More and more, the question of “are you authorized to sell insurance?” is being asked by carriers, agents and brokers alike. Unfortunately, the answer is rarely black and white.

Many factors complicate the issue and the answer to this question. To name just one hurdle, the complexity of regulatory and education requirements placed on agents and carriers is constantly growing.

New education prerequisites for selling insurance products such as annuities and long-term care add to the complexity because these requirements are not directly tied to licensure.

While the passage of new financial regulations in the form of the Frank-Dodd Act has little immediate impact on insurance licensing, it does set the stage for future federal regulation, either in the form of a renewed National Association of Registered Agents and Brokers Reform Act II (H.R. 2554) or some form of optional federal charter being driven through the newly created Federal Insurance Office.

As a result, agencies may find themselves without the tools or expertise to understand or address these changes.

This leaves insurance carriers shouldering the burden of both catching problems and fixing them, since carriers also risk regulatory action and lost revenues.

The cost for the industry is significant. Carriers invest millions annually to stay on top of this uncertainty and are looking to share this financial responsibility with agency partners.

MANAGEMENT OPTIONS

Authorization management is the term for this problem that is gaining recognition in the industry, and as the term implies, you can be certain it involves more than just agents being licensed.

The traditional approach toward authorization involves certifying an agent is properly licensed and subsequently appointed by a carrier to write certain kinds of business. But what kind of license does that agent need, and are there any special education requirements?

At a high level there are three factors involved in determining whether an agent can write business:

o Location–in which state is the policy or risk being written?

o Product–what kind of policy is being sold?

o Carrier–for which carrier is the product being sold?

The combination of these three variables determines the license required, the appointment needed, the education requirements, and even the type of selling contract and commission schedule necessary.

So, when does an agent truly need to be authorized?

For those still looking for a quick answer, or one that appears black and white, it is important to note that it's not just when binding the policy with the policyholder that an agent must be licensed.

In fact, authorization is often required at various points in the life cycle of a policy, beginning with solicitation. In some states, agents need to be properly authorized, including appointed, to just present a product to a client. States with this requirement are called restricted states.

Unfortunately, the information required to determine when an agent must be authorized is often contained in several different places or systems.

Indeed, even when the information is collected, someone must aggregate it, make a decision about authorization, and then notify others that a particular agent is “in good order” to write business.

In some cases, carriers may have 100 or more people involved in managing or checking authorization, ranging from field marketing, to customer service representatives to licensing and compliance staff.

Carriers are often “overcompliant” by appointing their agents in all states where a producer is licensed and might sell policies, even if they never end up selling a policy there. However, this practice is expensive and can unnecessarily cost carriers millions in appointing and renewal fees annually.

As a result, many carriers are beginning to consider a strategy of “just-in-time” appointing. The concept is an attempt to save money by only appointing an agent when they have business in hand.

While this can save money in fees to the state, just-in-time puts a deeper burden on carrier staff and applications to ensure agents are properly authorized when they need to be. Consequently, the risk of non-compliance increases substantially.

SOLUTIONS

So, what's being done to address the challenge?

The industry is looking to technology to help solve this problem. The technology relies on three key components:

o A centralized producer repository versus separate line of business repositories or applications whose primary focus is not producer life cycle authorization management.

o A sophisticated rules engine to handle the regulations and requirement by product rather than by license or appointment line of authority.

o Connectivity, which is ultimately a way for carriers to electronically connect with distribution partners and state regulatory bodies to automate the flow of information back and forth, as well as periodically synchronize this information with trusted data sources such as the national producer database.

Needless to say, it will take more than just standards and technology to solve this problem. For significant breakthroughs to occur, adoption of the technology and standards by all of the major stakeholders is necessary.

This means agencies and carriers need to be better connected throughout the authorization process, beginning with agents getting on board and continuing through to policy issuance and binding. Bringing this diverse group of stakeholders together is the real challenge.

Solution providers already serving agencies and carriers, as well as state regulators and continuing education providers, are best positioned to connect the stakeholders and drive adoption of the standards and technology.

Scott Morrison is vice president for Sircon, a Vertafore business. He may be reached at smorrison@sircon.com.

Special Reports /

Agents Challenged By Authorization Complexity

Related Stories

Recommended For You