Final answer:
Laws preventing individuals with a felony involving dishonesty from transacting insurance without consent protect against moral hazard. States implement these to maintain trust and reduce risks in the insurance industry. A known federal example is the Section 1033 waiver in the Violent Crime Control and Law Enforcement Act of 1994.
Step-by-step explanation:
The law that prohibits individuals from transacting insurance without written consent from the governing authorities if they have been convicted of a felony involving dishonesty is typically referred to as an anti-fraud or licensing statute within the insurance industry. Such laws are enacted to prevent moral hazard, which arises in insurance markets because people who are insured have less incentive to avoid risks. Those convicted of felonies tied to dishonesty, like fraud are seen as higher risks in financial transactions including the selling of insurance products.
Therefore, various states have regulations that require criminal background checks for insurance agents and deny licensure to those with certain criminal convictions unless they obtain special permission. For example the Section 1033 waiver under the Violent Crime Control and Law Enforcement Act of 1994 prohibits individuals from engaging in the business of insurance after being convicted of a state or federal felony involving dishonesty unless they have received written consent from insurance regulators.