No matter how long you’ve been in the industry, keeping every agent on your sales team properly licensed to sell at all times isn’t a walk in the park. From recruiting to termination, compliance and operations teams have their hands full. This guide will outline the duties and responsibilities of your compliance team, spot potential pitfalls, and give tips to help your team work more efficiently and lower their risks.
Thanks to a compliance checklist for the agent lifecycle and a self-assessment of your current practices at the end, readers with all degrees of compliance knowledge will walk away with a better understanding of the possible strengths and weaknesses of their compliance practices.
Table of Contents
- Onboarding agents
- Collecting key agent data
- Background checks
- Reporting affiliations
- Maintaining contracts
- License verification
- Applying for non-resident licenses
- Renewing licenses
- Protecting personally identifying information
Checklist for Agent Compliance Management
|Collect basic agent data Name, NPN, etc.Proof of E&O policyW-9 or applicable tax form|
|Get a current agent agreement signed with the carrier|
|Report an affiliation to relevant states|
|Verify agent firm and individual state licenses|
|Ongoing agent management duties|
|Maintain current copies of agent agreement|
|Track continuing education and product training|
|Data protection and digital due diligence|
|Relationship termination duties|
|Notify the agent in writing of your intent to terminate your agreement and appointment|
|Notify the carrier|
|Notify the state to end the affiliation, if necessary|
Agent (also called producer) relationships are paramount for business entities like FMOs, IMOs, BGAs, and other agency firms – maintaining happy agents and being easy to work with is the basis of an agency’s business. Without an ample agent force, favorable carrier contracts are harder to come by, and without favorable contracts, it’s even harder to recruit agents.
To maintain (or increase) your agent force moving forward, it’s imperative that you take the sting out of the unattractive pieces of agent management – the compliance, the paperwork. After all, the industry is set to lose one out of every five agents in the next decade.
If agents are such a big part of the future, why does agent compliance – you know, the basics of onboarding these folks and keeping their information up-to-date – barely get an honorable mention in agency budgets?
Sure, sometimes it’s because low fines for compliance missteps can be bundled into “the cost of doing business.” And it’s also because, unlike direct-to-consumer models and other tech-driven, disruptive pieces of the business, insurance licensing and compliance isn’t cutting-edge and attractive. Or so you thought!
Since we’re doing some navel-gazing, let’s be clear: Tech is leaving those attitudes in the dust by making it easier than ever to stay up-to-date with agent licensing. Tech is changing regulator expectations. At some point, regulators are bound to notice it’s no longer that hard to stay in compliance, and they could increase penalties to reflect a tech-driven reality. Tech is also changing agent expectations, driving home the importance of having a quick, efficient, and non-irritating experience.
As the current aging agent workforce evolves into one dominated by Gen-X and millennials, agents increasingly demand digital-first experiences. When you consider the various areas of insurance agent compliance and your current or planned processes to address each key area, keep in mind: Software that takes a compliance-as-a-service approach can automate these data points and reduce your risks while wowing your agents.
Onboarding a single agent (or a group of agents) is a crucial time for containing risk and snuffing out threats before they become an issue.
Most states’ rules stipulate that insurance agencies do some due diligence regarding:
- Background check for known regulatory or financial malfeasance
- Having a current, verified license
- Maintaining an errors and omissions (E&O) insurance policy
- Collecting tax information for tax reporting (likely through a W-9)
How do you handle these pieces of information today?
Collecting key agent data
Errors and omissions (E&O) policies are standard for professionals providing finance-adjacent guidance. For any independent insurance agent, one of the first orders of business is securing an E&O policy. This policy will cover them in the event of a mistake or error that results in someone not having coverage who otherwise thinks they have it, or even in instances when a licensed agent should have offered coverage to a client and didn’t.
Basic compliance hygiene mandates that insurance agencies have a copy of their agents’ E&O policies. I.e., proof or it didn’t happen. So, if you’re not collecting agents’ E&O policies during onboarding (or, if you’re not doing it 100 percent of the time in a systematic manner) your agency could be open to some E&O risk itself.
Depending on how commission payments are structured, agencies have to collect an agent’s tax information. So, agencies generally collect a standard W-9 or, if the agency will directly employ the agent, an agent will fill out a W-2.
For businesses that collect this information manually, the process often involves chasing agents. And for independent agents, uploading this information over and over across agencies and carriers can be tedious. A manual process of collecting data often misses basic information, such as which fields to fill out, or whether the E&O policy is current. Missing information means going through the process and then having to return to the agent and ask the same questions again.
Protip: Digital transformations in the past few years have enabled portals where agents can upload their own documents. With autofill forms, required fields, and automated alerts for errors when fields don’t match, issues can be flagged early in the process, sometimes even without agency operations staff members ever having to lift a finger.
More from the AgentSync blog:
Many states conduct their own background checks when first licensing agents, complete with fingerprinting and citizenship verification. Yet, by law, due diligence requirements mean carriers and agencies have to conduct background checks on prospective agents, as well.
Most state departments of insurance share a monthly report of agents who’ve violated the law. And several states submit that data to the National Insurance Producer Registry (NIPR). However, this still leaves several holes for agencies that handle this manually.
Background checks are a pain point for two reasons:
1) Repeated requests for fingerprinting and personal information irritate agents, and
2) Having a background check service that isn’t thorough enough is essentially useless.
Protip: This is an area that gets easier with technology. While states may have preferred (or required) vendors for fingerprinting, digital and app-based background checks can make this process easier and more thorough.
More on background checks from the AgentSync blog:
- SILA discussion on background data
- State variations on background checks
- VerifiedFirst integration and partnership with AgentSync
Not all states require an agency to report its affiliated agents to the state. Those that do typically require the agency to treat an affiliation similar to how a carrier treats an appointment. If that’s the case, you need to report the affiliated agent to the state and pay a fee within days of them joining your organization.
Many states allow appointments to cover the agents affiliated to a carrier’s downstream partners. So, understanding state rules for affiliation in your relevant states can help you be a more attractive partner to your upstream carriers and stay compliant.
Whether the agent holds a contract directly with you, or through you with the carrier, maintaining the correct draft of the carrier contract and making sure your agents are operating under the most current version can be difficult.
Ensuring your partners are up-to-date with current contracts is key to keeping your agent onboarding and compliance streamlined. Without updated contracts, the process of paying out claims and doing your due diligence gets dicey.
Protip: Work with carriers that have a track record of staying atop contracting obligations, or that use digital means to keep their contracts current. Chances are, the former will also be the latter.
For FMOs, NMOs, IMOs, BGAs, and other wholesalers and middle-market sales agencies, owning the licensing process for your agents – verification, applications for non-resident licenses, and the various renewals – can be a big selling point.
But licensing isn’t a simple endeavor.
Typically, agents get their first license on their own, easy peasy.
From there, however, there are duties that everyone in the sales channel shares. Agencies looking to wow their agents, maintain relationships with their carrier partners, and prove their value to both should provide licensing checks well beyond onboarding.
Protip: Modern compliance software integrates with the National Insurance Producer Registry to give you a source of truth for agent licensing beyond onboarding. A daily sync can keep data up-to-date throughout the entire agent lifecycle.
More from AgentSync:
- Defining Insurance Producer Management
- Producer License Verification
- Manual Producer Licensing
- Compliance Library
Applying for non-resident licenses
Agents who transact insurance beyond their resident state – those with widespread advertising campaigns, seasonal clients, or clients insuring property in other states – need to get licensed in other states, possibly for multiple LOAs.
But no two states have identical insurance regulations. Fortunately, NIPR makes non-resident licensing fairly simple. Unfortunately, state-specific variations can make it hard to figure out what the reciprocal non-resident license actually is. And what one state considers a line of authority might be considered a different license class in another. So, using NIPR as a launching point and having a staff who understand a variety of state nuances can be instrumental in getting your agents licensed beyond their own states.
Generally, agents are responsible for their own continuing education (CE). Yet, for agencies that renew licenses as a service for their agents, staying atop CE requirements is paramount. And remember, non-resident licenses rely on maintaining a valid resident license, which relies on meeting CE requirements.
With CE coming from insurers, state-sponsored training, industry events, and independent studies, keeping track of an agent’s credits can be difficult. And, although states don’t typically have non-resident CE requirements beyond staying compliant in their resident states, there are plenty of exceptions to the rule.
Renewing licenses isn’t just about CE – states also use their own renewal dates. So, an agent’s non-resident license may renew on a biennial, triennial, or even quadrennial cycle, independent of their resident license.
Protip: Many tech providers now have ways to track CE for relevant agents. Additionally, integration with NIPR makes it easier than ever to renew licenses for an individual or even a group of agents.
More from AgentSync:
A word on ending agent relationships
Agents have many reasons for ending their agency affiliations, including retirement, career changes, moving business to a new agency, changing business structure, or regulatory shenanigans. Yet, regardless of the reason, a business entity must inform the agent in writing that the contract is terminated.
Depending on their contract with any insurance carriers, an agency may also need to inform the carrier. Agent malfeasance also means informing the state about the agent’s actions, in addition to notifying the carrier(s).
Of course, we hope insurance agents act in accordance with laws and ethical standards at all times. But, when they don’t, all parties in their sales channels have a responsibility to act.
Even if the relationship ends amicably, if your agency operates in a state that uses affiliations, be sure to terminate the affiliation at the state level.
Protecting personally identifying information
Thanks to changing federal laws, carriers and other insurance institutions face scrutiny in how they respond to cybercrime. As the industry tries to move into a digital world, this puts special emphasis on business entities’ digital compliance practices.
Even searching for an agent using their national producer number (NPN) falls under the Fair Credit Reporting Act. So, it pays for agencies to be thorough about their procedures for handling sensitive data, including precautions such as:
- Training employees on how to properly handle data
- Investing in two-part verification for digital logins, for both internal and external teams
- Putting data privacy, disclosure, and use stipulations into agent contracts
- Thoroughly examining third-party services and software’s data security practices, including reading SOC reports
- Conducting drills for recognition and response in case of a digital privacy breach
More from AgentSync:
- AgentSync and Why We Built on Salesforce
- Zero-Trust Architecture
- Federal Regulation of Cyberthreats
- Information Security Best Practices in Insurance
Staying on top of the entire agent management lifecycle requires an intensive knowledge base. Unfortunately, a few assumptions keep agencies from handling this successfully:
- Following one state’s rules is more or less following all states’ rules
- Compliance always comes at the expense of growth
- Maintaining manual processes and “the way it’s always been done” doesn’t cost a thing
Likely, if you’ve made it this far in a whitepaper about licensing and compliance, you don’t need to be convinced why those are misplaced assumptions. If you’re ready to learn more about AgentSync, check out our agencies solutions page or schedule your own demo.
If you’re still thinking, take this short quiz to help evaluate your own licensing and compliance status:
- Does someone on your staff know and understand what these regulations are? That includes how they vary in the jurisdictions you do business in. Does your staff at least have ample access to solutions that can educate them? Yes/No
- Do you have a technology or database that keeps track of this information in real time? Yes/No
- Can your compliance staffers take vacation as needed, or leave for family emergencies for prolonged periods, without your system breaking down? Yes/No
- Do you have visibility into your internal onboarding and compliance processes and where each downstream agent is in the process? Yes/No
- Can you say with certainty which agents are due for appointment or license renewals on any given day? Yes/No
If you answered “no” or “I don’t know” to:
0 questions: You must already have AgentSync. What a compliance nerd! We’re so proud.
1 question: Congratulations, you are a Compliance Hero! Not quite perfect, but a cut above the crowd.
2-3 questions: You have some work to do to tighten up the ship, but keep trying!
4-5 questions: Whew. When you’re at the bottom, the silver lining is that there’s nowhere to go but UP!