States require individuals to take specific exams to earn the ability to sell their insurance products. But, we live in a dynamic world and the list of available insurance products is large and ever-increasing. If a producer was subject to individual exams for each product they wanted to sell, they’d probably spend more time studying and sitting in exams than actually selling insurance.
To avoid this fate and simplify the producer licensing process, the states group similar insurance products together under different lines of authority (LOAs). This way, instead of studying and taking an exam for each different product, producers can take one exam to earn a license to sell a group of similar insurance products.
Lines of authority are not insurance products themselves. They are groups of products that fall under a similar subject area. While LOAs vary by state, there are 6 major lines that form the backbone of the insurance industry.
What are the 6 major lines of authority in insurance?
- Life – Insurance coverage on human lives, including benefits of endowments and annuities, benefits for disability income, and death benefits. Life insurance products can include permanent life insurance, temporary life insurance, group life insurance, and universal life insurance.
- Accident and health or sickness – Insurance coverage for sickness, bodily injury or accidental death, which may include benefits for disability income.
- Property – Insurance coverage that provides protection for any direct or consequential property loss or damage. Insurance products often included under the property LOA include general liability insurance, commercial property insurance, and earthquake insurance.
- Casualty – Insurance coverage for individuals and businesses for losses resulting from legal liability including death, injury, disability, or property damage. This LOA typically includes products like workers compensation insurance, liability insurance, theft insurance, and auto insurance.
- Variable Life and Variable Annuity Products – Insurance coverage provided under variable life insurance contracts and variable annuities.
- Personal lines – Insurance coverage for individuals and families for losses resulting from death, injury, or property damage. Personal lines generally includes products such as homeowners insurance*, personal earthquake insurance, renters insurance, auto insurance, umbrella insurance, and health insurance
*It is worth noting that some products, like homeowners insurance, can fall under either personal or property lines depending on the state.
Adding a line of authority
When it comes to application fees, states typically charge by application rather than by LOA. Because of this, some producers choose to apply for licensure for multiple (or all) lines of authority during their initial application. However, as a best practice, the ULS recommends each state offer individual examinations for each major line of authority . That way a producer is still able to add additional LOAs later on. They will have to pay another application fee, though.
Variable life and variable annuities have more complex licensing requirements
For a producer to sell variable life and variable annuity products, they must first hold a life insurance LOA. But, because these products are more heavily regulated, licensing gets a little more complicated. A producer wishing to sell variable life and variable annuity products must also obtain the proper securities registration with the Financial Industry Regulatory Authority, or FINRA. This means studying for and passing specific Series exams depending on which variable products they plan to sell and which exams their resident state requires.
How do major lines of authority differ between states?
Producer licensing standards and guidelines like the ULS specify that the states’ definitions of each major LOA should remain relatively consistent with those set forth by the NAIC. Because of this, most states have pretty similar definitions of each LOA. However, while the definitions remain constant, the way each state’s department of insurance chooses to group the various lines can differ.
For example, some states offer property and casualty as separate LOAs, while others choose to bundle them into a single line. A small number of states even throw personal lines into the P&C mix, but for many it remains its own LOA. And it’s not just those three; different combinations exist for each of the six major lines depending on how each state chooses to group them.
Limited lines have more variance
Of course, there are plenty of insurance products that exist outside of the six major LOAs. These products make up various limited lines. There are over 50 different limited lines available across the U.S., which encompass a wide variety of insurance products from pet insurance to travel insurance to bail bond insurance. As a best practice, the ULS put a cap on the number of limited lines a state can offer. States can offer up to nine limited lines, including the four core limited lines of car rental insurance, credit insurance, crop insurance, and travel insurance.
Not only do states vary when it comes to which limited lines they offer, but there are also wide discrepancies between states in limited lines licensing requirements, even for lines covering the same type of insurance. For example, when it comes to rental car limited lines licenses, some states require only the rental car company to obtain a limited lines license, some require the company along with one (or all) employees to have one, and others even require the company to appoint a designated producer with a limited lines license.
Keeping track of producer licensing compliance
Generally speaking, LOAs make producers’ lives simpler by allowing them to get the licenses they need to sell the products they want without having to take multiple exams. But, it can also bring about more complex compliance issues.
The law requires individuals and entities to hold the appropriate lines for the products they sell. Differences in definitions and licensing requirements can lead to confusion that could leave a producer selling insurance products they are not actually licensed for. Is auto insurance a personal line of authority in this state? Or does it fall under a personal line of business as part of a property and casualty line of authority? These kinds of questions can get sticky from state to state.
Managing state differences in regulatory requirements for producer licensing is tedious work, especially when done by hand. AgentSync’s solutions help take the load off for carriers, agencies, and MGAs/MGUs who are ready to take complexity out of their compliance.