Unauthorized Insurer

What is 'Unauthorized Insurer'

Unauthorized insurer refers to a fraudulent operation in which a company poses as an authorized provider of a financial protection plan when it is not one. Unauthorized insurers take advantage of consumers and sometimes even insurance agents to collect premiums on nonexistent policies. It is illegal for unauthorized insurers to conduct business.

BREAKING DOWN 'Unauthorized Insurer'

Unauthorized insurer operations cause their victims to lose their premium money and find themselves exposed to large potential losses that would have been protected by a legitimate insurance policy.

Unauthorized insurers can sometimes fool even legitimate insurance agents as well as consumers. When this happens, it puts the agent in a very bad situation. Even if the agent has unknowingly acted as a representative of the unauthorized insurer, they can be held personally responsible for clients' outstanding claims. In this situation an insurance agent can even be charged with committing a crime, have their insurance license revoked and be forced to pay a professional fine.

Insurance agents can avoid such outcomes by checking with their state's department of insurance to find out if an insurer is licensed to sell the insurance product they are offering. Agents should take this step before selling their clients any policies from a particular insurer.

How Consumers Can Protect Themselves

Legitimate insurance companies are always licensed by the state in which they operate. Those that are not may lead consumers to think they are selling true insurance products while evading regulations. For example, a company selling a health discount plan might call the plan insurance when it is actually an unregulated, non-insurance product.

Consumers can protect themselves by recognizing warnings signs an insurance company may not be legitimate. Warning signs include very aggressive agents or brokers who express an urgency to sign up for a product immediately, premiums that are 15 to 20 percent lower than comparable companies’ coverage, and no listed phone number for the company or situations in which the consumer experiences a great deal of hassle in trying to reach the company.

Consumers should always take the time to confirm an insurance company is legitimate before signing up for a policy. State insurance departments can be easily reached by phone and can quickly verify whether an insurance company exists and is authorized to sell insurance in the consumer’s state. Many state insurance departments also have specific staff dedicated to investigating insurance criminal activity, and work closely with federal, state and local law enforcement officials to prosecute insurance fraud.