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Arizona Department of Insurance and Financial Institutions (DIFI)

Revision Date:

Saturday, September 30, 2023

Agency Contact Information

Arizona Department of Insurance and Financial Institutions

Previously- Arizona Department of Insurance

Authority

Authority for the Department of Insurance is found in both the Arizona Constitution and the Arizona Revised Statutes. The Arizona Constitution, Article 15, Section 5 provides that domestic and foreign insurers are subject to licensing, control, and supervision by a department of insurance, as prescribed by law. 

Effective July 1, 2020 the Department assumed the responsibilities of the Department of Financial Institutions and the Automobile Theft Authority and was renamed the Department of Insurance and Financial Institutions (DIFI).  Conforming legislation was required to be prepared by the Arizona Legislative Council staff for consideration in the Fifty-fifth Legislature, First Regular Session (See Laws 2021, Chapter 356).

Arizona Revised Statutes, Title 20, outlines insurance law and establishes the Department of Insurance and Financial Institutions (DIFI). The Director of the DIFI, appointed by the Governor, has general authority to enforce insurance laws, to adopt rules, and to investigate and resolve consumer complaints (A.R.S.§§20-101 et seq.). Regulatory rules are found in the Arizona Administrative Code at R20-4-1201 et seq.; R20-6-101 et seq.; and R4-46-101 et seq.

Function

DIFI’s mission is to “protect consumers, provide certainty on regulatory matters, and perform with efficiency and integrity as good stewards of taxpayers resources”.

Until 2020, the Department consisted of several divisions: Office of the Director; Financial Affairs Division; Office of the Insurance Guaranty Funds; Captive Insurance Division; Consumer Protection Division; Insurance Fraud Division; Market Oversight Division (which includes life, health, property and casualty insurance);  and Administrative Services Division.  See Department of Insurance Annual Report 2016-2017.

The Department’s insurance guaranty funds provide a safety net to protect consumers from financial loss if an insurance company becomes insolvent.  Subject to some conditions and limitations, the Life and Disability Insurance Guaranty Fund and the Property and Casualty Insurance Guaranty Fund pay certain claims of policyholders and other claimants owed by an insolvent insurance company.

Effective July 1, 2020, the Department includes the Financial Institutions Division.  The Automobile Theft Authority was established as part of the Department as well.  (Laws 2019, Chapter 252.) The new agency is named the Department of Insurance & Financial Institutions (DIFI).

History

In 1912, Arizona’s First Legislature established the Corporation Commission and granted it authority over public service corporations and other corporations. (Laws 1912, Chapter 90.)

During the same session, the Legislature granted the Corporation Commission authority to regulate businesses and corporations, specifically insurance companies. (Laws 1912, Chapter 48). The Legislature continued to grant the Corporation Commission authority over regulation of insurance, making its authority stronger and more comprehensive. 

In 1954 the Legislature enacted a state insurance code, which revised and codified all the state insurance laws in place at that time.  The law also repealed prior versions of state insurance laws which had been adopted since 1913.  The “Arizona Insurance Code” regulated insurance companies, the insurance business, the sale and solicitation of insurance, and prescribed penalties.  The Insurance Code also levied taxes and provided for their disposition.  (Laws 1954, Chapter 64, effective January 1, 1955).  In addition, the law provided for a Director of Insurance, who was appointed by the Arizona Corporation Commission.

In 1962, the responsibilities of the Director of Insurance were expanded.  Laws 1962, Chapter 133 created the office of Commissioner of Public Building Safety, designating the Director of Insurance as the administrator with authority to enforce fire prevention and fire safety laws of the state and ordinances of cities and counties.  This responsibility remained with the Director of Insurance until 1972 when the office of Commissioner of Public Building Safety was abolished, and the Office of Fire Marshal was established within the Industrial Commission.   See Laws 1972, Chapter 61.  Note: A history of the Department of Fire, Building and Life Safety Department of Fire, Building and Life Safety is included as a separate entry in this collection.

The Department of Insurance was created as a separate agency in 1968 (Laws 1968, Chapter 197).   In order to create the Department, a constitutional amendment was necessary because the Department would assume authority for licensing, control and supervision of domestic and foreign insurers, a power that had been solely the jurisdiction of the Corporation Commission. Proposition 106, amending Article 15 of the state Constitution, was approved by voters in the general election of November 1968.  It transferred the authority to regulate insurance companies from the Corporation Commission (by modifying the first paragraph of Section 5) to the Department of Insurance (by adding the second paragraph to Section 5).  The second paragraph also authorized establishment of the Department of Insurance and required the Governor to appoint the department director.

Laws 2017, Chapter 190 created a dispute resolution process to address surprise out-of-network bills and required the Department to develop an arbitration procedure to resolve disputes.  A “surprise out-of-network bill” is a bill for a health care service that was provided in a network facility by a health care provider that is not a contracted provider and that meets one of the criteria listed in statute.  Various changes were made the following year to the statutory provisions adopted in 2017 (See Laws 2018, Chapter 272).  The measures became effective on January 1, 2019.

Laws 2018, Chapter 32 modified the qualifications to serve as director of the Department by removing the state residency requirement. 

Laws 2018, Chapter 64 expanded the Arizona Life and Disability Insurance Guaranty Fund membership and coverage to include healthcare services organizations (also known as health maintenance organizations or HMOs).  The measure also increased the number of members on the Life and Disability Guaranty Fund Board from nine to eleven. 

Laws 2019, Chapter 252 combined the Department of Insurance, the Arizona Department of Financial Institutions (AZDFI), and the Automobile Theft Authority (ATA) into a single agency.  The new agency, the Department of Insurance and Financial Institutions (DIFI) succeeds to the authority, powers, duties, and responsibilities of the AZDFI and the ATA.  The measure establishes the Financial Institutions Division and the Automobile Theft Authority within DIFI, effective July 1, 2020.  All administrative matters, contracts, judicial actions, equipment, records, furnishings, other property, data and investigative findings transfer to the DIFI. In addition, all certificates, licenses, registrations, and permits retain their validity for the duration of the terms when issued.  All appropriated monies that remain unexpended and unencumbered on July 1, 2020 transfer as well.  Conforming legislation will be prepared by the Arizona Legislative Council staff for consideration by the Fifty-fifth Legislature, First Regular Session (2021).

In addition to the reorganization language described above, several additional measures were enacted in 2019 relating to Department authority:

Laws 2019, Chapter 11 authorizes the Director to act as, or appoint another regulatory official as the group-wide supervisor for an internationally active insurance group and requires the Director to adopt administrative rules related to this authority.

Laws 2019, Chapter 180 outlines administrative and regulatory responsibilities relating to corporate governance annual disclosure.

Not later than January 1, 2020, the Department must post information on its website summarizing applicable state law and other information related to association health plans. The Department is authorized to survey insurers in order to determine the number of health benefit plans issued to bona fide associations each year.  See Laws 2019, Chapter 194. 

Laws 2019, Chapter 223 requires the Department to adopt rules, by August 2020, relating to the National Association of Insurance Commissioners annuity disclosure model regulation and illustration requirements.

Several measures related to DIFI were enacted in 2020.  Descriptions follow.

Since the Department of Insurance was established as a separate agency in 1968 it periodically has undergone sunset review. In 2010 it was continued for ten years, pursuant to Laws 2010, Chapter 13. Laws 2019, chapter 252 combined the Department of Insurance with the Arizona Department of Financial Institutions and the Automobile Theft Authority to form the Department of Insurance and Financial Institutions (DIFI).

In 2020, the Department of Insurance was continued for five years, based on a recommendation by the Senate Finance Committee of Reference (COR) at a public meeting in December 2019.  DIFI terminates on July 1, 2025, unless continued by the Legislature.  See Laws 2020, Chapter 38.

Laws 2020, Chapter 4 outlines Department oversight responsibilities for programs related to mental health or substance abuse disorders and authorizes DIFI to enforce requirements and prohibitions related to benefits.  Requires DIFI to develop a webpage providing information related to the federal Mental Health Parity and Addiction Equity Act (MHPAEA); conduct workshops and stakeholder sessions to obtain input; adopt administrative rules related to MHPAEA and include related information in its annual report.

An omnibus measure enacted in 2020 made numerous conforming changes and incorporated recommendations from the Auditor General performance audit. The measure addressed accountability for fees related to market conduct exams, provided an opportunity to review sanctions, and established a line item to fund fraud investigations. The measure also repealed the Insurance Consumer Advisory Board, the Uniform Employee Health Status Questionnaire Committee, and the Continuing Education Review Committee. See Laws 2020, Chapter 37.

A third measure enacted in 2020 modified licensing requirements related to exams and continuing education requirements.  See Laws 2020, Chapter 67.

A fourth measure enacted in 2020 modified duties and responsibilities of an insurer who recommends an annuity to a consumer and outlined DIFI Director enforcement authority.  See Laws 2020, Chapter 90.

As required by enactments in 2019 and 2020 that reorganized the agency, Legislative Council staff prepared conforming legislation for consideration during the 2021 regular legislative session. Laws 2021, Chapter 356 is a lengthy measure containing conforming changes and other provisions related to DIFI.

Several other measures related to DIFI were enacted in 2021.

Laws 2021, Chapter 320 requires health insurers to cover telehealth procedures and outlines related responsibilities for several state agencies, including DIFI. The measure requires DIFI to provide a report by March 2023 to the Legislature containing the number of telehealth encounters, the number of audio-only telehealth encounters billed to healthcare insurers, the types of services provided, and the differential in payment between audio-only, in-person care or audio-visual telehealth encounters.

Laws 2021, Chapter 409 requires DIFI to prepare an annual report on the medical loss ratio for each dental insurer conducting business in the state, using specified data. The calculated medical loss ratio must be posted on the DIFI website by March 31 of each year.

Laws 2021, Chapter 430 established the affordable housing tax credit, administered by the Department of Housing (DOH), to increase the number of affordable housing units in the state. The measure requires DIFI and the Department of Revenue to work with DOH to implement the program, to develop administrative rules, and to publish forms and procedures.

Laws 2023, Chapter 74 requires pharmacy benefit managers to obtain a certificate of authority from DIFI to operate in the state. The measure outlines the application process, defines the role and responsibilities of the Department, and contains an effective date of January 1, 2025.

Sources

Arizona State Constitution, Article 15, Section 5
Arizona Revised Statutes §§20-101 et seq.
Arizona Administrative Code
Session Laws
- Laws 1912, Chapter 48 and Chapter 90
- Laws 1954, Chapter 64
- Laws 1962, Chapter 133
- Laws 1968, Chapter 197
- Laws 1972, Chapter 61
- Laws 2010, Chapter 13
- Laws 2017, Chapter 190
- Laws 2018, Chapter 32, Chapter 64, and Chapter 272
- Laws 2019, Chapter 11, Chapter 180, Chapter 194, Chapter 223 and Chapter 252
- Laws 2020, Chapter 4, Chapter 37, Chapter 38, Chapter 67 and Chapter 90
- Laws 2021, Chapter 320, Chapter 356, Chapter 409 and Chapter 430
- Laws 2023, Chapter 74