What NAIC Uniform Licensing Standards Mean for Insurance Producers

The Uniform Licensing Standards, first adopted in the early 2000s, establish an important baseline for states when it comes to producer licensing. These standards assure insurance regulators that each state is applying the same producer licensing standards to its resident applicants. The Producer Licensing Uniformity (D) Working Group has monitored and revised the Uniform Licensing Standards since their adoption to help encourage uniformity among the states. 

History of the NAIC Uniform Licensing Standards

The Gramm-Leach-Bliley Act 

The Uniform Licensing Standards as we know them today stem from the adoption of the Gramm-Leach-Bliley Act (GLBA) of 1999. The GLBA gave states two options for producer licensing requirements. These were: (1) A majority of the states could enact either uniform agent licensure laws or reciprocal laws allowing a producer licensed in one state to be licensed in all other reciprocal states OR (2) the GLBA would form the National Association of Agents and Brokers (NARAB). If formed, NARAB would apply producer requirements such as licensing, appointments, and continuing education on a national basis, rather than a state basis.

Faced with the possibility of NARAB, state regulators and the National Association of Insurance Commissioners (NAIC) chose to seek reciprocity among a majority of the states and subsequently adopted the Producer Licensing Model Act (PLMA). The PLMA provides states with a model for meeting the reciprocity requirements and establishes guidelines for producer licensing.

The Producer Licensing Model Act and the Uniform Licensing Standards go hand in hand

In December 2002, not long after the adoption of the PLMA, the National Association of Insurance Commissioners (NAIC) adopted the Uniform Resident Licensing Standards (URLS). The standards, which established uniformity across the states, assured insurance regulators that each state was adhering to the same producer licensing standards. 

Six years after they were first introduced, The URLS faced revisions ‌and updates based on issues the states identified during a series of producer licensing assessments conducted throughout 2007 and 2008. Since the update incorporated standardization and uniformity for both resident and nonresident licensing, the NAIC ended up dropping “resident” and renaming it the Uniform Licensing Standards (ULS).

The ULS assures regulators that it’s safe to reciprocate licensure between a producer’s resident state and other states by standardizing what’s needed to get a resident license in the first place. They’re intended to work in conjunction with, and clarify the details of, the PLMA provisions. The ULS and PLMA both focus on many of the same broad areas, but the ULS provides more specific detail.

The NAIC and state regulators determined that the ULS required more revisions in 2010 and 2011 to include specific guidelines for limited lines of authority requirements, and again in the fall of 2012 with new language to address testing and examination requirements. The Producer Licensing Uniformity (D) Working Group, which monitors the states’ implementation of the standards, makes updates to the ULS as needed. 

The purpose of Uniform Licensing Standards

Thanks to the McCarran-Ferguson Act of 1945, the insurance industry operates on a state-based regulatory system. While this gives states the freedom and flexibility to implement the regulatory requirements that make the most sense for their residents, it also makes managing state-by-state licensing requirements more complicated. 

To help state insurance departments and their regulated entities remain compliant, the NAIC establishes model laws, best practices, and guidelines, like the ULS, which the states can adopt. The Uniform Licensing Standards include guidelines on a variety of categories specific to producer licensing to help encourage uniformity across the states’ licensing processes. 

A summary of the Uniform Licensing Standards

The Uniform Licensing Standards include the following categories (1) Licensing qualifications standards, (2) Pre-licensing education requirements, (3) Integrity and personal qualifications/background checks, (4) Application for licensure, (5) The appointment process, (6) Continuing education requirements, (7) Limited lines, (8) Surplus lines, (9) Commercial lines multi-state exemption, and (10) Commission sharing. Continue reading for a summary of the guidelines included in each section.

1. Licensing qualifications standards

The first section of the ULS establishes baseline qualifications a producer needs for licensure. This includes age limitations (applicants must be 18 years of age or older) as well as citizenship and education requirements.

2. Pre-licensing education requirements

Some states require producers to complete education requirements before they’re licensed. This section of the ULS dictates states that do require pre-licensing education must require 20 hours for each major line of authority a producer wants. You’ll also find acceptable study methods, verification requirements, and waiver or exemption allowance information in this section.

3. Integrity and personal qualifications/background checks

Section three deals with other pre-licensing requirements including integrity requirements, background checks, and fingerprinting. For integrity and personal qualifications, the ULS references section 12 of the PLMA as a standard minimum. This is also where you’ll find the three step process for conducting state and federal background checks.

4. Application for licensure

In section four you’ll find standards for the states to follow regarding producer license applications and renewals. These standards include states using the most current version of the NAIC application and definitions of major lines of authority that don’t differ too significantly from the major lines of authority defined by the PLMA. There are also guidelines dictating standard license terms, renewals, regulatory enforcement, and fees. 

5. Appointment process standards 

This section of the Uniform License Standards offers guidelines for states that require appointments on the standard appointment and termination process as well as the appointment renewal cycle and subsequent fees.

6. Continuing education requirements

Each state requires its licensed producers to complete continuing education (CE) credits to keep their license valid. Section 6 of the ULS lays out the standard CE requirements as 24 hours of CE for all major LOAs with three of those hours dedicated to ethics. This section also covers when CE is due, acceptable study methods, and the verification process.

7. Limited lines

Section seven sets up the standards for limited lines of authority including a limitation of nine or fewer lines per state. It also dictates that a state’s definition of each limited line should be consistent with the definition adopted by the NAIC, along with some standards for non-core limited lines including pet insurance and legal expense insurance. 

8. Surplus lines

If you’re looking for standards around surplus lines, you’ll find them in section eight of the ULS. This section dictates that states should require producers to have an underlying property and casualty license before receiving a surplus lines license. According to the ULS, it’s up to the state to decide whether or not it will require producers to complete a surplus lines exam.

9. Commercial lines multi-state exemption

Section nine of the ULS deals with commercial lines multi-state exemption standards. It refers to section 4B of the PLMA which states that multi-state licensure is not required for a producer who sells P&C insurance to an insured with risks located in more than one state, as long as the producer is licensed in the state where the insured maintains its principal place of business.

10. Commission sharing

The final section of the ULS sets standards for producer commissions. In accordance with section 13D of the PLMA, section 10 of the ULS states that an insurer or producer may pay commissions, service fees, brokerages, or other valuable consideration to an agency or individual as long as the payment doesn’t violate any applicable state laws. 

The Uniform Licensing Standards establish an important baseline

Guidance like the Uniform Licensing Standards and the Producer Licensing Model Act help inch the insurance industry toward uniformity across states. However, unless all 50 states suddenly agree to universally adopt standard insurance regulations (probably best not to hold your breath), you can still expect there to be some differences in regulation. 

If tracking producer licensing and compliance across 50 different states has you feeling overwhelmed, AgentSync can help. Our solution makes producer licensing (along with onboarding, carrier appointments, tracking CE, and more!) drastically simple. See what AgentSync can do for your agency, carrier, or MGA/MGU today.