The Terminator: What to Do When an Agency DRLP Leaves or Is Terminated
December 10, 2021
Getting the scoop on insurance agency designated responsible licensed producer (DRLP) regulations is like a shell game; your answer is the little ball, but there are fifty different cups, and they’re all moving.
At least, it certainly feels that way when you’re trying to figure out disparities in DRLP from state to state. Some of the common variations on a DRLP theme include answering:
- What does this state call a DRLP?
- Can you have more than one?
- Do your DRLPs have to be licensed for the lines of authority (LOAs) your agency sells?
- Does your DRLP have to be an officer of the firm?
- If your DRLP leaves or loses their license, how long do you have to replace them?
While all of the variations on this theme are important, it’s that last one that causes real consternation. There are a variety of reasons an agency might want to replace a DRLP. Some of them are pretty banal: retirement, leaving for another position in the industry, deciding to pursue an interest outside of insurance, or even moving positions at the agency and transferring the DRLP responsibilities to someone better suited to the weight of compliance obligations.
But there are also more difficult situations to account for, such as when a DRLP leaves the business involuntarily or without prior notice. For instance, someone who allows their license to lapse by failing to meet insurance continuing education obligations, or someone who otherwise acts out of licensure and the state strips their license. Sometimes the DRLP keeps their license, but a falling out or business disagreement causes them to leave the business posthaste.
Let’s look at a few state variations of what’s required of a DRLP, and things to keep in mind about DRLP terminations, both the kind you can plan for and the kind you can’t. Before we jump in, keep in mind that our team of smartypants is just providing information about this subject; each state has its own requirements and idiosyncrasies, and you’re responsible for doing your own research and due diligence.
What is a DRLP? What is a DRI? What is a DRL? What is a DRP?
So, a brief refresher here – as you might have expected, these abbreviations are all aiming at the same thing. Whether a state calls it a designated responsible licensed producer, a designated responsible individual, a designated responsible licensee, or a designated responsible producer, the idea is that an agency has to designate a person who’s responsible for checking all the agency’s boxes from a compliance standpoint.
Some states require the DRLP (yes, despite all the variant abbreviations, we’re sticking with DRLP here) to have a license that covers all LOAs the business will transact. This might mean having multiple DRLPs of equal authority who “cumulatively” hold all the LOAs your agency deals in. Other states require you to only have a single DRLP that’s licensed, but don’t limit your agency to the DRLP’s LOA(s). Some states also don’t require your DRLP to be licensed at all (these states are in the minority).
According to the Securities and Insurance Licensing Association, though, all states require agencies, or “business entities” to have some kind of DRLP equivalent. Tragically, that’s where the “absolutes” of DRLP rules end.
What if your DRLP leaves? Planning in advance
All the states we checked with – disclaimer, we didn’t check every single state, so this is grain-of-salt information – had ways to submit changes to your agency’s DRLP if you were doing it proactively. Some of them had online submissions, some of them had email-it-in options, and others required you to submit your changes on paper through the mail, along with fees.
However, notice the bit about doing it proactively? If you know your DRLP is planning to leave, if they’re planning to retire, if they plan to move businesses and have given a two-week’s notice, if they’re passing responsibilities on to someone more appropriate for compliance oversight … All of these instances provide your agency with the ability to submit changes to the state in anticipation of your DRLP’s termination.
If your DRLP leaves under short notice, however, you may have a stickier situation.
What if your DRLP is terminated without notice?
OK, we’ve reached the sad part of the piece. Womp womp. What if your DRLP did something … shall we say “untoward” … and they got banned? What if they no-show and you find out they’re working for your competitors? What if they let their license lapse or didn’t stay on top of their CE?
These scenarios are the nightmare of any insurance agency, and for good reason. While many states have some wiggle room – multiple DRLPs to provide some overlapping responsibility coverage, a grace period for updating a DRLP, etc. – others don’t.
If your DRLP needs to be terminated suddenly, you will need to check your relevant state’s rules to be crystal clear about your obligations and the timeline you have to replace the DRLP or risk having to pause business and refile your agency in that state.
Let’s underscore that last point: Some states * cough cough Vermont cough cough * will terminate your agency license if your DRLP license is terminated.
State variation in DRLP standards
Let’s look at a few spot-checked states to get a feel for what DRLP terminations might look like and the state-by-state variation:
- Maine allows for only one DRLP. The state’s DRLP forms say “at least one,” but elsewhere on the state’s insurance site, it says “only one,” which isn’t confusing at all, right? Maine also gives an agency 14 days to change DRLP information after a DRLP has been terminated before the state terminates the agency, as well.
- Wyoming allows agencies to have up to five DRLPs, which they consider equally responsible, and which don’t have to have the same licenses as all LOAs of the full business.
- Michigan also allows more than one DRLP, and doesn’t require DRLPs to hold licenses in the same LOAs as the business. In the case of a termination, the state also says: “Should the DIFS find that an agency no longer has an active DRLP, the business entity will be sent a Notice of Opportunity to Show Compliance (NOSC) advising it has 14 calendar days within which to designate a replacement DRLP or show it has been in continuous compliance. If the business entity does not respond to the NOSC within 14 calendar days, DIFS will pursue further compliance action which may include a fine and revocation of the agency license.”
- Kansas has a particularly generous timeline for DRLP changes – while 14 days is fairly standard, Kansas requires agencies to update DRLP changes through NIPR within 30 days of the change.
- New Jersey law states: Every business entity, resident or nonresident, must list on the application one or more designated responsible producers with active NJ licenses cumulatively covering all lines of authority requested on the application.
- Delaware allows agencies to appoint multiple DRLPs, but states that the agency license will terminate at the same time as the DRLP’s. If the DRLP allows their license to lapse, the agency is lapsed, too.
- Vermont also makes it clear that, if the DRLP terminates unexpectedly, the agency will have to reapply for its license: “In order to avoid the cost and inconvenience of reapplying for a business entity license, anytime a DRLP license terminates for any reason, the designated producer should be replaced by notifying the department prior to the termination of the existing designee.”
Additionally, each state variance on carrier appointments comes into play here, too: Some states terminate your carrier appointments if your license lapses, and some states terminate your business’s appointments and all downstream producers’ appointments.
Hopefully, this charcuterie board of state regulations makes the point: DRLP terminations are not to be taken lightly. Whether it’s something basic like keeping up with CE and license deadlines or just providing adequate oversight, preventing a sudden DRLP termination is worth the time and attention.
To see how AgentSync helps you manage your DRLP and other producer licensing compliance, check out what we do.