Wednesday, November 30th, 2022

What Is an Insurance coverage Company?


This put up is a part of a sequence sponsored by AgentSync.

Whether or not you name it an insurance coverage company or a enterprise entity, some insurance-industry-adjacent companies’ workings are topic to regulatory scrutiny for insurance policies, fee, and process, whereas others will not be. Telling the distinction and deciding what constitutes an company for regulatory functions is a matter of nuance.

The word-jumble that constitutes the insurance coverage {industry} usually consists of companies with nebulous roles and frustratingly obscure descriptions – contemplate FMOs, IMOs, and NMOs, or aggregators, or MGAs, or brokerages. That’s to not point out particular person and household practices, companies, or businesses. Or, contemplate securities-adjacent practices like Registered Funding Advisory companies or broker-dealers. In a short time, pinning down an company or insurance coverage “enterprise entity” turns into a matter of understanding it if you see it, however setting that know-how to agency ink (or pixels, because it had been) is one other matter.

As we dive into the existential questions of businesses, enterprise entities, and regulation, please do not forget that this weblog is just not complete, it’s not terribly authoritative, and, most significantly, it isn’t your in-house authorized counsel. So, when you’ve got questions on what rules apply to you and what you are promoting, particularly, this may increase some questions so that you can examine additional, however discovering the solutions goes to be a query on your state regulator or precise lawyer.

Regulating businesses – authorized definitions and licensure

This looks like it will be easy. But, within the definition of what constitutes a “enterprise entity” there’s a superb web page of dialogue notes within the Nationwide Affiliation of Insurance coverage Commissioner’s inside documentation. Is an company a company that’s assigned commissions? Is it licensed? Is it anybody or something that’s serving to a producer promote insurance coverage?

As is so usually the case within the insurance coverage {industry}, a part of the dialogue varies broadly by state. The nuances of regulation explicit to businesses are fairly completely different, whether or not you’re licenses, appointments, affiliations, DRLPs, and many others.

Broadly talking, although, so far as rules are involved, a enterprise entity ought to be licensed (within the states the place they license businesses) or seen as an company after they

  1. have workers or contracted staff who’re producers, or are benefitting from assigned commissions from insurance coverage producers and
  2. are concerned within the sale, negotiation, or solicitation of insurance coverage and
  3. will not be insurance coverage carriers or adjusters

Basically, if a enterprise entity is gathering producers and has an incentive to assist them promote insurance coverage, then it’s an insurance coverage company and might want to comply with applicable state licensure necessities.

That is additionally a cause we’ve seen warnings akin to these issued by Commissioner Jim Donelon of Louisiana to insurance-adjacent industries like banking or actual property, the place those that refer enterprise to insurance coverage brokers are crossing a line into solicitation or negotiation. If these professionals or entities are straying too far into the insurance coverage lane, they’ll be regulated (i.e. penalized) like a non-licensed company.

Construction of an company

An insurance coverage company might have all kinds of constructions. To present you an thought of what this appears like, West Virginia’s steerage on insurance coverage businesses says:

“Insurance coverage company” means a person, company, partnership, affiliation, restricted legal responsibility firm, or different authorized entity apart from an worker of the person, company, partnership, affiliation, restricted legal responsibility firm, or different authorized entity, and apart from an insurer or an adjuster as outlined by part twelve-b [§ 33-1-12b], article one in every of this chapter, which employs people licensed to have interaction in exercise or whose members have interaction in any exercise be carried out solely by a licensed particular person insurance coverage producer or solicitor. It shall not embrace sole proprietor or partnerships in which there’s just one licensed insurance coverage producer.”

That is pretty typical in that

  1. Nearly any construction or type of firm may be an company however
  2. Even loads of states that require businesses to have a license don’t acknowledge sole proprietorships as businesses until there are a number of insurance coverage producers within the store

DRLPs, affiliations, and businesses

As we’ve lined elsewhere, states require businesses to report a delegated accountable licensed particular person, who often must be

  • An officer, director, or accomplice within the enterprise
  • Licensed within the line(s) of authority the enterprise is transacting
  • Affiliated

In states that don’t require or enable businesses to have their very own license, the DRLP license is usually thought of synonymous with the company’s capability to jot down enterprise. If the DRLP loses their license, the power of the company and its producers to maintain promoting is in jeopardy.

In some states, DRLPs are the one producers who’re required to have an company affiliation. In others, states require businesses to report all the businesses who’re writing on their contracts and who’re utilizing their company relationship to safe service appointments.

Affiliations are additionally troublesome to take care of as a result of most states both require businesses to maintain an inside file, or to report affiliated producers through particular person or state portals, so there aren’t choices for a central, bulk reporting functionality akin to NIPR.

Appointments for enterprise entities

Like affiliations, appointment rules are scattered, and that goes double for agency-specific appointment necessities. Some states require enterprise entities to be appointed by the service, and it doesn’t matter whether or not the enterprise entities’ producers are appointed or not. Others require particular person producer appointments however don’t enable for enterprise entity appointments. After which some require each particular person, enterprise entity, or strolling brand to have an appointment in the event that they plan to sneeze on an insurance coverage contract and receives a commission.

Department workplaces

Department workplace rules add an entire new aspect to the existential company query, as a result of some states require every department to be handled as if it’s an company in its personal proper, with separate licensing, affiliation information, appointments, and contracts. Different states, like Texas, have moved to treating the company as getting a one-per-state designation and rolling up all the opposite branches beneath that for reporting functions.

As a result of state rules fluctuate, and are so impactful on the definitions and necessities for agency-based guidelines, it may be troublesome to maintain straight what stage any given enterprise is at in a distribution pipeline. In case you’re able to get some readability in your companions – no matter jurisdiction – and guarantee fullstack compliance with the related pointers, see how AgentSync will help.



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