Insurance 101: Agency-Level Licensing
March 18, 2022
Oftentimes, the administrative side including the specifics of who needs what license at an insurance agency is anything but straightforward.
Generally, when we ask “Who needs an insurance license?,” your friendly local agent with their tailored blazer, sculpted hair, and ever-ready smile comes to mind. And you might think, “Well, OBVIOUSLY.”
But keep in mind that most states’ criteria for who needs a license is anyone who “sells, solicits, or negotiates” insurance. And, while producers may have an appointment with a carrier, ultimately they likely are downstream in the distribution channel, meaning there are a few intermediaries between them and the carrier, ultimately. So, what does that look like in terms of licensing for any particular agency?
Before we answer, please allow us a brief disclosure that we’re insurance geeks, not legal scholars. Hopefully this piece will get you started as far as licensing considerations, but if you need serious help or have non-theoretical questions about your situation, you’ll want to have a compliance or legal specialist help you out.
When it comes to having fullstack licensure, your agency’s MVP is your designated responsible licensed producer (DRLP). Depending on the state, they might also be called your principal agent, your designated responsible person, or some other variation on those themes.
The function of the DRLP is largely oversight. Most state regulations technically require the DRLP to assume compliance oversight of all agents operating under them. Functionally, this comes down to responsibility: the DRLP will likely be held accountable for all agency actions.
While some states do not require a principal agent to be licensed, or they allow multiple agents to cumulatively hold the appropriate licenses, most states require the DRLP(s) to have licenses in all lines of authority (LOAs) the business sells under. It’s also good practice to make sure the DRLP has a license in all of the territories you sell in.
Now, your other agents may not have an exclusive relationship with your agency. They’re still able to write contracts under other LOAs with other DRLPs and other agencies, but for the purposes of your specific agency, broadly speaking, your DRLP’s licenses = agency’s possible licenses.
Keep in mind, since LOAs and lines of business vary from state to state, you’ll need to account in your DRLP’s licensing for that variance. For instance, not all states have an adjuster license. If your resident state is a “nonlicensing” state, you may need your DRLP to apply in a state that does license adjusters and make that state their designated home state for that license.
Seven states require the designated person on file to be an officer, director, partner, or member of the agency but otherwise don’t require licensure for their designated responsible person. If you plan on working across the states, you will want to ensure your DRLP checks as many boxes as possible.
If you’re searching for a DRLP, these questions might help you find your candidate:
- Can your DRLP pass a background check? Failing a background check in one state can raise red flags in others.
- Are they personally reliable? Some states don’t have a backstop if your DRLP quits unexpectedly or loses their license – your business could have to stop selling and refile in those circumstances. This is one good reason to consider making your DRLP a key member of the business who’s not likely to leave, even if the state doesn’t require them to be.
- Do they have the bandwidth for compliance oversight? Many state regulations regarding malfeasance are predicated on whether someone in a position of authority did know or should have known something fishy was up. If someone is a fantabulous salesperson, but they are going to be too busy to meet with other agents and ensure decent compliance hygiene, they may not be the best bet for DRLP.
DRLP licensing is pretty important for an agency, since, in some states, if the DRLP license lapses, the agency is also considered to have lapsed. Or, in the case of Vermont, a DRLP who quits unexpectedly terminates the agency’s ability to operate as an insurance agency altogether. For more specifics on the vagaries of state DRLP licensing, check out this blog.
Obtaining your agency licenses
Your agency’s license is, in most states, distinct from your DRLP’s license or any license of the producers operating under your agency.
It’s worth noting that not all states require agencies to be licensed; Iowa, Rhode Island, Tennessee, Vermont, and Wisconsin all consider agency licensing to be optional. BUT, even if your resident state is one of these five states, you’ll still want to get a license if you’re planning to have agents work across the nation. Similar to the rules governing producer licensing, maintaining your agency’s resident license makes it easier to obtain licenses in your nonresident states.
LOAs matter here, too. Not only do most states require your DRLP(s) to hold licenses in the lines of authority you sell, some states don’t issue licenses for some LOAs or lines of business. Because this can be such an area of disagreement, be sure you understand your resident state laws as they apply to producers, agencies, and as they relate to other states.
For instance, if you intend to transact a line of business not recognized by your resident state, then nonresident states won’t have a license to evaluate for reciprocity. If this is the case, you can file in a state that does recognize that license class or line of business, and deem that state your “designated home state.”
It’s important to be incredibly frank and honest on your license applications, as being duplicitous can have a snowball effect of closing a lot of doors. Most state regulators are humans with compassionate hearts; past mistakes can often be explained, learned from, or forgiven, but lying or omitting information can pretty well drain the goodwill out of a situation.
Working across states also means working with different renewal dates for your agency license. Some state agency licenses are perpetual – you never have to renew! Others renew annually, biennially, triennially, or even every four years. To make it even more confusing, some renewals happen on the anniversary of your licensing date while others happen on your birthday. No wonder we came up with a solution to keep track of all this for you!
Insurance agency branch licensing
As you work beyond your resident state, also understand that states differ on the protocol for registering and licensing individual branches in each state, and what that means. A sample of variations across states may give you an idea of what to look for:
- Most states require only the main branch of an agency to be licensed, and otherwise don’t require new branches to notify the SOS or DOI.
- Some states require the agency to notify the SOS or DOI of new branches.
- A few states require branch locations to obtain a new license entirely.
Beyond these variations, the definition of what constitutes a branch in each state matters a lot, as well. This became a point of contention early in the COVID-19 pandemic as some states doubled down that agents working from their own homes would need to register their residences as branches. California requires registration of branch locations based on whether it stores records (which can be confusing in today’s world of cloud-based record-keeping). And Texas’s changes in mid-2021 relaxed branch regulations precisely because the state didn’t want a newly remote workforce to storm the office with residential branch registrations.
If it seems like a lot to keep straight when maintaining agency license requirements, we think you’re right. That’s why AgentSync does what we do. See how we can help you.