New Mexico Producer Responsibilities and Prohibited Practices

Fiduciary Duties

New Mexico producers hold positions of trust and confidence and owe fiduciary duties to both clients and insurance companies.

Duties to Clients

Duties to Insurers

Premium Handling Requirements

Fiduciary Responsibility

Premiums are held in trust:

• Producer acts as trustee for collected premiums
• Premiums belong to insurer, not producer
• Must be kept separate from producer's personal funds
• Misappropriation of premiums is theft

Required Practices

New Mexico producers must:

1. Maintain trust accounts - Separate account for premium funds
2. Remit promptly - Follow insurer payment schedules
3. Account accurately - Track all premium transactions
4. Never commingle - Keep premium funds separate from operating funds
5. Pay before using - Don't use premiums for personal expenses

Penalties for Misappropriation

Misusing premium funds can result in:

• Immediate license revocation
• Criminal prosecution for theft
• Civil lawsuits for damages
• Fines and restitution orders
• Industry-wide ban

Critical Point: Premium theft is one of the fastest ways to lose your license permanently and face criminal charges. Always handle premiums as fiduciary funds.

Prohibited Practices Under NMSA 59A-16

New Mexico Statutes Annotated Chapter 59A-16 prohibits unfair trade practices in the insurance industry.

Misrepresentation

Prohibited: Making false or misleading statements about:

• Policy terms, benefits, or coverages
• Insurer financial condition
• Dividends or policy returns
• Nature of insurance contracts
• Premium costs or payment terms

Examples of Misrepresentation:

• ❌ Telling client policy covers flood when it doesn't
• ❌ Claiming insurer is "rated A+" when it's not
• ❌ Stating premiums are "locked in" when they can increase
• ❌ Representing term life as "investment" product
• ❌ Omitting material exclusions when explaining coverage

Penalties:

• First violation: Up to $1,000 fine per violation
• Subsequent violations: Up to $5,000 fine per violation
• License suspension or revocation
• Cease and desist orders

Rebating

Definition: Offering or giving valuable consideration (something of value) not specified in the policy as an inducement to purchase insurance.

What is Prohibited:

• ❌ Sharing your commission with the insured
• ❌ Offering cash payments or gift cards
• ❌ Providing services (free home repairs, tax prep, etc.)
• ❌ Offering tickets to events or vacations
• ❌ Promising special favors or benefits

What is Allowed:

• ✅ Items worth less than $10 (pens, calendars, notepads)
• ✅ Company-approved dividends or discounts
• ✅ Educational materials and policy information
• ✅ Policyholder appreciation events (open to all clients)

Penalties:

• License revocation (rebating is serious violation)
• Fines up to $5,000 per violation
• Restitution to affected parties

Exam Tip: New Mexico has strict anti-rebating laws. Even offering to "help with the deductible" after a claim could be considered rebating.

Twisting

Definition: Misrepresenting or omitting facts to induce a policyholder to lapse, forfeit, surrender, or replace existing insurance with new insurance.

Examples of Twisting:

• ❌ Falsely claiming current policy will be cancelled
• ❌ Exaggerating defects in existing coverage
• ❌ Omitting surrender charges or waiting periods in new policy
• ❌ Misrepresenting comparative benefits of replacement policy

Policy Replacement Requirements:

When recommending policy replacement, producers must:

1. Provide replacement notice to insured
2. Submit replacement notice to replacing insurer
3. Submit notice to existing insurer
4. Provide comparison of existing vs. new coverage
5. Disclose commissions from replacement

Valid Reasons for Replacement:

• ✅ Better coverage at same or lower cost
• ✅ Lower premium for adequate coverage
• ✅ Improved financial strength of insurer
• ✅ Better customer service or claims handling

Unfair Discrimination

Prohibited: Making distinctions in rates, premiums, or coverages based on factors unrelated to risk.

Protected Classes (cannot be used for insurance decisions):

• Race
• Color
• Religion
• National origin
• Ancestry
• Gender (with certain exceptions)
• Sexual orientation
• Gender identity
• Marital status (in some situations)

Allowed Risk-Based Factors:

• ✅ Claims history
• ✅ Credit score (in most lines)
• ✅ Location/territory
• ✅ Age (in some lines)
• ✅ Driving record (auto insurance)
• ✅ Property condition

Important: While credit scores can be used in most P&C lines, New Mexico has restrictions on their use. Insurers must file credit scoring models with OSI.

Defamation

Prohibited: Making false, malicious statements that harm the reputation of:

• Insurance companies
• Other producers or agents
• Insureds or claimants

Examples:

• ❌ Falsely claiming competitor's insurer is "going bankrupt"
• ❌ Spreading lies about another agent's business practices
• ❌ Making false statements about insured's claim

False Advertising

Prohibited: Using advertising that:

• Contains untrue or misleading statements
• Omits material facts
• Exaggerates benefits or minimizes risks
• Uses deceptive layout or formatting

Advertising Requirements:

• Must identify producer/insurer clearly
• Cannot use deceptive trade names
• Must include required disclosures
• Cannot mislead about government connection

Record Keeping Requirements

Minimum Retention Period: 5 Years

New Mexico producers must maintain records for at least 5 years from the date of transaction:

Required Records:

• Policy applications
• Issued policies and endorsements
• Premium payment records
• Claims documentation
• Customer communications (emails, letters, texts)
• Replacement notices
• Continuing education certificates
• Appointment documentation
• Advertising materials

OSI Examination Authority

OSI may examine producer records:

• With reasonable notice (typically 30 days)
• At producer's place of business
• To verify compliance with laws
• During market conduct examinations
• As part of complaint investigations

Producer Must:

• Make records available for inspection
• Provide copies as requested
• Cooperate fully with examiners
• Pay examination costs if violations found

Failure to Produce Records:

• License suspension until records provided
• Fines and penalties
• Presumption of non-compliance
• License revocation for egregious violations

Reporting Requirements

Report to OSI Within 30 Days

Producers must report the following to OSI within 30 days:

Failure to Report

Consequences:

• Additional license discipline
• Fines for late reporting
• Presumption of dishonesty
• Basis for license denial or revocation

Important: The 30-day reporting requirement applies to actions in ANY state, not just New Mexico. You must report out-of-state actions to New Mexico OSI.

Disciplinary Actions and Penalties

Grounds for Discipline

OSI may suspend, revoke, or refuse to renew licenses for:

Violations:

• Misrepresentation or fraud
• Rebating or illegal inducements
• Twisting or churning policies
• Misappropriation of premiums
• Unfair discrimination
• Violation of insurance laws or regulations
• Failure to comply with OSI orders

Character Issues:

• Felony convictions (especially involving dishonesty)
• Pattern of misdemeanor convictions
• Financial irresponsibility (unpaid judgments, bankruptcy)
• Demonstrated untrustworthiness
• Incompetence or negligence

Administrative Issues:

• Failure to complete continuing education
• Failure to maintain appointment
• Failure to report required information
• Improper advertising or marketing

Types of Disciplinary Actions

Administrative Hearing Process

If facing discipline:

1. Receive notice of alleged violations from OSI
2. Request hearing within 30 days if contesting charges
3. Pre-hearing discovery exchange of evidence
4. Administrative hearing before hearing officer
5. Hearing officer's decision with findings of fact
6. Appeal to district court if unsatisfied with decision

Burden of Proof: OSI must prove violations by preponderance of evidence (more likely than not).

Professional Standards and Best Practices

Duty to Insured

Professional producers should:

• Explain coverages in understandable terms
• Identify gaps in coverage
• Recommend appropriate limits and deductibles
• Respond promptly to questions and concerns
• Assist with claims process
• Review coverage annually
• Document all recommendations

Documentation Best Practices

Always document:

• Coverage recommendations made
• Client's decisions (acceptance or rejection)
• Conversations about policy changes
• Claims reporting and assistance
• Complaints and resolution attempts

Why Documentation Matters:

• Protects against errors & omissions claims
• Demonstrates professional conduct
• Required for OSI examinations
• Evidence in disputes

Continuing Professional Development

Beyond CE requirements, professional producers:

• Stay current on coverage form changes
• Attend industry conferences and seminars
• Obtain professional designations (CPCU, CIC, etc.)
• Join professional associations (IIABA, PIA, etc.)
• Read industry publications regularly

Consumer Privacy and Data Security

New Mexico Privacy Requirements

Producers must:

• Protect consumer personal information
• Use information only for legitimate business purposes
• Provide privacy notices as required
• Implement safeguards against unauthorized access
• Report data breaches promptly

Prohibited Uses of Consumer Information

Cannot:

• Sell consumer information to third parties (without consent)
• Use information for personal benefit
• Disclose to unauthorized persons
• Share for marketing unrelated products (without opt-in)

Data Breach Notification

If consumer data compromised:

1. Notify affected consumers without unreasonable delay
2. Report to OSI as required by state law
3. Offer credit monitoring if social security numbers compromised
4. Implement corrective measures to prevent recurrence

On the Exam: Expect questions on prohibited practices (especially rebating and misrepresentation), fiduciary duties, record retention periods (5 years), and reporting requirements (30 days).