Hawaii's insurance law lives in the Hawaii Insurance Code, Chapter 431 of the Hawaii Revised Statutes (HRS). The state-law portion of every Hawaii exam is large (roughly 35–45% of the scored questions), so this topic deserves more study time than any single policy chapter. These notes cover the regulator, producer licensing, continuing education, appointments, unfair practices, claims rules, fraud, guaranty associations and surplus lines, with the statute for each rule.

About the exam

Hawaii's licensing exams are delivered by Pearson VUE. Each exam has a general section and a Hawaii section, and the passing score is 70%.

A few unscored pretest questions are mixed in. Hawaii does not offer a combined Life & Health exam or a combined Property & Casualty exam: candidates take the Life and Health exams separately, and the Property and Casualty exams separately. Passing scores are valid for two years from the exam date (HRS 431:9A-105(d)), and the license must issue within two years of passing (HRS 431:9A-106(a)(4)). An applicant who fails or misses the exam must reapply and pay all fees again (HRS 431:9A-105(c)); after two failed attempts at a similar exam the commissioner may impose a waiting period of up to six months (HRS 431:9A-120(b)).

The regulator

• The Insurance Division is part of the Department of Commerce and Consumer Affairs (DCCA) (HRS 431:2-101).
• The insurance commissioner is appointed by the DCCA director with the governor's approval and serves at the director's pleasure (HRS 431:2-102). The commissioner is not elected.
• The commissioner's powers are those expressly conferred by or reasonably implied from the Code (HRS 431:2-201). The commissioner can adopt rules on anything in the Code except the commissioner's own appointment, qualifications or pay.
• Orders and notices take effect only if in writing and signed by the commissioner or a delegate (HRS 431:2-202).
• The commissioner can subpoena witnesses and documents and take testimony under oath (HRS 431:2-204), and can issue a cease and desist order or seek an injunction against someone violating or about to violate the Code (HRS 431:2-203(d)).
• Examinations: each domestic insurer at least once every five years, at the insurer's expense (HRS 431:2-302, 431:2-306). The insurer gets up to 30 days to rebut the report (HRS 431:2-305). Producer and adjuster records can be examined as often as the commissioner thinks advisable (HRS 431:2-303).
• Licensees must answer a written inquiry from the commissioner within 15 working days (HRS 431:2-208(c)).
• General penalty: $100 to $10,000 per violation, up to one year in jail, or both (HRS 431:2-203(b)). If an insurer disobeys an order, a court can impose a forfeiture of up to $10,000 for each day it continues.
• Hearings and appeals follow Chapter 91, Hawaii's administrative procedure act (HRS 431:2-308).

Agencies the exam mixes up: workers' compensation, Temporary Disability Insurance and the Prepaid Health Care Act are run by the Department of Labor and Industrial Relations (DLIR), not the Insurance Division.

Insurer basics

• An insurer needs a certificate of authority listing the classes it may write (HRS 431:3-201).
• Domestic = formed in Hawaii; foreign = formed in another state (Guam counts as a "state", HRS 431:1-213); alien = formed outside the U.S. (HRS 431:3-101 to 3-105).
• Mutual = no capital stock, governing body elected by policyholders; stock = owned by shareholders; reciprocal = subscribers exchanging insurance through an attorney-in-fact. A reciprocal may not write life or accident and health insurance (HRS 431:3-204).
• Foreign and alien insurers appoint the commissioner as their attorney for service of process (HRS 431:2-205).

Producer licensing

• Lines of authority (HRS 431:9A-107): life (which includes annuities and disability income), accident and health or sickness, property, casualty, variable life and variable annuity, and personal lines (property and casualty sold to individuals and families for mainly noncommercial use). Personal lines may also be sold under the property and casualty lines (HRS 431:9A-103(d)).
• Resident applicant (HRS 431:9A-106): at least 18, passed the exam within the last two years, and submitted fingerprints for FBI and Hawaii criminal history checks. A business entity must name a licensed individual producer responsible for compliance.
• Exam exemptions: a person licensed for the same lines in another state, or applying within 90 days after that license was cancelled in good standing (HRS 431:9A-109(a)). A producer who moves to Hawaii must apply within 90 days of establishing residence (HRS 431:9A-109(b)).
• Nonresidents are licensed if in good standing at home and the home state treats Hawaii residents the same way (HRS 431:9A-108). A move to a new home state must be reported within 30 days.
• Temporary license: up to 180 days without an exam, for the surviving spouse or representative of a producer who dies or becomes disabled, or the designee of a producer entering active military service. The commissioner may require a licensed sponsor (HRS 431:9A-111).
• Exempt from licensing: salaried clerical employees who earn no commission, and employers running their own benefit plan who receive no insurer compensation (HRS 431:9A-104).
• Change of status (name, home, business or mailing address, phone, email, website) must be reported within 30 days (HRS 431:9A-107(f)).
• Place of business: every producer keeps a place of business accessible to the public (HRS 431:9A-122).
• Records: producers keep transaction records for 5 years (HRS 431:9A-123).
• Reporting: an administrative action anywhere within 30 days of final disposition; a criminal prosecution within 30 days of arraignment (HRS 431:9A-117).
• Lapsed license: reinstated without a new exam by paying the fee plus a penalty of double the unpaid renewal fees within 12 months (HRS 431:9A-107(c)).

Continuing education

• 24 credit hours per two-year renewal cycle: 21 in the line of authority plus 3 in ethics or insurance law and rules (HRS 431:9A-124(b)). A producer holding both life/health and property/casualty lines takes 10 life/health + 11 property/casualty + 3 ethics/law.
• A credit hour is at least 50 minutes of instruction (HRS 431:9A-102). Sales, motivational and office-skills courses earn no credit (HRS 431:9A-153).
• No carryover of extra hours (HRS 431:9A-124(c)).
• Providers report completion electronically within 15 days; licensees keep CE records for 4 years (HRS 431:9A-124(e), 9A-125).
• Missing CE by the renewal date puts the license on inactive status automatically (HRS 431:9A-124(d)). Military duty earns an extension equal to the days on active duty.

Appointments and commissions

• A producer may not act for an insurer until appointed by it (HRS 431:9A-114). The insurer files the appointment within 15 days of the contract or first application; a late filing takes effect the day the commissioner receives it.
• An insurer reports a termination within 30 days and mails the producer a copy within 15 days after that. The producer may send the commissioner written comments within 30 days (HRS 431:9A-115).
• Commissions may not be paid to anyone who needs a license and lacks one. Renewal commissions may go to someone who was licensed when the sale was made (HRS 431:9A-113).
• Controlled business: insurance on the producer's own life or property, immediate family or employer. A license will not be granted or renewed if controlled-business premiums exceed the premiums on all other business (HRS 431:9A-112.5).

Premium funds

Producers hold premiums as trustees (HRS 431:9A-123.5). Funds not remitted promptly go in a separate, federally insured account in Hawaii. Only enough of the producer's own money to cover bank charges may be mixed in, and the producer may keep interest only with written consent of those entitled to it. Return premiums are paid within 30 days. The premium stated in the policy must include all fees and charges; a separate "service fee" is illegal (HRS 431:10-218).

License discipline

Grounds include material misstatements on the application, felony convictions, forgery, unpaid income taxes or child support orders, and using notes during the licensing exam (HRS 431:9A-112). The licensee may demand a hearing within 10 days of the notice, and the hearing is held within 30 days. Fines must be paid within 30–45 days, or the license is revoked (HRS 431:9A-126). Surrendering a license does not end the commissioner's authority to penalize.

Unfair methods and practices (Article 13)

HRS 431:13-103 lists the prohibited acts:

• Misrepresentation of terms, benefits or dividends. Twisting is misrepresentation used to get someone to drop or exchange a policy.
• False advertising, defamation of an insurer, false financial statements.
• Boycott, coercion and intimidation, including tie-ins that require buying another policy from the same insurer.
• Rebating: any inducement not stated in the policy. Spreading savings or surplus fairly across a class of policyholders is not rebating. Health plan wellness rewards are allowed up to 20% of the cost of coverage.
• Unfair discrimination: for example by sex or marital status, physical impairment (in property/casualty), the age or location of a home without a real business reason, or having taken an HIV test. Domestic abuse victims are protected too (HRS 431:10-217.5).
• False statements on an application to earn a commission.
• Lenders may not require a borrower to buy through a particular insurer or producer (HRS 431:13-104). This rule does not apply to credit life and credit disability insurance.

Penalties (HRS 431:13-201, 13-202): up to $1,000 per act, max $10,000, if the violator didn't know and shouldn't have known. Up to $5,000 per act, max $50,000 in six months, if they knew or should have known. Up to $10,000 per act for violating a cease and desist order. Only the commissioner can enforce Article 13, so there is no private lawsuit under it (HRS 431:13-107).

Unfair claim settlement practices

Under HRS 431:13-103(a)(11), an insurer must:

• respond to claim communications within 15 working days;
• offer payment within 30 calendar days after accepting liability for an undisputed amount;
• explain any delay in writing on claims still unresolved after 30 days.

Lowball offers that force insureds to sue, and duplicate paperwork, are also listed violations. Three or more written complaints in 12 months create a presumption of a "general business practice" (HRS 431:13-103(c)). Insurers keep a complaint register covering the period since their last exam.

Insurance fraud

• Knowingly presenting false claim information is insurance fraud (HRS 431:2-403). It is a class B felony above $20,000, a class C felony above $750, and a misdemeanor at $750 or less.
• The Insurance Division's insurance fraud investigations branch investigates and prosecutes. Workers' compensation fraud is outside its jurisdiction (HRS 431:2-402).
• Insurers must report credible fraud information within 60 days (HRS 431:2-409). A person who reports in good faith is immune from civil liability (HRS 431:2-408).
• Penalties include restitution and administrative fines of up to $10,000 per violation (HRS 431:2-404, 2-405).

Guaranty associations

Assessments on member insurers are capped at 2% of premiums a year for the P&C association. Producers may not use the guaranty association as a sales inducement (HRS 431:16-218).

Surplus lines

Surplus lines coverage is placed through a licensed surplus lines broker after a diligent search among authorized insurers (HRS 431:8-301). The policy carries a notice that the insurer is not licensed in Hawaii and has no guaranty fund protection. The premium tax is 4.68%, filed quarterly within 45 days (HRS 431:8-315). Anyone who helps place coverage with an unauthorized insurer outside these rules can be personally liable for unpaid claims (HRS 431:8-204).

Common exam traps

• The commissioner is appointed by the DCCA director (with the governor's approval), not elected and not appointed directly by the governor.
• The CE requirement is 24 hours with 3 in ethics/law, and no carryover. Missing CE means inactive status, not immediate revocation.
• Appointments are filed within 15 days; terminations are reported within 30 days.
• The individual life and health free look is 10 days, but 30 days for replacements, Medicare supplement and long-term care.
• Hawaii does have a controlled-business rule.
• Prepaid Health Care, TDI and workers' comp belong to the DLIR.