Kentucky's insurance law is the Kentucky Insurance Code, Chapter 304 of the Kentucky Revised Statutes (KRS). The Department's regulations are in Title 806 of the Kentucky Administrative Regulations (KAR). Kentucky statutes use "agent" for a licensed producer. This guide covers the Kentucky rules on the regulator, licensing, appointments, CE, unfair trade practices, fraud, surplus lines and the guaranty associations, with citations. General regulatory concepts are in the national Insurance Regulation guide.

About the exam

Kentucky doesn't use a national testing vendor. The Kentucky Department of Insurance writes and gives its own computerized licensing exams.

• An applicant schedules through a Department eServices account after the Department processes the license application. Walk-ins are not accepted.
• Within a 120-day window after processing, an applicant may test an unlimited number of times. Each retake carries a fee.
• The passing score is 70% correct (806 KAR 9:025 Sec. 2(5)).

The Department publishes no time limit. There are no combined exams. An applicant for both life and health takes a life exam and a separate health exam. An applicant for both property and casualty takes two exams as well (806 KAR 9:025 Sec. 2(3)). The variable life and variable annuity line has no state exam, but a resident must already hold an active life line (KRS 304.9-030(3)).

Prelicensing education is required (KRS 304.9-105(1)(e); 806 KAR 9:025 Sec. 1):

• 40 hours for life and health together
• 40 hours for property and casualty together
• 20 hours for any single line, including personal lines

A completed course is valid for one year. Applicants file the license application through NIPR. Kentucky home-state applicants submit a criminal background check from the Administrative Office of the Courts (806 KAR 9:025 Sec. 2(1)(c)).

The regulator

• The Department of Insurance is part of the Public Protection Cabinet (KRS 304.2-010).
• The Commissioner is appointed by the Governor with the consent of the Senate, for a term of no more than four years, and may be reappointed (304.2-020(2)).
• Statutory divisions include Licensing, Consumer Protection, Insurance Fraud Investigation, Property and Casualty, and Health and Life Insurance and Managed Care.
• Workers' comp claims are handled by a separate Department of Workers' Claims (KRS Chapter 342).
• The Commissioner examines each domestic insurer at least every five years (304.2-210).
• Orders are effective only in writing and signed, and must state their purpose, grounds and the code sections relied on (304.2-120). Licensees consent to service at the address on file.
• Hearings (304.2-310, 304.2-370):
  • A person aggrieved by an act or order applies for a hearing within 60 days of learning of it.
  • A good-faith request postpones the action until the final order.
  • Appeals go to Franklin Circuit Court.
• The Department keeps written, signed complaints for five years (304.2-160).

Insurer types (304.1-070): domestic (formed in Kentucky), foreign (another state) and alien (another country).

Licensing

Definitions (304.9-020):

• An agent sells, solicits or negotiates insurance or annuities.
• Solicit includes urging someone to apply for a particular kind of insurance from a particular insurer.
• Negotiate means conferring with a buyer about the substantive terms of a contract.
• Staff adjusters settle claims for their employer, independent adjusters work for insurers on contract, and public adjusters are paid by insureds. Each needs an adjuster license.
• A consultant advises clients for a fee paid by the client, not by an insurer, and needs a consultant license (304.9-040).

Lines of authority (304.9-030): life, health, property, casualty, variable life and variable annuity, and personal lines (P&C sold to individuals and families for mainly noncommercial purposes). Property and casualty are separate lines.

Qualifications (304.9-105):

• age 18
• prelicensing education and the exam
• financial responsibility, met in one of three ways:
  • errors and omissions coverage of at least $20,000 per occurrence and $100,000 aggregate a year
  • a $20,000 cash surety bond
  • for an exclusive agent, the insurer's agreement to assume that liability

Controlled business. A license is deemed used principally for controlled business if, in any 12 months, premiums on controlled business exceed premiums on all other business (304.9-100(3)).

Nonresidents (304.9-140):

• licensed if in good standing in the home state, with reciprocity
• the Kentucky license ends when the home-state license ends
• a change of home state is reported within 30 days

Moving to Kentucky. A resident licensee of another state is exempt from prelicensing education and the exam for the same lines if they apply within 90 days of moving (304.9-170(5)).

Temporary licenses (304.9-300, 304.9-310):

• issued for up to 180 days, without an exam or prelicensing
• available to:
  • the surviving spouse or representative of a deceased or disabled agent
  • a business entity member after its designee's death or disability
  • the designee of an agent entering military service
• a temporary licensee may not take new appointments, may not use the license mainly for controlled business, and may not sell on their own life or a relative's life

Renewal (304.9-260, 304.9-170):

• Individual licenses renew by the last day of the birth month every two years. Agents born in odd years renew in odd years, and those born in even years renew in even years.
• Business entities renew by March 31.
• A renewal received within 60 days after expiration is accepted with a penalty, without a break in the license.
• A lapsed license can be restored without prelicensing or the exam if the fee is paid within 12 months, with a penalty of double the renewal fee.

Continuing education (304.9-295; 806 KAR 9:025 Sec. 5):

• 24 hours every biennium, including 3 hours of ethics, due by the birth-month deadline
• proof of compliance is due within 60 days of the compliance date
• up to 12 excess hours carry over to the next biennium
• extensions for good cause run up to two years
• instructors earn the same credit as students
• exempt:
  • licensees not licensed for a full year before the biennium ends
  • nonresidents who meet reciprocal home-state CE
  • agents keeping a license only to collect renewals, who file an affidavit
• a missed requirement makes the license expire; it can be reissued within 12 months once the hours are made up

Reporting:

• Changes of address or legal name within 30 days (304.9-200(2)).
• Administrative actions in another jurisdiction within 30 days of final disposition (304.9-467).
• Criminal charges within 30 days of service (304.9-467).
• The revocation of any other financial-services license immediately (304.9-467).

Place of business and records (304.9-390):

• A resident agent keeps a public place of business, which may be in the home, and displays the license conspicuously there.
• Transaction records are kept five years.

Appointments (304.9-270, 304.9-280)

• An agent may not place business with an insurer or claim to represent it unless appointed and the appointment is approved.
• 15-day rule. An agent may act for an insurer for 15 days from the first application. If confirmation of the appointment hasn't arrived by then, the agent stops until it does.
• Before appointing, the insurer confirms the agent has no felony involving dishonesty or breach of trust.
• The insurer files the appointment within 15 days of the contract or first application, whichever is earlier.
• Renewal fees are due March 31.
• Terminations are reported within 30 days. For a for-cause termination:
  • the agent gets a copy within 15 days, by certified mail or overnight carrier
  • the agent may file comments within 30 days
  • insurers are immune absent actual malice

Commissions and premium funds

• Commissions go only to someone licensed for that line when the work was done. Renewals stay payable (304.9-425).
• Commissions may be shared only with persons licensed for the kind of insurance involved (304.9-421).
• An unlicensed referral source may be paid only if payment doesn't depend on a sale, and the referral can't include discussion of specific policy terms (304.9-425).
• Premiums collected are held in a fiduciary capacity. Misappropriating them is grounds for discipline (304.9-400, 304.9-440(1)(d)).

Discipline and penalties

Grounds (304.9-440):

• forging a name on an application
• cheating on a license exam, including using notes
• accepting business from an unlicensed person
• a misdemeanor with restitution over $300, or one involving dishonesty
• failing to pay child support or state income tax

Actions available. The Commissioner may impose probation, suspension or conditions for up to 24 months, revoke or refuse a license, or impose a civil penalty. Surrender or lapse doesn't end the Commissioner's authority over a licensee under investigation.

Civil penalties per violation (304.99-020):

• $1,000 for agents
• $2,000 for adjusters, administrators and consultants
• $10,000 for insurers and HMOs

A criminal conviction under the code carries a fine of the greater of $100 or twice the gain (304.99-010).

Unfair trade practices (Subtitle 12)

• Misrepresentation and false advertising, including a policy name that misrepresents the coverage (304.12-020).
• Twisting, meaning misrepresentation or an incomplete comparison to induce a lapse, surrender or replacement (304.12-030). Using values from an existing policy to pay premiums on a new policy from the same insurer, within four months before or 13 months after its issue date, is presumed to be a financed purchase.
• Defamation of an insurer's financial condition (304.12-060).
• Unfair discrimination (304.12-080):
  • life: the same class and equal expectation of life
  • health: the same class and essentially the same hazards
  • P&C: risks that are substantially alike
• Rebating (304.12-090). For life, annuity and health contracts, any inducement not expressed in the contract is a rebate. For P&C, charges must follow the filing, and an insured who knowingly accepts a rebate also violates the law.
• Rebating exceptions (304.12-100):
  • loss control services
  • charitable contributions not tied to a sale
  • waiving a food spoilage deductible in a federal disaster county
• Gifts and drawings (304.12-092). Non-cash gifts of up to $250 per year are allowed if not tied to a purchase. Free drawings are allowed with prizes of up to $500 each, or an average prize value under $10 per entrant.
• Illegal inducements (304.12-110). Offering employment, stock or securities, or advisory board contracts promising profits as an inducement is prohibited.
• Lenders (304.12-150, -160). A lender must tell the borrower they may choose the agent and insurer. It must accept an adequate policy the borrower tenders, and may not charge a fee to substitute policies.
• Genetic tests (304.12-085). Health plans and disability insurers may not require genetic test results.
• HIV testing (304.12-013). The applicant must get written disclosure and give written informed consent.

Unfair claims settlement practices (304.12-230) include:

• misrepresenting policy provisions
• not affirming or denying coverage within a reasonable time
• forcing insureds to sue by lowballing offers
• delaying one coverage to pressure settlement of another
• not explaining a denial

Prompt payment (304.12-235):

• Claims are paid within 30 days of notice and proof of claim.
• If there is no good-faith attempt to settle, the settlement bears 12% interest.
• If the delay had no reasonable foundation, the insured also recovers attorney fees.

Fraud (Subtitle 47)

• A fraudulent insurance act includes:
  • knowingly presenting false material information in an application or claim, including inflated repair costs
  • taking money for a policy and never placing it
  • issuing a fake ID card or binder
• Grading (304.47-020):
  • under $500: Class A misdemeanor
  • $500 to under $10,000: Class D felony
  • $10,000 to under $1 million: Class C felony
  • $1 million or more: Class B felony
• Reporting. Insurers and agents must report suspected fraud to the Department's Division of Insurance Fraud Investigation. There is no dollar threshold. Reporters are immune absent malice, fraud or gross negligence (304.47-050, -060).
• Applications and claim forms carry a fraud warning (304.47-030).
• Admitted insurers maintain a fraud investigation unit (304.47-080).

Surplus lines (Subtitle 10)

• Coverage may be placed with a nonadmitted insurer only after a diligent effort with authorized insurers. Getting a lower rate or better terms is not, by itself, a reason to go nonadmitted.
• The broker files an affidavit showing the risk was eligible for export.
• An exempt commercial purchaser may waive the diligent effort in writing after disclosure.
• The surplus lines tax is 3% for Kentucky home-state insureds, remitted quarterly (304.10-180).
• Local premium taxes. Kentucky cities and counties may also levy local premium taxes on insurance companies (KRS 91A.080). That is a distinctive Kentucky feature.

Guaranty associations

Kentucky Life and Health Insurance Guaranty Association (304.42):

• Funded by member assessments. Agents may not use its existence to sell insurance (304.42-190).

Kentucky Insurance Guaranty Association (304.36), for P&C:

• $300,000 per claimant; workers' comp in full
• unearned premium up to $10,000 per policy
• cyber policies up to $500,000 per insured event
• excluded: punitive damages, and first-party claims of insureds with net worth over $10 million
• claims are filed within 12 months of the liquidation order
• member assessments are capped at 2% a year
• life, health, annuity, title and ocean marine insurance are outside the act

Common exam traps

• The Commissioner is appointed by the Governor with Senate consent, for up to four years. The Department sits in the Public Protection Cabinet.
• The Department runs its own exams: 50 questions, a 70% pass mark, and no combined LH or P&C exam.
• Prelicensing is 40 hours per combined pair of lines or 20 hours per line.
• CE is 24 hours with 3 of ethics, with up to 12 hours of carryover.
• Agents carry E&O of $20,000/$100,000 or a $20,000 bond.
• An agent may act for 15 days before appointment approval. The insurer files the appointment within 15 days and reports a termination within 30.
• Claims not paid in 30 days bear 12% interest.
• The surplus lines tax is 3%.