Producer Responsibilities and Record Keeping

Hawaii insurance producers have significant professional responsibilities beyond selling insurance. Proper record keeping, client communication, and regulatory compliance are essential.

Record Keeping Requirements

Mandatory Records Retention

Hawaii law requires producers to maintain records for at least 3 years after policy expiration.

Required Records:

1. Applications and Underwriting Documents

   • Completed insurance applications
   • Medical questionnaires or health statements
   • Inspection reports
   • Underwriting correspondence

2. Policies and Endorsements

   • Copy of issued policy
   • All endorsements and policy changes
   • Declarations pages
   • Coverage summaries provided to client

3. Client Communications

   • Letters and emails regarding coverage
   • Documentation of coverage recommendations
   • Notes from client meetings and phone calls
   • Evidence of disclosures provided

4. Premium and Payment Records

   • Premium invoices and receipts
   • Payment history
   • Premium financing agreements
   • Refund documentation

5. Claims Documentation

   • Claim notifications and correspondence
   • Assistance provided to client
   • Claim settlement documentation
   • Subrogation information

6. Cancellations and Non-Renewals

   • Cancellation notices
   • Non-renewal notifications
   • Documentation of reasons
   • Client acknowledgments

Record Retention Best Practices

Beyond Minimum 3 Years:

• Life insurance: Retain records for life of policy plus 3 years
• Liability claims: Retain until all claim potential expires (often 6-10+ years)
• Errors and omissions exposure: Retain indefinitely for producer protection

Electronic Records:

• Electronic records acceptable if:
  • Secure and backed up regularly
  • Accessible for Division inspection
  • Protected from unauthorized access
  • Tamper-proof and auditable

Client File Documentation

Comprehensive Client Files

Every client file should include:

1. Client Information

• Full legal name, address, contact information
• Date of birth, occupation
• Spouse/family information (if applicable)
• Business information (commercial clients)

2. Needs Analysis

• Assessment of client's insurance needs
• Risk exposures identified
• Coverage recommendations and rationale
• Alternative options discussed

3. Coverage Provided

• Summary of policies issued
• Coverage limits and deductibles
• Policy numbers and effective dates
• Insurer information

4. Disclosures and Acknowledgments

• Disclosure of producer compensation (if required)
• Acknowledgment of coverage limitations
• Explanation of exclusions
• Client signature on important disclosures

5. Declinations

• Documentation if client declined recommended coverage
• Written acknowledgment of decision
• Explanation of risks of going uninsured

6. Service History

• Policy changes and endorsements
• Coverage reviews and updates
• Claim assistance provided
• Correspondence and communication log

Hawaii-Specific Documentation

For Hawaii properties, document:

Lava Zone Disclosure:

• Property's lava zone classification
• Explanation of volcanic risk
• Discussion of volcanic coverage availability
• Client acknowledgment of risk

Hurricane Coverage:

• Hurricane coverage included or excluded
• Hurricane deductible amount and calculation
• HHRF eligibility discussion (if applicable)
• Separate wind/hurricane policy if applicable

Flood/Tsunami Risk:

• Flood zone designation
• Tsunami evacuation zone (if applicable)
• NFIP flood insurance recommendation
• Declination if client refused flood coverage

Condo Master Policy:

• Review of condo association master policy
• Gaps requiring HO-6 unit owner coverage
• Loss assessment coverage discussion
• HHRF status for building (if applicable)

Notification Requirements

Producers must notify the Hawaii Insurance Division within 30 days of certain events.

Required Notifications

1. Address Change

• Change of residential address
• Change of business address
• New mailing address
• Update through NIPR or Division portal

2. Name Change

• Legal name change (marriage, divorce, court order)
• Submit supporting documentation
• Update license and business cards

3. Felony Convictions

• Any felony conviction (any state)
• Criminal charges involving dishonesty, breach of trust, or money
• Administrative actions by other state regulators

4. License Actions in Other States

• Suspension or revocation in another state
• Disciplinary actions by other insurance regulators
• Voluntary surrender of license pending investigation

5. Employer/Appointment Changes

• Termination of employment with agency
• Change of appointing company
• New company appointments
• Business entity changes

Failure to Notify:

• Grounds for license suspension
• Fines and penalties
• Possible license revocation

Errors and Omissions (E&O) Insurance

What Is E&O Insurance?

Professional liability insurance for insurance producers:

• Covers claims of negligence, errors, or omissions
• Legal defense costs
• Settlements and judgments
• "Claims-made" coverage (covers claims made during policy period)

E&O Insurance in Hawaii

Not Mandatory:

• Hawaii does NOT require producers to carry E&O insurance
• Highly recommended for all producers
• Many agencies require as condition of employment

Common E&O Claims:

1. Failure to Obtain Coverage

   • Client requested coverage but producer didn't bind it
   • Coverage lapse due to producer error

2. Inadequate Coverage Limits

   • Recommended limits too low for client's exposure
   • Didn't advise client to increase limits

3. Coverage Gaps

   • Failed to recommend flood insurance (property later floods)
   • Didn't explain volcanic exclusion (lava destroys home)
   • Overlooked condo association master policy gaps

4. Misrepresentation of Coverage

   • Told client coverage included when it was excluded
   • Incorrectly explained policy terms

5. Failure to Process Endorsements

   • Client requested change but producer didn't submit
   • Endorsement not added before loss

E&O Coverage Limits:

• Typical: $1M per claim / $1M aggregate
• Recommended: $2M per claim / $2M aggregate
• High-volume agencies: $5M+ limits

E&O Premiums:

• Based on annual premium volume
• Claims history significantly impacts cost
• Deductibles: $2,500-25,000

Retroactive Date:

• E&O policies have "retroactive date"
• Only covers claims for services performed after retroactive date
• Continuous coverage essential (no gaps)

Exam Tip: While E&O insurance is NOT mandatory in Hawaii, it's highly recommended. Producers without E&O face personal liability for all claims against them.

Client Confidentiality and Privacy

Duty of Confidentiality

Producers must protect client personal and financial information:

Confidential Information Includes:

• Personal identifying information (SSN, driver's license, etc.)
• Financial information (income, assets, credit history)
• Health information (medical conditions, medications)
• Claims history
• Any information client reasonably expects to be private

Permitted Disclosures:

• To insurers for underwriting and policy issuance
• To law enforcement with valid subpoena or court order
• With client's written authorization
• As required by law or regulation

Prohibited Disclosures:

• Sharing client information with competitors
• Discussing client's business with unauthorized parties
• Using client information for producer's personal benefit
• Selling or providing client lists to third parties

Privacy Laws

Federal Privacy Laws:

• Gramm-Leach-Bliley Act (GLBA): Requires financial institutions (including insurance) to protect customer information
• HIPAA: Health information privacy (applies to health insurance)

Hawaii State Privacy Laws:

• Hawaii insurance privacy statutes
• Data breach notification requirements
• Consumer rights to access and correct information

Producer Duties:

• Provide privacy notice to clients
• Implement safeguards to protect information
• Limit access to authorized personnel only
• Securely dispose of records (shred physical documents, wipe electronic files)
• Notify clients of data breaches

Premium Handling

Trust Account Requirements

Premium Funds Are Trust Funds:

• Premiums collected from clients are held in trust
• Must be kept separate from producer's personal/business funds
• Belong to insurer or client until properly disbursed

Prohibited:

• Commingling: Mixing premium funds with personal/business accounts
• Misappropriation: Using premium funds for personal purposes
• Kiting: Delaying premium remittance to use funds temporarily

Timely Remittance

Producers must remit premiums promptly:

• Forward to insurer within timeframe specified in appointment agreement
• Typical: Within 5-15 days of collection
• Holding premium too long may indicate misappropriation

Consequences of Premium Theft:

• Immediate license revocation
• Criminal prosecution (felony theft)
• Restitution to insurer/client
• Possible imprisonment

Premium Financing

When clients finance premiums:

• Use licensed premium finance companies
• Disclose finance charges and terms
• Ensure client understands cancellation risk for non-payment
• Maintain documentation of financing arrangement

Producer Supervision and Agency Responsibilities

Agency Supervision of Producers

Licensed agencies must:

• Supervise producers' insurance activities
• Review applications and recommendations for suitability
• Maintain E&O insurance covering all producers
• Provide training on laws, regulations, and ethical practices
• Monitor for compliance with company and legal requirements

Agency Liability:

• Agencies liable for producers' actions within scope of employment
• Respondeat superior (employer liability for employee acts)
• Must report producer misconduct to Division

Termination for Cause Reporting

When agency terminates producer for cause:

• Agency must report termination to Division within 30 days
• "For cause" = violation of law, unethical conduct, performance failure
• Division investigates and may take action against producer's license

Producer's Rights:

• Opportunity to respond to allegations
• Hearing before disciplinary action
• Appeal adverse decisions

Continuing Ethical Education

Ethics CE Requirement

3 hours of ethics every 2-year license term:

• Part of 24-hour total CE requirement
• Must be approved ethics or laws/rules course
• Covers professional standards, legal obligations, ethical decision-making

Ethics Topics:

1. Professional Duties

   • Duty of good faith and fair dealing
   • Fiduciary duties
   • Conflicts of interest

2. Legal Compliance

   • Unfair trade practices
   • Hawaii insurance laws
   • Licensing requirements

3. Consumer Protection

   • Disclosure obligations
   • Suitability standards
   • Claims handling ethics

4. Ethical Decision-Making

   • Recognizing ethical dilemmas
   • Resolving conflicts
   • Case studies and scenarios

Importance of Ongoing Ethics Education

Benefits:

• Reinforces professional standards
• Updates on law/regulation changes
• Reduces risk of violations
• Enhances reputation and client trust

Best Practices for Ethical Producers

Professional Excellence

Successful, ethical Hawaii producers:

1. Put Clients First

• Recommend coverage based on client needs, not commission
• Disclose all material information
• Follow through on commitments

2. Maintain Competence

• Stay current on products, laws, and market conditions
• Complete CE early (don't wait until deadline)
• Specialize in areas relevant to Hawaii (hurricane, volcanic risks, etc.)

3. Document Everything

• Comprehensive client files
• Written summaries of important discussions
• Acknowledgments of coverage declined
• Evidence of disclosures provided

4. Communicate Clearly

• Explain coverage in plain language
• Avoid jargon and technical terms
• Confirm client understanding
• Follow up in writing

5. Handle Claims Promptly

• Respond immediately to claim notifications
• Assist client with claim process
• Follow up to ensure satisfaction
• Advocate for client with insurer

6. Maintain Boundaries

• Avoid conflicts of interest
• Don't make promises beyond authority
• Refer complex legal/tax questions to appropriate professionals
• Maintain professional relationships with clients

7. Protect Client Privacy

• Secure storage of records
• Limit access to need-to-know personnel
• Proper disposal of old records
• Compliance with privacy laws

8. Admit Mistakes

• Promptly disclose errors to client and insurer
• Take steps to correct problems
• Notify E&O carrier if potential claim
• Learn from mistakes to prevent recurrence