, administrative, or managerial work with no commission.

Appointments. Arizona law doesn't make a producer's authority to sell depend on an insurer appointment filed with DIFI. A license for the line is what 20-282 requires.

Moving to Arizona. A producer moving to Arizona who keeps working must apply for a resident license within 90 days (20-285(F)). The exam is waived if the application arrives within 90 days after the prior resident license was cancelled, with good standing (20-288).

Moving out of Arizona. A producer moving out files a change of address within 30 days after requesting a clearance letter (20-287(B)).

Nonresidents are licensed reciprocally without an exam, and the license appoints the Director to receive service of process (20-287, 20-291).

License term and renewal (20-289):

• Individual licenses expire every four years on the last day of the birth month.
• Renewal requires evidence of CE.
• A license may be renewed late during the year after it expires, with a $100 late fee. After that, it's a new application.
• During active military service, a license may be placed on inactive status. The licensee can't sell but can receive renewal commissions, and deadlines are extended (20-289.01).

Continuing education (20-2902, -2903):

• Resident major-line producers complete 48 credit hours each license period, including 6 hours of ethics.
• Credit for a particular course counts only once per period.
• Instructors receive double credit.
• Records are kept until the second renewal after the credits were earned.
• Licensees continuously licensed in Arizona since January 1, 1995 who meet the other conditions are exempt.
• Nonresidents meet Arizona CE by meeting home-state CE if the home state reciprocates.
• Limited-line credit and crop licensees have no CE requirement.

Temporary licenses (20-294):

• They last up to 180 days, without an exam.
• They may go to the surviving spouse or personal representative of a deceased or disabled producer, an entity member after its designated producer dies or is disabled, or the designee of a producer entering military service.

Reporting (20-286, 20-301, 20-297):

• Changes of residential, business, or email address or name are reported in writing within 30 days.
• Administrative actions elsewhere are reported within 30 days of final disposition.
• Criminal convictions are reported within 30 days after the conviction is filed.
• An assumed business name must be reported before it is used.

Records. Producers keep transaction records three years (20-290).

Commissions and fees

• Commissions may not go to anyone required to be licensed who isn't. Renewal commissions may go to someone licensed at the time of sale (20-298).
• A personal lines producer may charge a service fee only with written disclosure and agreement, and the fee must be reasonably related to cost (20-465). This doesn't apply to commercial lines or surplus lines brokers.
• No fee may be charged in connection with Medicare supplement insurance.

Discipline and penalties (20-295, 20-296)

Grounds include:

• misleading application information
• misappropriating or converting money (premiums are fiduciary funds)
• forgery
• aiding unlicensed activity
• a felony conviction or license action elsewhere
• using the license principally to insure the licensee's own family, employer, or employees. Arizona treats controlled business as a ground for discipline.

Penalties:

• A suspension may last up to 12 months.
• Civil penalties are $250 per unintentional violation (aggregate $2,500) and $2,500 per intentional violation (aggregate $15,000), plus restitution.
• After revocation, no new license for one year.
• Surrendering or letting a license lapse doesn't end the Director's authority.
• For unlicensed activity, the Director may issue a cease and desist order and seek an injunction (20-292).

Unfair trade practices (20-441 and following)

• Misrepresentation of policy terms, benefits, or dividends, or of an insurer's finances. Twisting is misrepresentation to induce a policyholder to lapse, surrender, or convert a policy (20-443). Knowing misrepresentation in a sale is a class 5 felony (20-443.01).
• Referring to guaranty fund protection in a sale is prohibited, except in the required notice.
• False advertising (20-444), defamation of an insurer (20-445), boycott, coercion, or intimidation (20-446), and false financial statements (20-447).
• Unfair discrimination (20-448) covers:
  • life rates between people of the same class and equal expectation of life
  • disability insurance between people of the same class and essentially the same hazard, including hemophiliacs
  • P&C between risks with substantially like factors
  • genetic conditions and developmental disability (absent supporting data)
  • living organ donors
  • victims of domestic violence
• Gender and marital status may not limit availability, though marital status may define dependent eligibility (R20-6-207).
• Rebating is barred for life and disability (20-449) and for P&C (20-451). An insured who knowingly accepts a P&C rebate also violates the law.
• Inducements: prizes or merchandise worth more than $100 are prohibited (20-452). Loss-prevention items such as smoke detectors are allowed. A customer-feedback survey incentive up to $200 is presumed reasonable.
• Penalties (20-456): after a hearing, a cease and desist order plus up to $1,000 per violation (aggregate $10,000), or $5,000 per violation (aggregate $50,000 in six months) if intentional.

Claims (20-461, 20-462, R20-6-801)

Unfair claim practices count as violations when frequent enough to show a general business practice. Examples include:

• failing to act promptly on claim communications
• refusing to pay without a reasonable investigation
• not settling in good faith when liability is reasonably clear
• lowballing to force lawsuits
• refusing to honor a valid post-loss assignment
• using aftermarket crash parts without a written notice identifying each part

Timelines:

First-party claims unpaid 30 days after acceptable proof of loss earn interest at the legal rate from the date the claim was received (20-462).

Fraud (20-463 to 20-466.03)

• Knowingly presenting false material statements in a claim or application is a fraudulent practice. With intent to defraud an insurer, it is a class 6 felony.
• Runners, cappers, and steerers are covered by the fraud statute.
• Insurers report suspected fraudulent claims to the Director. Good-faith reporters are immune.
• DIFI fraud unit investigators have peace officer powers.
• Claim forms carry a fraud warning in at least 12-point type.

Privacy (20-2101 and following)

• A notice of information practices is due by policy delivery in most cases, and at least annually on renewals.
• An individual's request to see recorded information is answered within 30 business days.
• After an adverse underwriting decision, the specific reasons are given within 21 business days of a request made within 90 business days.
• Pretext interviews are allowed only when there's a reasonable basis to suspect fraud in a claim.
• DIFI enforces the Gramm-Leach-Bliley Act privacy rules.

Surplus lines

• Surplus lines placements require a licensed surplus lines broker and diligent effort with admitted insurers, and may not be made to get a better rate (20-407).
• The surplus lines tax is 3% of gross premium, collected from the insured. The broker may not absorb or rebate it (20-416).
• A P&C producer may place through a licensed surplus lines broker and share the commission.

Guaranty funds

Arizona Life and Disability Insurance Guaranty Fund (20-682):

Values where the policyholder bears the investment risk are not covered.

Arizona Property and Casualty Insurance Guaranty Fund (20-667):

• It pays the part of a covered claim over $100 and under $300,000, except workers' compensation.
• Unearned premium is covered over $25 up to $10,000.
• Claims arising within 30 days of insolvency are covered.
• Surplus lines insurers are not members.

Common exam traps

• The exam vendor is PSI, and the regulator is the Director of DIFI.
• Licenses last four years. CE is 48 hours with 6 of ethics.
• Address changes and criminal convictions are reported in 30 days.
• Producer authority doesn't depend on an insurer appointment filing.
• Temporary licenses last 180 days. Suspensions are capped at 12 months.
• Knowing misrepresentation is a class 5 felony; claim fraud is a class 6 felony.
• The surplus lines tax is 3%.