This post is part of a series sponsored by AgentSync.
Oftentimes, the administrative aspect, including details of who needs a license at an insurance agency, is not straightforward.
In general, when we ask “Who needs an insurance license?” With his tailored jacket, sculpted hair, and ready-made smile, your friendly local agent comes to mind. And you might think, “Well, obviously.”
But keep in mind that most states’ standards for who needs a license is anyone who “sells, orders, or negotiates” insurance. And although the producers may have an appointment with the carrier, they will likely end up downstream in the distribution channel, which means there are quite a few intermediaries between them and the carrier, in the end. So what does that look like in terms of licensing for any given agency?
Before we answer, please allow us a brief disclosure that we are insurance experts, not legal scholars. Hopefully this article will get you started with licensing considerations, but if you need serious help or have non-theoretical questions about your situation, you will need to get the help of a compliance or legal professional.
DRLP . License
When it comes to obtaining an integrated license, the MVP at your agency is the Designated Licensed and Responsible Producer (DRLP). Depending on the state, they may also be called your principal agent, designated responsible person, or some other variation on these topics.
DRLP’s job is largely supervision. Most state regulations technically require the DRLP to oversee compliance for all agents operating under it. Functionally, this comes down to responsibility: the DRLP is likely to be responsible for all actions of the agency.
While some states do not require a principal agent license, or they allow multiple agents to cumulatively obtain the appropriate licenses, most states require DRLP(s) to obtain licenses in all lines of authority (LOAs) under which the company sells. It’s also a good practice to make sure that the DRLP has a license in all the regions where it sells.
Now, other agents may not have an exclusive relationship with your agency. They are still able to write contracts under other LOAs with other DRLPs and other agencies, but for your specific agency purposes, in general, your DRLPs = potential licenses for the agency.
Keep in mind, since LOAs and lines of business vary from state to state, you will need to account for your DRLP license for this variance. For example, not all states have a tuning license. If your state of residence is an “unlicensed” state, you may need your DRLP to apply in a state that does not adjust licensing and makes that state their designated home for that licence.
Seven states require the designated person on file to be an officer, director, partner, or member of the agency, but otherwise do not require a license for the designated responsible person. If you plan to work across states, you will need to make sure that the DRLP checks as many boxes as possible.
If you are looking for a DRLP, these questions may help you find your candidate:
- Can DRLP pass a background check? A lack of background checks in one state can raise red flags in others.
- Are they personally reliable? Some states do not have support if your DRLP unexpectedly quits or loses its license – your business may have to stop selling and re-renew in these circumstances. This is one good reason to consider making your DRLP a principal member of the company who is unlikely to leave, even if the state does not require them to.
- Do they have the bandwidth to monitor compliance? Many state regulations regarding infractions are based on whether someone in a position of authority knew or should have known about something suspicious. If someone is a great salesperson, but will be too busy to meet other agents and ensure decent compliance, it may not be a DRLP’s best bet.
A DRLP license is very important to an agency, because in some states, if a DRLP license expires, the agency is also considered terminated. Or, in the case of Vermont, a DRLP employee who unexpectedly resigns terminates the agency’s ability to operate as an insurance agency entirely. For more details on the fluctuations of a government DRLP license, Check this blog.
Get your agency licenses
Your agency’s license is different, in most states, from your DRLP’s or any license for 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 optional. But, even if your resident state is one of these five states, you will still want to obtain a license if you plan to operate agents across the country. Similar to the rules governing product licensing, holding a residence license for your agency makes it easier to obtain licenses in your non-resident states.
LOAs are important here too. Most states do not only require your DRLP(s) to obtain licenses in the lines of authority they sell, and some states do not issue licenses for certain LOAs or lines of business. Since this can be an area of contention, make sure you understand the laws of your country of residence as they apply to producers and agencies and in relation to other states.
For example, if you intend to do business with a business that is not recognized by your resident state, the non-resident states will not have a license to assess reciprocity. If this is the case, you may file in a state that recognizes the category of license or field of business, and considers that state to be “Designated home country. “
It’s important to be incredibly upfront and honest about your license applications, because being a double can have a snowball effect in closing a lot of doors. Most regulators in the state are human beings with merciful hearts; Past mistakes can often be explained, learned from, or tolerated, but lying or omitting information can drain the goodwill of the situation..
Working across states also means working with different renewal dates for your agency’s license. Some government agency licenses are permanent – you never have to renew! Others renew annually, every two years, every three years, or even every four years. To make it even more confusing, some renewals happen on the anniversary of the license date while others happen on your birthday. No wonder we’ve come up with a solution to keep track of all of this for you!
Insurance Agency Branch License
As you work outside your resident state, also understand that states differ in the protocol for registering and licensing individual branches in each state, and what that means. A sample of the differences across states might give you an idea of what to look for:
- Most states require that only the main branch of the agency be licensed, otherwise do not require new branches to notify SOS or DOI.
- Some states require the agency to notify the SOS or DOI of new branches.
- Some states require branch locations to obtain an entirely new license.
In addition to these differences, the definition of what constitutes a branch in each state is also important. This became a point of contention early in the COVID-19 pandemic as some states doubled down on that agents working from their homes would need to register their residences as branches. California requires registration of branch locations based on whether they store records (which can be confusing in today’s world of cloud-based record keeping). And the Texas changes in mid-2021 loosened branch regulations Precisely because the state did not want a new remote workforce to break into the office with residential branch registrations.
If it seems like there’s a lot to go through when maintaining agency licensing requirements, we think you’re right. This is why AgentSync does what we do. See how we can help you.