Far Reaching License Violations
Most insurance agents who sell for life, health, property-casualty, and other policy types believe in persuading real people, not fictional ones, to buy insurance.
However, dishonesty isn’t the only way to lose your agent license. Suppose you fail to uphold the administrative requirements of your license by failing to get it renewed on time or neglecting to complete your annual or biannual continuing education requirements. In that case, you may lose your ability to do business in your state. Thousands of agents are prohibited from selling insurance for these and other easily preventable reasons yearly.
The Reality of Insurance Regulation
The insurance business is one of the most highly regulated industries in America. What is the advantage of regulation? Fewer defrauded consumers. The disadvantage? The heavy compliance burden insurers and agents must shoulder. And since companies and agents often operate in multiple jurisdictions, compliance requirements can snowball geometrically. It’s especially difficult for self-employed agents and owners of small insurance agencies.
To keep your agent license, you must know precisely what your state insurance department expects of you. That means familiarizing yourself with your state’s insurance statutes (not the best bedtime reading, to be sure). But if you persist, you’ll learn that agents can lose their license for many reasons, including the twelve enumerated in Section 12 of NAIC’s Producer Licensing Model Act (ratified in all jurisdictions except ten states and three territories).
- Providing incorrect, misleading, incomplete, or false information in an agent license application.
- Violating a state insurance law, regulation, or subpoena in the agent’s domicile or any other state.
- Trying to get licensed through misrepresentation or fraud.
- Illegally withholding, misappropriating, or converting any money or property received while doing business as an agent.
- Intentionally misrepresenting the terms of an actual, proposed insurance contract or insurance application.
- Being convicted of a felony.
- Engaging in an unfair trade practice or fraud.
- Using fraudulent, coercive, dishonest practices or demonstrating incompetence, untrustworthiness, or financial irresponsibility while conducting business in your state or elsewhere.
- Having your agent license in another state, province, district, or territory denied, suspended, or revoked.
- Forging someone else’s name on an insurance application or any other document needed in an insurance transaction.
- Cheating on the insurance-agent licensing exam.
- Knowingly accepting insurance business from an unlicensed individual.
- Failure to comply with an administrative or court order imposing a child-support obligation· Failing to pay state income tax or to comply with any administrative or court order directing state income tax payment.
Many agents are surprised when they learn they can lose their license for failing to make good on their child-support or state income tax obligations. One of the most common reasons for losing one’s license is failure to pay state taxes. For instance, in a recent Wisconsin media report, 18 out of 28 insurance agents targeted for enforcement lost their licenses because they were delinquent on their state income taxes.
If you lose your license for any reason, you will be barred from the industry until you can regain your credential (if possible). Losing your ability to earn money from your chosen profession should be avoided. For this reason, you must familiarize yourself with your state’s insurance laws, including the steps to qualify for and renew your license.
While You’re at It, Watch Your Other Risks and Legal Exposures
Many actions above can put you at legal risk with your state insurance departments. Some can also lead to client dissatisfaction and even E&O litigation. In addition to keeping yourself licensed, here are some significant E&O risks you should watch for.
For life and health agents, possible claims include:
- Failing to provide insurance.
- Not explaining product features and benefits effectively, resulting in misplaced expectations.
- Making an administrative error that costs a client money.
- Failing to make a requested policy change correctly or on time.
- Not correctly calculating a policy premium.
For P&C insurance agents, common allegations include:
- Not carefully explaining policy provisions.
- Failing to identify risk exposures adequately.
- Failing to recommend needed insurance coverage.
- Communicating inaccurate or incomplete client information to an insurer.
- Failure to provide notice promptly of a claim.
Preventing E&O Lawsuits is Your Best Policy
Keeping your agent license in effect is job one. Job two is avoiding E&O lawsuits. Here are some helpful risk-mitigation strategies that should keep you out of court:
- Use checklists to discuss risks to mitigate with insurance.
- Explain policy declaration pages to clients. Then have them sign and date those pages.
- Conduct periodic needs assessments with all clients.
- Use agency and customer-relationship-management (CRM) software to document all policy changes, client conversations, and meetings.
- Confirm all coverage decisions in writing.
- Ask clients periodically to review their policies, advise you of needed changes, and document this request in writing.
- Identify potentially litigious clients and take steps to provide extra education and communications to nip problems in the bud.
If you get sued, it’s essential to have E&O insurance to cover your legal expenses. With such coverage, your insurer will pay for your attorney costs, settlements, and legal judgments, not you. The possibility of getting sued is ever-present. Whatever type of insurance license you hold. Transferring the impact of these risks to an insurer will preserve your financial assets.
What’s the Cost of Doing Nothing?
The National Association of Insurance Commissioner’s Producer Licensing Model Act and the 14 reasons it outlines for terminating a producer’s license.
Now, each one of those reasons may not necessarily result in the state insurance commissioner revoking a producer’s license; the model legislation also outlines and suggests other courses of action. Each one is not exactly pleasant – it’s an annoyance at best and a complete termination of your days in the insurance industry at worst – but, taken together, these outcomes for skirting state laws reinforce the idea that the first and best course of action should always be to do the right thing from the outset.
Penalties for Bad Actors
If an insurance producer violates one of the 14 guidelines, the NAIC outlines best practices for state penalties. While each state varies, and you should educate yourself about the specifics of your states of operation, you probably operate in states that follow some version of these guidelines.
If an agent or prospective agent commits one or more of the 14 violations:
- The insurance commissioner will provide written notification of an applicant’s denial or a licensee’s nonrenewal or revocation, including the state-specific procedures and timeline for appealing this decision.
- The state can levy civil fines in place of license suspension, revocation, or refusal, or a state can levy fines in addition to that suspension, revocation, or refusal.
- Regardless of whether an individual is licensed in a state, insurance violations are within the purview of the state insurance commissioner.
If you act outside of your licensure or act in a way that misrepresents insurance products or benefits, you can expect to have the state fine you or take your license. That shouldn’t come as a surprise, and penalties for associated businesses such as agencies, MGAs, or carriers.
More surprising is how far those penalties may extend past an individual producer.
About businesses, the model legislation says:
- The insurance commissioner could suspend, revoke, or refuse a business license if “an individual licensee’s violation was known by one or more officers, partners, and or managers acting on behalf of the partnership or corporation.”
- A business may avoid being the direct target of action if it either reports a violation to the commissioner or takes action to correct the violation.
This legislation leaves the question of who’s on the hook for these violations. The idea here is that agencies, MGAs, or carriers could be in trouble not only if they were aware their agent violated state law but also if they should have been aware.
Connecting back to the penalties, an entire agency could lose their license and endure a state fine if they knew (or should have known) an agent was acting out of license and did nothing. While many in the insurance industry are surprised by this – ” they may think, we had our agents sign a contract taking responsibility for their actions” – this is a pretty natural extension of other insurance laws maintained by the states, such as the MGA Act.
We know penalties for a business will largely depend on the agent’s status within an organization. As we explored, in some states, designated responsible licensed producers‘ (DRLP) licenses are held to be synonymous with an agency’s license. Practically speaking, this means if you are your agency’s DRLP and you lose your license, your agency’s license (and possibly those of all the agents working under you) is terminated in that state.
Because of how the states support each other’s legal processes, it’s also possible that a violation in one state results in penalties across the others. Imagine the consequences for an agency whose DRLP violations in one state result in that state terminating its license. Not only would you have to reinstate your agency’s license with a new DRLP (and possibly renew any affiliated agents), but you may also have to get reappointed with your carriers since many states automatically terminate carrier appointments if they have suspended or revoked an agent or agency’s license.
And imagine repeating that across any other state of operation, what happened, why your license was jeopardized, and any protocols you’ve put in place to avoid future violations.
Now, sometimes these violations occur unknowingly. Other times, the intentionality of fraud is a driving factor. Regardless, if one bad apple can spoil the whole bunch, wouldn’t it be best to find it before it festers?
Compliance for Cost-Savings, 10 Ways MGAs and MGUs Can Use
Termination of insurance-related licenses –But the reality is that some insurance agents will leave the industry every year, not all for good reasons.
What causes an insurance license revocation?
States used to have to change regulations about the reason for terminating an insurance producer license—the Producer Licensing Model Act in 2005. National Association of Insurance Commissioners (NAIC), Section 12 provides states a standardized way to terminate a license.
The unique regulations apply to you and your associated agents in all states of operation, along with rules in most of the country.
Suspending or revoking an agent’s license, who’s responsible?
A state insurance commissioner or a court judge can suspend or revoke an agent’s license.
Section 12 NAIC’s Producer Licensing Model Act. The insurance commissioner may place probation, suspend, revoke, refuse to issue, or renew an insurance producer’s license. May levy a civil penalty for any combination of actions of the 14 reasons.
14 reasons for NAIC license denial, nonrenewal, or revocation
The guidelines are self-explanatory:
- Providing incorrect, incomplete, misleading, or materially untrue information in the license application.
- By order of the insurance commissioner or another state’s insurance commissioner for violating insurance laws, regulations, and subpoenas.
- Attempting to obtain or obtain a license through fraud or misrepresentation.
- Improperly withholding, misappropriating, converting any monies, and receiving properties while doing insurance business.
- Misrepresenting, intentionally, terms of an actual or proposed insurance contract or application for insurance.
- Been convicted of a felony.
- Admitted or found to have committed insurance fraud and unfair trade practice.
- In this state or elsewhere, using fraudulent, coercive, dishonest practices, demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business.
- Having an insurance producer license, or its equivalent, denied, suspended, or revoked in any other state, province, district, or territory.
- Forging another’s name for an insurance application or any document related to an insurance transaction.
- Improperly using notes or any other reference material to complete an examination for an insurance license.
- Knowingly accepting insurance business from an individual who is not licensed.
- Failing to comply with an administrative or court order imposing a child support obligation.
- Failing to pay state income tax or comply with any administrative or court order directing state income tax payment.
Most Producer Licensing Model Act rules cover the basics – don’t lie, cheat, steal, don’t coerce, or confuse, and don’t get in trouble in one state and then try to move—however, a little extra scrutiny.
Rules No. 1 and No. 3 say the same thing at first view. But No. 1 appears to cover mischaracterizations such as “lies of omission.” Instances could include where you have something – perhaps an arrest record or a last slap on the wrist in a different state – you don’t quite know whether to include an explanation in your application. Not including a complete and factual application may be denied by the state, and your insurance license (or revoked later).
Rule No. 3 deals with out-and-out fraud, an element of “intentionality.” While No. 1 could mean having your license suspended, revoked, non-renewed, or denied because of a mistake. No. 3 addresses that some people intended to lie and deceive the state in their application. A state would revoke an insurance license after learning it was obtained under less-than-honest means.
Surprising Reasons agents lose their licenses.
With the Producer Licensing Model Act, many ways to lose your license are straightforward: Trick people into buying insurance, taking their money, and using it for their business instead of paying it to the insurance carrier. And the status of your income taxes or child support could also jeopardize your license.
Rule No. 6, Being convicted of a felony, has many variations in the states. One disagreement among the states is how to handle felony convictions. Driving under the influence (DUI) and (DWI) driving while intoxicated. In all states, third offenses for DUI reach the level of a felony. Some states exempt this felony from consideration in the status of insurance licenses. Other states implement extended waiting periods and can require explanations and proof that you’re working to change your habits.
Regarding DUI and DWI convictions, the model legislation calls out felony convictions. Carriers or states require explanations for arrests or charges regardless of a conviction. Not all states follow these rules. A state like California, which is notorious for its heavy regulations, handles license violations will differ from a state such as Kansas, which often takes a looser approach (although Kansas itself adds two more provisions to the 14 outlined in the NAIC’s model legislation).
Can a revoked insurance license be reinstated?
Yes, but it also depends on why the license was revoked or suspended in the first place. If a state prohibits convicted felons from holding a valid insurance license, then an insurance agent with a felony can’t get their license reinstated. If it’s a matter of child support payments, a producer can get back their insurance license after clearing up any debt backlog.
Section 16 The NAIC’s Producer Licensing Model Act states that within 12 months of expiration, a producer may reinstate their insurance license without retaking a licensing exam if they would otherwise be eligible for renewal. If one of the 14 reasons could cause a producer to lose their license, your license must likely be eligible for renewal. It would help if you looked at your options after disciplinary action for license reinstatement.
Insurance license reinstatement after disciplinary action
When a producer loses their license because of misconduct, there are two ways to get back on the right side of the insurance law, reinstatement, or re-issuance. A license reinstatement means the producer’s previous license is reactivated, and license issuance means they’re issued an entirely new license. Getting a license back takes time to process.
How to get an insurance license reinstated
The NAIC’s Producer Licensing Model Act, steps for a producer to get their insurance license reinstated after a disciplinary matter are:
- The producer must send the insurance commissioner a written request for license reinstatement or reissue.
- If the producer’s license has been suspended and the expiration date has passed, the producer must apply for a new license (re-issuance).
- The producer can’t pass another licensing exam and get their license back. They must “include sufficient information to allow the insurance department to determine whether the basis of the revocation, suspension, forfeiture of the applicant’s license no longer exists and whether it will be in the public interest to grant the request for a new or reinstated license.”
- Responsibility for making this case is the producer. In most states, the producer is entitled to an administrative hearing if their initial request for license reinstatement or re-issuance is denied.
Insurance producer’s licenses are suspended or revoked for one of the reasons listed above (or others added by individual states) and prove they can be trusted with an insurance license again.
Ensure everyone in their distribution pipeline operates in good faith and complies with all applicable laws and regulations. Regarding insurance, one person acting outside the law can have far-reaching consequences.
National Association of Insurance Commissioners Supporting Regulators and Insurance Standards in America since 1871
The National Association of Insurance Commissioners (NAIC) provides expertise, data, and analysis for insurance commissioners to regulate the industry and protect consumers effectively. Founded in 1871, the U.S. standard-setting organization is governed by the chief insurance regulators from the 50 states, the District of Columbia, and five U.S. territories to coordinate the regulation of multistate insurers.
Assist state insurance regulators, individually and collectively, in serving the public interest. Together, they protect consumers and ensure fair, competitive, and healthy insurance markets.
By setting standards and best practices, conducting peer reviews, providing regulatory support functions, and coordinating regulatory oversight, they help support compliant and informed decisions.
Providing business intelligence, analytics, and reports for regulatory oversight functions and efforts helps make the U.S. one of the world’s most robust and resilient insurance markets.
Through an agile, state-based system National Insurance Producer Registry (NIPR) provide unique, dedicated, and unparalleled support for regulators and consumers from the 50 states, the District of Columbia, and five U.S. territories.
Who is leading your agency’s Licensing, Compliance, and State Requirements?
These are the moments when you realize the focus point of this article was licensing, but there is much more you might not have been aware of!
Just as you have agency best practices, processes, procedures, and workflows for the day-to-day operations and insurance placement, licensing is an area if you are a small to medium size agency. You may need a dedicated individual to handle the licensing and compliance process. There may be some license processing and oversight deficiencies, and the repercussions are far-reaching.
Are you eligible to apply for a license or renew a license? Knowing your NAIC and the state’s requirements for insurance licensing is essential before applying for a license. Within the NIPR webpage, you can select the state and license type to read the criteria to determine your eligibility.
Here are some areas to review:
License processes for your Agency: Who handles all the license appointments and tracks the processes, procedures, and workflows for compliance?
NAIC: Producer Licensing Model Act, review the regulations, expectations, and penalties for not abiding by your state or non-resident state rules.
NIPR: Know your state-specific rules and regulations and what is required to stay compliant if you hold non-resident licenses in other states.
Licenses: Who in your agency is licensed in your state, and what type of licenses do they all hold? Effective dates and renewal expectations for each.
Non-resident licenses: Each state has different regulations on the licensing process. Most require the agency to be appointed and a producer, owner, or depending on the state, a designated responsible licensed producer (DRLP), and others do not.
- Non-Resident appointments also may have specific guidelines and processes that must be followed within those states.
- Insurance Carrier contracts other states’ coverage.
- From accepting applications and the licensed producer or individual that must sign, receive payments, verify if you are doing business in a Trust State, and record retention.
You are working with licensed individuals, non-resident appointments, and different lines of business. Everyone in your agency should be aware of who handles the licensing in your agency. Staff should understand your agency’s processes, procedures, and workflows and who holds binding authority on other state licenses and policies.
There may be some license processing and oversight deficiencies, and the repercussions for not addressing them can be far-reaching. There can be fines and penalties in your state and other states and possible suspension or revocation of the producer or agency licenses.
Reviewing the licensing processes can highlight areas of attention that need to be addressed, raise awareness in the agency, and keep you compliant!
Reasons Your Insurance License Could Be Revoked
14 Reasons Why an Insurance Producer Might Lose Their License
24 JAN, 2023 UPDATED DATE
NAIC Model Laws, Regulations, Guidelines and Other Resources—
January 2005 © 2005
National Association of Insurance Commissioners 218-1 PRODUCER LICENSING MODEL ACT
NAIC Model Laws, Regulations
License Renewal and Reinstatement
Kansas Office of Revisor of Statues
K.S.A. 40-2404, and amendments thereto.
History: L. 2001, ch. 91, § 10; July 1