What Is an Insurance coverage Company?


This put up is a part of a collection 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 usually are not. 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} typically contains companies with nebulous roles and frustratingly imprecise descriptions – think about FMOs, IMOs, and NMOs, or aggregators, or MGAs, or brokerages. That’s to not point out particular person and household practices, companies, or companies. Or, think about 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 realizing it once 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 companies, enterprise entities, and regulation, please keep in mind that this weblog shouldn't be complete, it’s not terribly authoritative, and, most significantly, it isn’t your in-house authorized counsel. So, in case you have questions on what rules apply to you and your small business, particularly, this may increase some questions so that you can examine additional, however discovering the solutions goes to be a query in your state regulator or precise lawyer.

Regulating companies – authorized definitions and licensure

This looks as if it might 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 corporation that’s assigned commissions? Is it licensed? Is it anybody or something that's serving to a producer promote insurance coverage?

As is so typically the case within the insurance coverage {industry}, a part of the dialogue varies extensively by state. The nuances of regulation explicit to companies are fairly totally different, whether or not you’re licenses, appointments, affiliations, DRLPs, and so forth.

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

  1. have staff or contracted employees 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. usually are not 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 acceptable state licensure necessities.

That is additionally a motive we’ve seen warnings resembling 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 buildings. To provide you an concept of what this appears to be like like, West Virginia’s steerage on insurance coverage companies 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 aside from an insurer or an adjuster as outlined by part twelve-b [§ 33-1-12b], article considered one of this chapter, which employs people licensed to interact in exercise or whose members interact in any exercise be carried out solely by a licensed particular person insurance coverage producer or solicitor. It shall not embody 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 form of firm could be an company however
  2. Even a whole lot of states that require companies to have a license don't acknowledge sole proprietorships as companies except there are a number of insurance coverage producers within the store

DRLPs, affiliations, and companies

As we’ve coated elsewhere, states require companies to report a chosen 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 permit companies to have their very own license, the DRLP license is often thought of synonymous with the company’s capacity to put in writing 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 companies to report all the companies who're writing on their contracts and who're utilizing their company relationship to safe service appointments.

Affiliations are additionally troublesome to keep up as a result of most states both require companies to maintain an inside document, or to report affiliated producers by way of particular person or state portals, so there aren’t choices for a central, bulk reporting functionality resembling 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 permit for enterprise entity appointments. After which some require each particular person, enterprise entity, or strolling emblem to have an appointment in the event that they plan to sneeze on an insurance coverage contract and receives a commission.

Department places of work

Department workplace rules add an entire new side 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 data, 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 range, and are so impactful on the definitions and necessities for agency-based guidelines, it may be troublesome to maintain straight what degree any given enterprise is at in a distribution pipeline. In the event 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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