1033 Waivers in Insurance – What Are They, and How Do They Work?
November 16, 2021
While we would prefer that everyone associated with insurance act with the highest regard for ethical integrity at all times, reality is messy. Sh*t happens. And, with 18 U.S. Code § 1033, if you’ve engaged in a felony that involves a breach of trust, you’re going to have hurdles to jump if you want to get back into the insurance industry.
While 18 U.S. Code § 1033 really rolls off the tongue (or the keyboard, as it were), more commonly in the insurance industry, this set of federal regulations is better known for the exemption that those who have run afoul of it have to seek if they want to work in insurance. Called the “1033 waiver,” state regulators can give producers a do-over to operate in insurance despite a checkered past.
Before we dive in, let’s take note that, while we like to be insufferable know-it-alls on this blog, our topics of discussion are just that: topics of discussion. Our blog isn’t legal advice, and you’re on the hook for following the rules of whatever jurisdictions apply to you and doing your own due diligence.
History of the 1033 waiver
States already have regulations regarding the business people can engage in with various criminal backgrounds, and insurance is regulated by the states.
So, how do we end up with a big fat federal regulation? Well, let us just say, the ‘90s were wild. And one of the major bipartisan initiatives back then was being tough on crime. In a sweeping regulatory package that was lauded as the most expansive criminal regulation in U.S. history, President Bill Clinton signed the Violent Crime Control and Law Enforcement Act of 1994. While much of the law targeted violent crime, including expanding the death penalty, pouring money into policing, and creating offices specifically addressing domestic violence (and no, the law isn’t controversial at all, why do you ask?), it also took aim at white-collar crimes like marketing schemes that defraud the elderly … and insurance.
The provisions regarding insurance are toward the end of the 356 pages of reforms and outline punitive measures for anyone involved in fraud or dishonesty when transacting business across state lines. In addition to prison and fines, those involved in interstate commerce crimes are automatically barred from being in insurance sales roles. Of course, you can still get an exemption from this barrier, which is how we get to the 1033 waiver.
What does the 1033 rule say?
Section 1033: Crimes by or affecting persons engaged in the business of insurance whose activities affect interstate commerce
If you want to read it word for word, hit the PDF on page 321 and enjoy. If you want the “I had a friend who took this class last semester and gave me their notes” version:
If you’re involved in insurance across state lines in any way (not counting as a policy owner/beneficiary) and you:
- Intentionally lie to overvalue land, property, or securities in a financial report, or to an agency or carrier so that they will overinsure someone or
- Embezzle, steal, purloin, etc. in any way or
- Lie about company solvency to anyone, particularly to regulators and company execs or
- Use threats or coercion to corrupt or obstruct insurance regulation or
- (1) (A) Have been convicted of a criminal felony involving dishonesty or a breach of trust or
(B) You know someone who fits in a, b, c, d, or e(1)(A) and you still let them operate in insurance…
Then you are barred from doing anything related to working in the insurance industry … UNLESS you have “the written consent of any insurance regulatory official authorized to regulate the insurer,” (18 U.S. § 1033 (e)(2)). As the National Association of Insurance Commissioners’ guideline regarding 1033 waivers reminds us, this particular passage is using the term “insurer” to mean the person who would otherwise be prohibited from working in insurance, so, while we usually use insurer to mean an insurance carrier, in this case it could be anyone working in the distribution chain.
Practically, what does this mean?
This is a very broad law in its definitions and interpretations, and the implications of (e)(1)(B) are that if you are in any way insurance adjacent and you know someone was involved in a felony, you have to go through a series of questions to decide whether that person must be reported or risk getting roped up in a 1033 violation yourself.
The regulation is broad. And the team that developed the guidelines with the NAIC noted that, in applying the law to insurance activities that affect interstate commerce, “the definition appears on its face to be extremely broad and inclusive of almost all insurance activities.”
So, practically, those involved in insurance have to ask of their hires and coworkers:
- Was a person convicted of a felony?
- If they were, did their felony involve a breach of trust?
- If it did, then does their current role in insurance affect interstate commerce?
And if affirmative answers to these three questions line up like cherries at the slots, then JACKPOT, you’re going to need a 1033 waiver.
Also, before you throw yourself down the following rabbit hole, it’s also worth noting that, even if a state commissioner grants you a 1033 waiver, it doesn’t trump state law. Each state has its own laws about how to handle criminal action by people in the insurance industry, and this federal requirement is in addition to whatever rules exist at the state level. So, if you get a 1033 waiver, that may be only the first of many hoops to jump through to be in good standing.
NAIC’s guidance for 1033 compliance
One of the hilariously undefined pieces of the law is, to get an exemption and get (back) into insurance, the federal law directs you to get “written consent of any insurance regulatory official authorized to regulate the insurer which consent specifically refers to this subsection.”
The NAIC’s guidance document recognizes phrasing like “any insurance regulatory official authorized to regulate the insurer” and “appropriate insurance regulatory official” is obnoxiously unspecific. The NAIC members agreed that the states should interpret that as “state commissioner,” period.
Another key area the NAIC guidance weighs in on is the matter of jurisdiction: Does an insurance person need a waiver from the commissioner of just one state, or one for every region of operation? The question is answered easily enough for someone working as a producer in a single state or an employee in a single office, but it gets more complicated for someone who is an officer or board member for a national insurance carrier.
To address the issue of jurisdiction, the NAIC outlines a few roles and which authorities they should appeal to for a 1033 waiver:
- Producers/licensed professionals should apply to the commissioner of their resident state
- Someone employed at any level of a carrier, MGA, or similarly regulated organization (this could include managers, board members, principals, etc.) should apply in whichever state that person’s most substantial work will be performed as well as the entity’s “domicile” state.
- A person who is a consultant or works in any capacity with a non-licensed entity should get a 1033 waiver with their resident state, and whatever state their work is substantially in, and whatever state or jurisdiction their conviction happened in.
So, if you’re seeking a 1033 waiver (sometimes called a 1033 consent waiver), you’ll want to be clear on what the appropriate authority is. The NAIC cautions that some people might try to game the system through what they call “stealth” consents, i.e. trying to figure out which state might be most permissive and submitting their waiver to those states, regardless of how relevant it is to their business and regulation. To prevent stealth consents, the NAIC advises the states to send 1033 waiver requests to all commissioners. If any of the other commissioners have a reason to believe they have jurisdictional authority, or if they have commentary on whether the 1033 waiver should be granted or not, they have 15 days to provide feedback (so, in case you were hazarding a guess, the 1033 process is not one in which you should hold your breath while awaiting a response).
If any jurisdiction denies someone’s 1033 waiver application, then the NAIC says, “no other commissioner may subsequently entertain any application for consent filed by the same prohibited person without first making an explicit finding, after giving the commissioner who denied the previous application notice and opportunity to object, that the commissioner who denied the previous application is no longer the ‘appropriate insurance regulatory official’.” Basically, if your 1033 consent waiver got rejected in one state, you would have to completely move jurisdictions to get a do-over, and at that point you’ll have to tell the new state that the last one rejected you and the old state gets to weigh in on why.
How to get a 1033 waiver
Most states have the application easily available online, but the waiver isn’t something you’d call easy. The burden of proof for a 1033 waiver of reinstatement rests squarely on the shoulders of the “prohibited person.” The extensive application includes:
- A standard application with basic identifying information to verify that you are you and help commissioners’ offices conduct further background checks to ensure full disclosure
- Statement of education
- Employment history
- Detailed list of any family connections within the insurance or adjacent industries
- Statement of net worth
- Full explanation of the circumstances and reasons of conviction
- Explanation of past applications for 1033 waivers and their success or failure
- Character endorsements
- Any commissioner requests for additional information
The commissioner has a list of several criteria to use to evaluate the history, but the two driving considerations are 1. Whether you have credibly been rehabilitated and are likely to re-offend, and 2. Whether allowing you to work in insurance is in the insurance-buying public’s interest.
For a commissioner to officially grant the waiver, they have to issue the decision in writing, and it has to specifically reference 18 U.S.C. § 1033(e)(2).
We’ve said it before and we’ll say it again – an ounce of prevention when it comes to insurance regulation is worth a pound of cure. While the 1033 waiver provides you a lifeline for getting into – or staying in – the insurance industry after other trust or money shenanigans, it’s a lot easier to just not have to jump through those hoops to begin with.
Get a demo of AgentSync today and see what we can do to help carriers, agencies, and MGAs make growth and compliance go hand in hand.
No. You’ll have to reapply in the new state.
You could take up a hobby. Maybe find some time to travel. Catch up with friends. Do some home renovations. What you can’t do is work in insurance until it is granted, because that would be illegal.
Federal statute doesn’t define it clearly, and, in fact, has generally resisted attempts to define what “dishonesty or breach of trust” means. Instead, as the NAIC guidance issued in 2011 notes, “Federal courts seem to apply a ‘you know it when you see it’ test.”