What Is an Insurance coverage Company?
This post is part of a series sponsored by AgentSync.
Whether you call it an insurance agency or a business entity, some insurance-industry-adjacent firms’ workings are subject to regulatory scrutiny for policies, payment, and procedure, while others are not. Telling the difference and deciding what constitutes an agency for regulatory purposes is a matter of nuance.
The word-jumble that constitutes the insurance industry often includes businesses with nebulous roles and frustratingly vague descriptions – consider FMOs, IMOs, and NMOs, or aggregators, or MGAs, or brokerages. That’s not to mention individual and family practices, firms, or agencies. Or, consider securities-adjacent practices like Registered Investment Advisory firms or broker-dealers. Very quickly, pinning down an agency or insurance “business entity” becomes a matter of knowing it when you see it, but setting that know-how to firm ink (or pixels, as it were) is another matter.
As we dive into the existential questions of agencies, business entities, and regulation, please remember that this blog is not comprehensive, it’s not terribly authoritative, and, most importantly, it isn’t your in-house legal counsel. So, if you have questions about what regulations apply to you and your business, specifically, this might raise some questions for you to inspect further, but finding the answers is going to be a question for your state regulator or actual lawyer.
Regulating agencies – legal definitions and licensing
This seems like it would be straightforward. Yet, in the definition of what constitutes a “business entity” there’s a good page of discussion notes in the National Association of Insurance Commissioner’s internal documentation. Is an agency an organization that’s assigned commissions? Is it licensed? Is it anyone or anything that is helping a producer sell insurance?
As is so often the case in the insurance industry, part of the discussion varies widely by state. The nuances of regulation particular to agencies are quite different, whether you’re looking at licenses, appointments, affiliations, DRLPs, etc.
Broadly speaking, though, as far as regulations are concerned, a business entity should be licensed (in the states where they license agencies) or viewed as an agency when they
- have employees or contracted workers who are producers, or are benefitting from assigned commissions from insurance producers and
- are involved in the sale, negotiation, or solicitation of insurance and
- are not insurance carriers or adjusters
Essentially, if a business entity is gathering producers and has an incentive to help them sell insurance, then it’s an insurance agency and will need to follow appropriate state license requirements.
This is also a reason we’ve seen warnings such as those issued by Commissioner Jim Donelon of Louisiana to insurance-adjacent industries like banking or real estate, where those who refer business to insurance agents are crossing a line into solicitation or negotiation. If those professionals or entities are straying too far into the insurance lane, they’ll be regulated (ie penalized) like a non-licensed agency.
Structure of an agency
An insurance agency could have a wide variety of structures. To give you an idea of what this looks like, West Virginia’s guidance on insurance agencies says:
“Insurance agency” means an individual, corporation, partnership, association, limited liability company, or other legal entity except for an employee of the individual, corporation, partnership, association, limited liability company, or other legal entity, and other than an insurer or an adjuster as defined by section twelve-b [§ 33-1-12b], article one of this chapter, which employs individuals licensed to engage in activity or whose members engage in any activity be performed only by a licensed individual insurance producer or solicitor. It shall not include sole proprietor or partnerships in which there is only one licensed insurance producer.”
This is fairly typical in that
- Just about any structure or kind of company can be an agency but
- Even a lot of states that require agencies to have a license do not recognize sole proprietorships as agencies unless there are multiple insurance producers in the shop
DRLPs, affiliations, and agencies
As we’ve covered elsewhere, states require agencies to report a designated responsible licensed person, who usually has to be
- An officer, director, or partner in the business
- Licensed in the line(s) of authority the business is transacting
In states that don’t require or allow agencies to have their own license, the DRLP license is typically considered synonymous with the agency’s ability to write business. If the DRLP loses their license, the ability of the agency and its producers to keep selling is in jeopardy.
In some states, DRLPs are the only producers who are required to have an agency affiliation. In others, states require agencies to report all of the agencies who are writing on their contracts and who are using their agency relationship to secure carrier appointments.
Affiliations are also difficult to maintain because most states either require agencies to keep an internal record, or to report affiliated producers via individual or state portals, so there aren’t options for a central, bulk reporting capability such as NIPR.
Appointments for business entities
Like affiliations, appointment regulations are scattered, and that goes double for agency-specific appointment requirements. Some states require business entities to be appointed by the carrier, and it doesn’t matter whether the business entities’ producers are appointed or not. Others require individual producer appointments but don’t allow for business entity appointments. And then some require every person, business entity, or walking logo to have an appointment if they plan to sneeze on an insurance contract and get paid.
Branch office regulations add a whole new facet to the existential agency question, because some states require each branch to be treated as though it is an agency in its own right, with separate licensing, affiliation records, appointments, and contracts. Other states, like Texas, have moved to treating the agency as getting a one-per-state designation and rolling up all the other branches underneath that for reporting purposes.
Because state regulations vary, and are so impactful on the definitions and requirements for agency-based rules, it can be difficult to keep straight what level any given business is at in a distribution pipeline. If you’re ready to get some clarity on your partners – regardless of jurisdiction – and ensure fullstack compliance with the relevant guidelines, see how AgentSync can help.