(a) The term “compensation,” for the purpose of this article means any valuable consideration including, but not limited to, all paid or credited commissions, contingent commissions, service fees, fees, consulting fees paid or credited within or outside this state in relation to business produced or to be produced or written or to be written in this state, electronic data process equipment or services, supplies (other than forms approved by the commissioner and the usual claims and reporting forms and envelopes for transmitting the claims and brochures, rate books, and rate charts), rental equipment of any type, advertising, telephone provided by an insurer, its agent, or any related person without charge of actual charge or at a charge less than the usual cost, profit sharing plans, experience rating refunds, experience rating credits, dividends, expense allowances, stock plans or bonuses, and any other form of credit, including moneys assumed, or expenditures in any form whatsoever, direct or indirect, paid by or on behalf of the insurer, or by any subsidiary or parent, or subsidiary of the parent of the insurer, or by any other person to or on behalf of any group policyholder, agent, general agent, or disability broker or withheld by any group policyholder, agent, general agent, or disability broker.

(b) The maximum amount of total compensation, as defined in subdivision (a), payable by any insurer shall not exceed 35 percent of the prima facie credit life insurance rates and 30 percent of the prima facie disability insurance rates. Of the maximum total compensation allowable, the creditor shall be limited to a compensation rate of 27.5 percent of the prima facie credit life insurance rates and 23.75 percent of the prima facie credit disability insurance rates. The general agent’s maximum total compensation allowable shall be limited to 7.5 percent of the prima facie credit life insurance rates and 6.25 percent of the prima facie credit disability insurance rates. A creditor may not receive both the creditor’s and the general agent’s compensation on its own produced insurance. A general agent may also receive additional primary compensation deducted from the maximum primary compensation allowable to the creditor.

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If the commissioner has reason to believe that compensation is in fact or is contracted to be in excess of the maximum amount specified in this section, the commissioner may conduct a hearing or investigation, including the right to examine any contracts relating to the direct or indirect payment of compensation, to determine whether the insurer, general agent, or any other person is paying or whether an agent, general agent, or broker is receiving any form of compensation in excess of the applicable maximum amount of compensation specified in this section.

(c) On and after January 1, 1988, no contract of credit life or credit disability insurance shall be issued in this state unless, if applicable, the maker first ascertains, using reasonable diligence, that any nonadmitted reinsurer possesses capital and surplus of at least one million dollars ($1,000,000).

(d) Nothing in this article shall be construed to authorize the payment of any form of compensation to any creditor or to any person otherwise prohibited from receiving that form of compensation. Nor shall this article be construed to authorize the payment of experience rating refunds prior to the anniversary date of the policy. Those refunds shall be computed annually based on premiums earned to that anniversary date.

(Amended by Stats. 1986, Ch. 1145, Sec. 2.)