The Importance of Compliance Checks Throughout Your Producer Lifecycle
May 2, 2022
Given the complexity of insurance producer licensing, it’s no surprise there are near-infinite ways an insurance producer can fall out of compliance. Since insurance regulations vary across the 50 U.S. states, the District of Columbia, and five U.S. territories, and are ever-changing, it becomes vital to keep tabs on producer compliance at all times – not just once, or even annually. If continuous compliance checks sound great, but cumbersome, the right tech can make them easier than you think.
When should you care about producer compliance?
When we talk about the importance of making sure insurance producers are in compliance with all applicable state and federal laws, and the consequences of them not being so, it’s easy to think about this compliance check as “one and done.”
For example, if you’re an agency that’s onboarding a new producer, you obviously need to make sure that producer is fully compliant before they sell their first policy. Alternately, license renewal time is another time when checking compliance status typically gets some attention.
The truth is, compliance never sleeps. Neither should your commitment to checking every aspect of your producers’ status to ensure no one is selling, soliciting, or negotiating insurance without being fully compliant with the state and federal laws that apply to them.
Ignoring, forgetting about, or just overlooking producer compliance can have negative consequences at many different points across your business, and can impact you regardless of your role in the distribution channel.
Whether you’re an agency, carrier, or MGA/MGU, there are numerous times you may find it particularly important to check the compliance status of any producers in your downstream channel. A few of the most noteworthy include:
Checking producer compliance during pre-onboarding
There’s no shortage of things to do and documents to collect when you’re onboarding a new producer. From proof of E&O insurance to state insurance licenses to tax information (and much more), it can be a fulltime job just to make sure each producer has the most current and valid version of every necessary document.
For larger agencies, the struggle is real. Even more so for agencies and MGAs with highly seasonal onboarding cycles, where bringing on hundreds or thousands of new producers at a time is a regular occurrence. If your pre-onboarding and producer onboarding process relies on manual document collection, verification, and management, we can nearly guarantee it’s prone to human error and takes more time and resources than it needs to.
Checking producer compliance during policy administration
The activities of insurance policy administration (rating, quoting, binding coverage, adding policy endorsements, etc.) are so commonplace that they’re literally happening every minute of the day across every insurance agency, brokerage, and carrier in the U.S.
In theory, they shouldn’t be happening at all if the producer working on them has any gaps in their compliance – for example, a slightly expired state license or a missing carrier appointment. But keeping up with those things in real-time is practically impossible for most agencies and carriers. Even though it would be wise to check producer compliance throughout the policy admin process to ensure no policy is being touched by a producer who isn’t 100 percent in compliance with all regulations, it isn’t realistic without an army of administrative employees. Are you starting to see a trend?
Checking producer compliance during quoting
Getting insurance quotes for customers is one of an insurance producer’s top priorities. After all, without providing quotes, there would be no sales. Investopedia recommends consumers get at least five quotes before making an insurance purchasing decision, so it’s no wonder insurance producers spend a significant amount of time quoting coverage.
Given how prevalent quoting is to the daily running of the insurance industry, it’s highly likely that a percentage of producers providing insurance quotes to consumers should actually not be doing so. From something as small as a missed renewal deadline to something more nefarious like a recent criminal conviction, if no one is checking all aspects of producer compliance at this vital step, it opens the door for serious violations.
Checking producer compliance during underwriting
Underwriting is, by definition, an insurance carrier function and responsibility, right? Still, if an insurance carrier (or MGA if they’ve taken on underwriting functions) writes a policy that was solicited, sold, or negotiated by a producer who wasn’t authorized to perform those duties, they can be left holding the bag. Remember, the golden rule of insurance compliance is simply whether someone knew or should have known a compliance violation was occurring.
You might argue that there’s no way a carrier or MGA could have known a producer was out of compliance. But if they aren’t performing a check at the crucial underwriting stage, then it’s more akin to turning the other way than to performing a good faith effort and missing the mark.
Checking producer compliance during commission payouts
In the world of an insurance carrier, paying a commission to an unlicensed or improperly licensed insurance producer is considered a serious misstep. There may be remedies for other things that happen up to the point of commission payouts, but once it’s done – like a handshake between the insurer and producer – the deal is sealed. If it turns out that the producer who got paid shouldn’t have been selling business on behalf of the carrier at all…well, the states have something to say about that.
Consequences can range from monetary fines, to losing the sold business, to having to refund premiums to any consumers who purchased policies from the unlicensed producer. A state could even use these instances as evidence of systemic negligence on the part of the carrier in bigger court cases. On top of any penalties or consequences, the carrier can’t revoke the commission from the producer, so it’s truly their loss. So, it should be a top priority for carriers to conduct compliance checks, if at no other point in time, before they cut any commission checks.
How to add compliance checks at each point in the producer lifecycle
This handful of points in time aren’t the end-all-be-all of instances when compliance matters, but they’re certainly more than many insurance carriers and agencies are performing currently. If you’ve read this far, you’ve probably started to ask yourself how you can, or should, be checking in on the compliance of producers at these (or any other) stages of the producer lifecycle.
We’re so glad you asked!
While you certainly can complete compliance checks manually, this isn’t something anyone likes to do and we don’t recommend it. In case you’re wondering though, you could check the license status of a producer at any point in time by:
- Searching through the National Insurance Producer Registry (NIPR) to obtain the producer’s National Producer Number (NPN) if you don’t already have it handy.
- Having someone on your team enter individual NPNs into the NIPR portal or state-level database to check for each producer and states of their clients (or have the producer submit a paper copy of their license). Don’t forget! This also comes with its own per-NPN fee.
- Cross-referencing any internal documents or systems to see if a producer’s license is soon to be up for renewal. If so, this starts a whole other manual workflow.
- Checking your internal knowledge base and calendar of what states appoint when and based on what requirements. If the producer needs an appointment, you better get on that (including submitting appointments to each state, paying fees, and updating your list). Don’t forget about Just-In-Time appointments here, just in case the producer has already started selling.
- Tracking the status of the producer’s continuing education credits to see if any are needed in any of the states the producer is selling business in at this moment in time.
- Plus, a number of other time-consuming and costly things if you run into a producer with anything but a perfect licensing, continuing education, appointment, etc. record.
- Plus, plus, multiply all these steps times however many producers are active on a daily basis.
P.S. – If you choose to perform these periodic compliance checks manually, they’ll be outdated nearly as soon as you’ve done them. Just saying…
What if you’d rather not do manual compliance checks?
We’ve got great news! You don’t have to. AgentSync takes everything we’ve mentioned above and makes it as simple as a few clicks. You can check the status of each producer’s compliance at any time and instantly pinpoint any compliance gaps. Not only that, but you can fix them from within AgentSync, without going to NIPR or state websites.
If adding real-time, automated, ongoing compliance checks into your producer management workflow sounds good, see how AgentSync can help.