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Based on the number of notices insurance agencies receive from state regulatory authorities, there’s some confusion about the interrelationships between these functions and about the compliance requirements for each. So let’s quickly review how they work together to keep you in compliance.
If your agency is selling, soliciting, negotiating, contracting, receiving commissions in a particular state, you are required to have an agency license there, in addition to the individual license(s) held by your producers.
There are exceptions … because it’s insurance licensing, so there are ALWAYS exceptions. Rhode Island no longer licenses entities, and there are a couple of states that don’t require an agency to be licensed as long as the producers hold the appropriate licenses. There are also a few states that do not offer certain lines of authority -- usually for variable products -- to entities. And although the number of states offering Surplus Lines licenses for corporate entities has greatly increased in recent years, there are still a number of states that do not offer a corporate Surplus Lines license. (Your producers still need to hold surplus lines licenses, though.)
Be aware that although some states may not offer a particular license type to agencies -- especially for the more “exotic” licenses such as Third Party Administrator, Managing General Agent or Reinsurance Intermediary -- they may want you to be licensed as a general lines or major lines producer instead.
If state regulators determine that you have transacted business without a license “even just this once,” they can assess sizeable fines and penalties which will then have to be reported to EVERY state where you are licensed and on all new agency license applications and all license renewals.
In addition to having your agency licensed by the states’ Departments of Insurance, you also need to register your agency with their Secretary of State Offices and, in some states, with their Departments of Revenue as well. This registration provides the state with information about the type of business your agency is transacting, your business structure and leadership, and your ownership.
Many agencies protest that they asked the Department of Insurance for the licensing requirements and no one mentioned a business registration. It’s true that only a handful of states require proof of your business registration before they will issue an agency insurance license, but most states want you to complete the registration. Your legal counsel will be able to advise you if your business is exempt from registration requirements on a state-by-state basis.
In the past, many Secretary of State Offices did not actively pursue non-registered businesses, but improvements in technology and communication between state offices have increased the number of investigations in recent years.
If a state determines that you have been transacting business without a proper business registration, they can assess fines for each transaction and assess late penalties going back to the first transaction EVER completed there.
Registered Agent Services
Once you have registered your business with the Secretary of State Offices, most states require your agency to maintain an individual, resident in that state, to receive documents from the SOS and forward them on to your agency for action.
Since agencies usually do not have such a contact in each state, it is common for agencies to contract with a Registered Agent service to act on their behalf. Rates vary widely from provider to provider. Consolidating your RA services with a single provider allows you to negotiate the best possible rate and makes tracking and paying invoices for these services easier to manage.
The Big Picture
Each of these filings is essential for making your agency fully compliant, and each brings its own set of ongoing compliance requirements. Failure to meet these requirements can result in interruptions in your authority to transact business as well as significant administrative and financial penalties. For help in managing these compliance needs, click here.