Unauthorized Insurer
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Understanding Unauthorized Insurers: Risks, Consequences, and Protection
What Is an Unauthorized Insurer?
The term “unauthorized insurer” refers to a fraudulent business that is posing as a legitimate insurance company. Unauthorized issuers are not registered with their state’s insurance regulator, and therefore, they are not legally permitted to sell insurance products. Purchasing insurance from an unauthorized insurer can be extremely perilous because such entities may lack the intention or capacity to fulfill their obligations.
Key Takeaways
- An unauthorized insurer is an insurance company operating without the permission or oversight of its state insurance regulator.
- Operating an unauthorized insurer is illegal and can lead to legal or financial penalties.
- Customers sold insurance by unauthorized insurers may be entitled to compensation by the professionals who conducted the sale.
How Unauthorized Insurers Work
Unauthorized insurance companies perpetrate fraud on the public by offering insurance without legal authorization. Customers relying on insurance to protect against risks may find themselves vulnerable if their insurer fails to honor their commitments. In the case of unauthorized insurers, customers may have limited recourse, as these insurers may lack the assets to fulfill claims.
In some instances, unauthorized insurers can deceive professional intermediaries and policyholders. Unwitting insurance agents may inadvertently resell or recommend products offered by unauthorized insurers, potentially leading to legal repercussions and loss of licensure. To mitigate these risks, individuals and insurance professionals should verify the legitimacy of insurers with their state regulator and remain vigilant for warning signs of illegitimate practices.
Example of an Unauthorized Insurer
Consider Emma, a small retail store owner seeking commercial insurance. She consults a local insurance broker who recommends a product from a new insurer with significantly lower rates. Emma, swayed by the urgency of the offer, purchases the insurance. When she files a claim after a burglary, she discovers the insurer is unauthorized, leaving her exposed to losses.
Depending on the circumstances, Emma may receive compensation from regulatory bodies, though she may also incur personal losses. The insurance broker may face investigation and potential penalties for selling fraudulent policies.