14 Compliance Risks That Can Cost Providers Their Insurance License

Article key points

• An agent’s insurance license can be suspended or revoked for various reasons, including providing false information, violating insurance laws, committing fraud, or having a felony conviction.
• Some states consider DUI/DWI convictions as felonies which may impact an insurance license, while others have specific regulations and requirements for such cases.
• Failing to pay state income tax or comply with child support obligations can also jeopardize your insurance license in many states.
• Reinstating a revoked license depends on the reason for revocation and may involve a written request, additional information, and, in some cases, a new licensing exam.
• Insurance producers must operate in good faith and comply with all applicable laws and regulations to maintain their licenses and protect both their own integrity and the integrity of the insurance industry.

Termination of insurance-related licenses – the subject matter is a bit awkward and sure to raise eyebrows as a topic of discourse at cTerminated insurance licenses—the subject matter is awkward, alarming, and sure to cause raised eyebrows and uncomfortable shuffling if brought up at a company party. But the reality is some insurance agents will leave the industry every year, and not all of them willingly. To help mitigate your own compliance risk and keep your insurance license in good order, it’s important to understand the rules.ompany parties. But the reality is some portion of insurance agents will leave the industry every year, and not all of them for sunshiney reasons.

What could cause me to lose my insurance license?

States used to have a variety of ever-changing regulations about what did or didn’t constitute a reason for terminating an insurance producer license. To address this, when the National Association of Insurance Commissioners (NAIC) issued its Producer Licensing Model Act in 2005, Section 12 specifically set out to give states a more standardized way of approaching license termination.

Only 10 states and three territories have not adopted the NAIC Producer Licensing Model Act (PLMA) in some fashion, so while you should be sure to understand the particular and unique regulations that apply to you and your associated agents in all states of operation, this should give you some general understanding of the insurance compliance rules that apply in most of the country.

Who’s responsible for suspending or revoking an insurance agent’s license?

An agent’s license can be suspended or revoked by a state insurance commissioner or a court judge. Section 12 of the NAIC’s Producer Licensing Model Act lays out 14 reasons a state’s insurance commissioner “may place on probation, suspend, revoke or refuse to issue or renew an insurance producer’s license or may levy a civil penalty…or any combination of actions.”

NAIC’s 14 insurance compliance violations that cause license denial, nonrenewal, or revocation

Read through the following – generally, the guidelines are self-explanatory, but we’ll call out a few that stand out:

1. Providing incorrect, misleading, incomplete or materially untrue information in the license application; 
2. Violating any insurance laws, or violating any regulation, subpoena or order of the insurance commissioner or of another state’s insurance commissioner; 
3. Obtaining or attempting to obtain a license through misrepresentation or fraud; 
4. Improperly withholding, misappropriating or converting any monies or properties received in the course of doing insurance business; 
5. Intentionally misrepresenting the terms of an actual or proposed insurance contract or application for insurance; 
6. Having been convicted of a felony; 
7. Having admitted or been found to have committed any insurance unfair trade practice or fraud; 
8. Using fraudulent, coercive, or dishonest practices, or demonstrating incompetence, untrustworthiness or financial irresponsibility in the conduct of business in this state or elsewhere; 
9. Having an insurance producer license, or its equivalent, denied, suspended or revoked in any other state, province, district or territory; 
10. Forging another’s name to an application for insurance or to any document related to an insurance transaction; 
11. Improperly using notes or any other reference material to complete an examination for an insurance license; 
12. Knowingly accepting insurance business from an individual who is not licensed; 
13. Failing to comply with an administrative or court order imposing a child support obligation; or 
14. Failing to pay state income tax or comply with any administrative or court order directing payment of state income tax.

Most of the rules in the Producer Licensing Model Act amount to common sense and decency—don’t lie, cheat, or steal, don’t coerce or confuse, don’t get in trouble in one state and then just try to move, etc. However, a few bear further explanation. 

For instance, rules No. 1 and No. 3 seem to more or less say the same thing at first blush. But No. 1 seems to cover mischaracterizations such as “lies of omission.” This could include instances where you have something – perhaps an arrest record, or a prior slap on the wrist in a different state – that you don’t quite know whether to include an explanation for on your application. You could be unsure, or even just forgetful. Even so, submitting an incomplete or not-entirely-factual application could mean having the state deny you a license. 

Rule No. 3, however, deals with full-on fraud and an element of “intentionality.” While No. 1 could mean having your license suspended, revoked, non-renewed, or denied because of a mistake, No. 3 addresses the fact that some people meant to lie and meant to deceive the state in their application. It’s not surprising that a state would revoke an insurance license after learning it was obtained under less-than-honest means. 

Surprising reasons insurance agents lose their licenses

With the Producer Licensing Model Act, many of the ways to lose your license are clear: Tricking people into buying insurance or taking their money and using it for your own business or filling your own pockets instead of paying it to the insurance carrier are pretty visibly wrong. But it may surprise you to know that in many states, the status of your income taxes or child support could also jeopardize your license. 

Additionally, rule No. 6, which may seem relatively straightforward in comparison to others (“having been convicted of a felony”), has a wide number of variations in the states.

Can you lose your insurance license because of a DUI?

It depends on the state. One particular point of disagreement among the states is how to handle felony convictions for driving under the influence (DUI) or its close relative, driving while intoxicated (DWI). In all states, third offenses for DUI reach the level of felony. Some states, however, exempt this particular felony from consideration in the status of insurance licenses. On the other hand, some states implement extended waiting periods or require explanations and proof that you’re working to change your habits when it comes to DUI and DWI convictions. Additionally, while the model legislation calls out felony convictions, often carriers or states require explanations for arrests or charges, even if they didn’t end in a conviction.

As we said earlier, not all states follow the NAIC’s rules to a tee, and even those that do have variations. So, the way a state like California—which is notorious for its heavy regulations—handles license violations will certainly differ from a state such as Kansas, which often takes a looser approach (although Kansas itself adds three more provisions to the 14 outlined in the NAIC’s model legislation).

Is selling insurance without a license a felony?

It’s certainly illegal to sell insurance without a license in all 50 U.S. states, and in all U.S. territories. Whether it would be considered a felony will depend on the laws of each specific state or territory. Moreover, the crime of selling insurance without a license will almost always prevent you from becoming licensed in the future, as most states prohibit those with criminal backgrounds specifically relating to insurance fraud from obtaining licenses.  

Why does this matter for agencies, carriers, and MGAs?

Regardless of whether the rules are clear and easy to understand or difficult to comprehend, agents, brokers, producers, agencies, MGAs, and carriers want to be sure everyone in their distribution pipeline is operating in good faith and in compliance with all applicable laws and regulations. The aphorism “one bad apple can spoil the whole bunch” is super-appropriate as it pertains to insurance; one person acting outside the law can have far-reaching consequences.

How can I reduce my insurance compliance risk for my business?

Modern insurance infrastructure and distribution channel management solutions like AgentSync help agencies and carriers avoid the risk of producers acting outside of the law by:

• Integrating with background check providers to flag risks at onboarding
• Drawing in regulatory data via NIPR so you can see reports on fines, suspensions, and other license actions that states have taken both historically and as they happen
• Turning on automations that validate licenses and appointments are in good order at every point during a sale from call to commission

Managing producer compliance across agencies, carriers, and MGAs is complex—but the right tools can make it more manageable. If you are ready to see how modern compliance software can help you stay audit-ready and reduce your own regulatory risk, watch a demo and contact us today.