ComplianceJune 07, 2022

CT Expert Insights: Decoding insurance license compliance

Regulation of the insurance industry has led to significant variability in licensing requirements across the country. Because insurance agencies must obtain a license in every state in which they plan to operate, license compliance for companies operating across the country often becomes a burdensome undertaking. And separate licenses may be required, depending on the types of insurance being sold.

This podcast provides a quick tutorial on insurance licensing, starting with the reasons behind licensing complexity and the consequences of non-compliance. It then takes you through the licensing process, including determining your requirements.

Subscribe on Apple | Spotify | Google podcasts | or your preferred podcasting platforms.

Transcript

Greg Corombos: Hi, I'm Greg Corombos. Our guest in this edition of Expert Insights is Coby Ringgenberg, Senior Content Management Associate in governance, risk, and compliance for CT Corporation. Among her areas of expertise is business licensing. And today Coby joins us to discuss business licensing for insurance companies, why it can get complicated, and the importance of insurance companies remaining in compliance. And Coby, it's an important topic. So thank you very much for being with us.

Coby Ringgenberg: Thank you for inviting me.

GC: Well, let's dig right into this. First of all, what are some of the reasons behind the complexity? Like I mentioned in the open, this can be complex. What are some of the reasons behind the complexity of business license compliance for insurance businesses?

CR: Sure. So some of them are regulations of the insurance industry has led to significant variability and licensing requirements across the country. And because insurance agencies must obtain a license in every state in which they plan to operate, license compliance for companies operating across the country often becomes a burdensome undertaking. Separate licenses may be required depending on the types of insurance being sold. Lines of authority include but are not limited to life, health, property and casualty, travel, and title. And businesses have to be sure that they're applying for the proper license. Are they an insurance company, or are they an agency?

GC: Okay, that raises that important distinction. Coby, what is the difference between an insurance agency and an insurance company?

CR: Thanks for asking. Any major insurance carrier brand names you recognize from television are companies. The insurance companies are comprised of many different agencies. The company provides the product while the agencies provide the services and distribute the product, the insurance policies, among the customers. Some agencies may offer policies from several different companies. There are two types of insurance agencies, exclusive agencies and independent agencies. Exclusive insurance agencies sell products for only one company or brand. For instance, a State Farm exclusive agency cannot sell travelers or Allstate insurance. However, an independent agency works as a contractor for several different insurance companies and can offer policies for many different insurance carriers.

GC: Why is compliance important, Coby? And what are the consequences for not being compliant?

CR: Licensure provides a mechanism for insurance regulators with an eye towards consumer protection to enforce standards of conduct. Insurance licensure also funnels revenue to the states while in turn adding complexity to the insurance regulatory system. Failure to comply with business license laws could result in blocked commissions, fine, and the suspension or revocation of future business licenses. Certain states may also issue cease and desist orders preventing your company from doing business in that state. You may also be required to pay any unpaid customer claims.

GC: So Coby, what's the first step in determining the licensing requirements?

CR: Well, Greg, first, consider the states in which you attend to operate. Requirements not only differ by state, but they also vary based on the role an insurance provider plays — the agent, producer, broker, or adjuster. Each agent or insurance business must obtain different licenses, and licenses will also differ depending on whether you have resident or nonresident status in the state where you operate.

GC: Well, let's move on to the process. Now how does the licensing process work?

CR: To obtain an agency license you must complete an application, including supporting documentation, and pay a fee. As an agent or producer, you may be asked to provide evidence of your expertise through examinations and continuing education. And because criminal background checks are often conducted prior to licensing, you may also be subject to fingerprinting. And once you obtain a license, each state will require it to be renewed every one to three years.

GC: Coby, we've talked about a lot of different things here in the past few minutes. We've talked about the complexity of business licensing for insurance companies, the compliance requirements, and we just got done talking about the process for being properly licensed. How can CT Corporation help insurance companies navigate all of that?

CR: Thanks for asking. State agencies will be forthcoming and helpful when it comes to licensing. Oftentimes, they won't though. So it is important to reach out to professionals who deal with this every day like CT Corporation, just to make sure that you are complying with all the regulations at the federal, state, and local levels.

GC: A lot of very helpful information. Coby, thank you so much for your time today. We really appreciate it.

CR: Thank you. I'm glad I could help.

GC: Coby Ringgenberg, Senior Content Management Associate in governance, risk, and compliance for CT Corporation. I'm Greg Corombos reporting for Expert Insights. For more information on this subject, please call CT at 844-787-7782.

Back To Top