Keeping Your Agents In Line: A Checklist of Insurance Compliance Responsibilities

Executive summary

No matter how long you’ve been in the industry, keeping every downstream agent properly licensed to sell at all times isn’t a walk in the park. From recruiting to termination, insurance compliance and operations teams have their hands full. This guide will outline the duties and responsibilities of both agency and carrier compliance teams, 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 your partners
• Collecting key agent data
• Background checks
• License verification
• Maintaining contracts
• Reporting affiliations or appointments
• Continuing education and training requirements
• Renewing licenses and appointments
• Protecting personally identifying information
• Terminations

Checklist for Agent Compliance Management

As the current aging agent workforce evolves into one dominated by Gen-X and millennials, agents and distributors 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.

Modern insurance infrastructure does far more than allow you to verify your basic agent compliance – it can turn your compliance data into insights on your sales coverage, areas of cost savings and efficiency, and even competitive intelligence. 

But the core of maintaining compliance will always be about avoiding risk: the risk of regulatory penalties, the risk of lost partnerships, the risk of reputational harm, the risk of commission clawbacks, and the risk of having to pause or even retract business thanks to noncompliance. By remembering the basics of agent compliance throughout your distribution lifecycle, you can reduce the risks to your core business.

Onboarding your partners

Whether you’re an agency bringing on a single agent or a carrier forming a whole distribution channel, onboarding is a crucial time for containing risk and snuffing out threats before they become an issue.

Most states’ rules stipulate that businesses 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. For carriers, this will also be the time to collect data on potential agency partners’ designated responsible licensed producer(s).

For commission payments, you’ll also need to collect your distribution partners’ 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 carriers, this may be more complex depending on how they handle payments and commission splits between their downstream distribution partners.

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:

• Errors & Omissions basics
• Using tech to reduce E&O threats
• Reasons producers lose their licenses

Background checks

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.

State departments send regulatory actions through the NAIC’s Regulatory Information Retrieval System (RIRS). This gives state regulators, carriers, and agencies access to regulatory actions. And producers are required by law to self-report criminal convictions by uploading relevant information in the National Insurance Producer Registry (NIPR) Document Warehouse. However, producers aren’t always thorough in their self-disclosure, which can present an obstacle for agencies.

Background checks remain 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

License verification

Carriers and agencies often collect the National Producer Numbers (NPNs) for their downstream distributors, which is certainly a starting point for license verification. But your obligations for license verification go beyond the point of onboarding – state laws stipulate that the carrier and distribution partners must ensure everyone involved is properly licensed at every point of the sale. 

From quote to commission, knowing your downstream agents are in full compliance can prevent the headaches of delayed business submissions and pending commissions. 

For agencies like FMOs, IMOs, BGAs, and others in the sales pipeline, if your business model depends on providing a level of white-glove service for your agents, you may also need options that help agents obtain licenses. From submitting new resident license applications to obtaining corresponding nonresident licenses in their assigned sales territories, agencies that provide this help can reduce churn and maintain their agents far better than the competition.

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 and allows you to help agents apply for new resident and nonresident licenses.

More from AgentSync:

• Defining Insurance Producer Management
• Producer License Verification
• Manual Producer Licensing
• Compliance Library

Maintaining contracts

Whether the agent holds a contract directly with a carrier or through a distributor, 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.

Reporting affiliations or appointments

Agencies are to affiliations as carriers are to appointments. Not all states require an agency to report its affiliated agents to the state, and not all states require carriers to appoint their downstream agencies or agents. 

Yet, for those states that do require these designations, it pays to understand not only how the rules apply to your particular business structure, but also how they apply to your up- or downstream partners.

Perhaps a state only requires agencies to affiliate their DRLP. Or perhaps a state allows a carrier appointment to cover all of an agency’s affiliated agents and it behooves this partnership for the agency to affiliate every single agent. 

More from AgentSync:

• Taking Advantage of Just-In-Time Carrier Appointments
• Agency Affiliations and DRLPs

Continuing education and training requirements

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, nonresident licenses rely on maintaining a valid resident license, which relies on meeting CE requirements. And let’s not forget that some states make carriers responsible for tracking and ensuring agents have mandatory training for specific business lines.

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 nonresident CE requirements beyond staying compliant in their resident states, there are plenty of exceptions to the rule.

Protip: Many tech providers now have ways to track CE and training requirements 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:

• Compliance Library
• Continuing education by state

Renewing licenses and appointments

If you’re an agency, you likely take a role in making sure agents renew their licenses in a timely manner. This may require them to track CE and keep up with various state renewal deadlines. After all, many states have very different deadlines for renewals. 

Carriers’ duties to renew appointments may be somewhat more straightforward because, in most states, appointment renewal deadlines for all agents are at the same time. While this means carriers avoid having to chase down individual agents at random dates throughout the year, it also means they have a single months-long span to clean up their data and ensure their appointments are accurate since they have to pay thousands of dollars for their appointments all in one go at renewal time.

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

Terminations

Agents have many reasons for ending carrier or agency relationships, including retirement, career changes, moving business to a new agency, changing business structure, or regulatory shenanigans. Yet, regardless of the reason, a business entity or carrier typically must inform the agent in writing that their contract is terminated.

Carriers and agencies also must inform any up- or downstream partners of their terminated agreements. If a contract termination is thanks to agent malfeasance, the agency or carrier also must informing the state about the agent’s actions and report any evidence of wrongdoing.

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.

Additionally, if your state requires agencies to report affiliations or requires carriers to report appointments, you’ll also have to officially terminate your affiliated or appointed agents at the state level.

Don’t rely on bad compliance assumptions

Staying on top of the entire agent management lifecycle requires an intensive knowledge base. Unfortunately, a few assumptions keep agencies from handling this successfully:

Bad assumptions

1. Following one state’s rules is more or less following all states’ rules
2. Compliance always comes at the expense of growth
3. 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 research paper 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 Solutions page or schedule your own demo.

Assessing your business’s compliance

If you’re still thinking, take this short quiz to help evaluate your own licensing and compliance status:

1. 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 have ample access to solutions that can educate them? Yes/No
2. Do you have a technology or database that keeps track of this information in real time? Yes/No
3. Can your compliance staffers take vacation as needed, or leave for family emergencies for prolonged periods, without your system breaking down? Yes/No
4. Do you have visibility into your internal onboarding and compliance processes and where each downstream agent is in the process? Yes/No
5. 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!