Having a foundational understanding of key concepts can be the difference between success or failure in any industry. But when it comes to insurance, the basics just never seem so basic.
Our insurance 101 series seeks to address this problem by offering up clear, jargon-free explanations of important insurance topics. And while we’ve previously explored agent license renewals and regulating distribution channels, we’re here to deep dive into lines of authority (LOA).
What’s a Line of Authority (LOA)?
An LOA is a subject area or flavor of insurance that an insurance producer can sell.
If you think about it, there are tons of types of things you can be insured for. Do you own a house? Maybe you have homeowners insurance. Do you live in the United States? Maybe you have health insurance. Have you ever bought a flight? Maybe you’ve purchased travel insurance. With everything from accident insurance to workers comp, insurance coverage – while not quite getting you from A-Z – is fairly all-encompassing.
That makes sense. Insurance products are designed to protect against different types of risk, and there’s a whole lot of risk in this world.
But the types of insurance policies you hold aren’t necessarily LOAs. Instead, many of the different insurance products are bundled together into groups, which we call LOAs. For instance, casualty insurance is an LOA that may include auto insurance, workers comp, liability insurance, and theft insurance.
Why do we need LOAs?
Ultimately, the purpose of LOAs comes down to producer licensing.
Producers need to be properly licensed to sell insurance products. That’s because producers play an important role in advising consumers on which insurance products are best suited to meet their needs. As such, it makes sense that they need to go through rigorous training and exams to prove they know their stuff when it comes to the range of insurance products available in the market.
But licensing requirements vary state by state, and with so many different insurance products available, producers could find themselves studying for training and taking exams till the end of time. That’s why states group similar products together in an effort to consolidate licensing requirements.
Instead of needing to take training and exams for auto, workers comp, liability, and theft, producers can take an all-encompassing casualty insurance training and exam, which covers key concepts for these like-products.
Please note: While this is generally true, there are some specific insurance products that have their own licensing requirements within a given LOA. Flood insurance, for example, is a casualty or personal lines product with very specific certification requirements separate from that of the broader LOA.
What are the major LOAs?
Though there are rather niche LOAs that vary state-by-state, there are a couple of major lines that are the bread and butter of the insurance industry.
There are six major (or general) LOAs as defined by the National Association of Insurance Commissioners (NAIC) in the Uniform Licensing Standards (ULS). The NAIC presents these six LOAs and their definitions as follows:
- Life – Insurance coverage on human lives, including benefits of endowment and annuities, and may include benefits in the event of death or dismemberment by accident and benefits for disability income.
- Accident and health or sickness – Insurance coverage for sickness, bodily injury or accidental death, and may include benefits for disability income.
- Property – Insurance coverage for the direct or consequential loss or damage to property of every kind.
- Casualty – Insurance coverage against legal liability, including that for death, injury or disability, or damage to real or personal property.
- Variable life and variable annuity – Insurance coverage provided under variable life insurance contracts and variable annuities.
- Personal lines – Property/casualty (P/C) insurance coverage sold to individuals and families for primarily noncommercial purposes.
Most states have adopted these definitions of the six LOAs, but some choose to further bundle insurance products. For instance, it isn’t uncommon for property and casualty LOAs to be combined as property and casualty insurance.
What are limited LOAs?
Whereas major line LOAs cover a broad spectrum of standard insurance products, limited lines cover only a specific type of insurance product.
While there are over 50 different types of limited lines licenses offered across the United States, the ULS restricts each state to no more than nine limited lines, of which four must include the following core limited lines:
- Car rental insurance
- Credit insurance
- Crop insurance
- Travel insurance
On top of the core limited lines, states may include non-core limited lines licenses such as title insurance, pet insurance, legal expense insurance, self-storage insurance, funeral or burial insurance, and many, many more.
Since these lines are more narrowly focused, they typically don’t have quite so rigorous training requirements. In some cases, producers who hold a general lines license won’t need additional licensing to sell, solicit, or negotiate a limited lines product. But remember: There isn’t much uniformity between states when it comes to licensing requirements for limited lines. So always be sure to check with your state department of insurance website to confirm compliance.
Knowing the difference between lines of authority, lines of business, and license classes, as well as what states recognize which, can be tedious. See how AgentSync can take off some of the mental load and give your staff more time for memorizing better things.
Does the NAIC have a model act to create uniformity around LOAs?
Yes, the Producer Licensing Model Act #218 establishes uniform definitions regarding LOAs that can be adopted by states.
I’ve seen personal lines licenses listed as both major lines and limited lines, which is it?
A lovely quirk of insurance, personal lines can be treated as both a major line and a limited line. While the NAIC considers personal lines as one of the six major lines, states sometimes treat personal lines as a limited line in terms of licensing requirements.