Florida Agencies Get "Legal" With Licensure Bill

Editor's Note: A law passed during the waning days of the 2005 legislative session required all insurance agencies operating in Florida to apply for licensure or registration by October 1, 2006. Until its passage, Florida had been the only state in the country that did not have some form of agency licensing. State regulators had long sought the bill, claiming it was necessary to protect consumers from being taken advantage of by individuals engaged in illegal or unethical conduct. While agent groups supported the bill in general, they fought hard for a “grandfather” registration clause for some existing agencies.

As October 1 loomed and the Department of Financial Services, which oversees the licensing requirements, was bombarded with last-minute applications, the powers-that-be decided to give agencies until November 1 to file before imposing administrative penalties. Here's a look at where things stand now.

“So many agents were flooding the Internet with their applications, they were jamming it up and slowing it down,” said Tim Meenan of Blank, Meenan and Smith, P.A. in Tallahassee, a lobbyist for the Florida Association of Insurance and Financial Advisors. “Extending the deadline one month took the pressure off.

“By and large I think a substantial majority of agencies are compliant,” he continued. “Where it gets confusing is in situations where agents may be working out of their home office or working from different offices. You also have agents who leave agencies and go out on their own, and there is a transition period where they are working out of their homes, or are semi-retired and serving their own clients from home. It does take some thought to figure out exactly what to register.”

Florida Agencies Were Last in Line

The impetus behind the agency license law stemmed from two factors: first, the recognition by the National Association of Insurance Commissioners (NAIC) that Florida was the only state in the country without an agency licensure law. More important to regulators, however, was an alarming trend that saw consumers being duped into purchasing insurance only to find they did not have coverage.

Under the agent regulations, the DFS has the ability to suspend or revoke an agent's license if he is engaged in unethical business practice or criminal activity. However, state law only requires that a primary agent be located in each agency, while a non-agent can own the agency. Prior to the agency licensure law, the DFS did not have the authority to verify whether someone owning an insurance agency has a criminal background or otherwise has engaged in fraudulent acts. Additionally, the department could take no long-range action to ensure that person did not set up shop again.

By and large, agents' groups conceded the value of DFS's reasoning. No one wants a bunch of crooks as colleagues. However, Meenan reported that he and other agency advocates wanted – and got – a “grandfather” clause for agencies in the business for several years. The bill eventually included a clause stating that agencies in operation prior to January 1, 2003, could opt to be registered, not licensed, as long as they were wholly owned by licensed agents, are publicly traded companies, or offer insurance to members of a non-profit corporation.

Fingerprinting Also Required

Agencies with operating dates after January 1, 2003, have to apply for a license for each place of business. The agency owners or the president and secretary of a corporation operating an agency must sign the licensing application. The agency owners must also submit fingerprints for the purpose of a criminal background check unless the agency is owned by a licensed agent whose fingerprints are already on file with the DFS. However, the fingerprint provision does not apply to corporations whose stock is publicly traded and regulators may not required credit or character reports on individuals seeking an agency licenses.

Other provisions of the bill prohibit the use of agency names that could mislead the public or imply the agency is associated with a state or federal entity or a charitable organization. Lawmakers also repealed a provision that a primary agent be designated in each agency location. The bill also eliminated the authority of the DFS to discipline agents in the event they committed an act that was “detrimental to the public interest.” The provision had been found unconstitutional since its wording was too vague.

Recognizing that agencies may have locations in more than one state, provisions have been made for agencies to hold both a resident and non-resident agency license. Since each agency location is being licensed, the resident or non- resident license will be determined by the specific location. Therefore, an agency could hold both a resident license if it has a physical location in Florida, and a nonresident license for an out of state location that is conducting business with Florida consumers in this state.

Penalties Will Be Stiff

Insurers are not responsible for making sure that the agencies they do business with in Florida have a valid agency license/registration. Compliance with the law currently rests with individuals, firms, partnerships, corporations, associations or other entities engaging in insurance agency activities.

If an agency qualifies for registration and fails to file an application, the department may impose an administrative penalty on the agency in an amount of up to $5,000.00. If an agency does not qualify for registration and fails to file an application for licensure, DFS may impose an administrative penalty on the agency in an amount of up to $10,000.00.

Applications are filed online through an automated application system. While applicants are not immediately advised of approval or disapproval of licensure or registration, they are notified whether or not the filing itself was successful. If an agency's application for registration is not approved, the agency has 30 days from receipt of notification to submit an application for licensure.

All in all, the law appears to have caused few disruptions for agencies, and provides several benefits to everyone. “DFS needs to know who and where the agencies are in order to regulate them,” Meehan conceded. “The fingerprinting is a good thing – it will help keep the felons out – and the licensing will help with reciprocity with other states.”

With everyone feeling so good about it all, Meenan does not expect to see changes to the law – this session.

Licensure and Registration Crib Sheets

All insurance agencies conducting business in Florida must apply for licensure or registration prior to October 1, 2006 (extended to November 1 by DFS).

There is no fee for licensure or registration.

Any location that an individual uses to perform a function that requires an agent license must be licensed or registered as an insurance agency. This means that an agent that is based in his/her home must obtain an agency license for that location.

Failure to apply for licensure or registration before the deadline may result in a fine of up to $10,000.

Agencies are eligible for Registration if they were in business prior to January 1, 2003 and are one of the following:

Entirely owned by licensed and appointed insurance agents

Publicly traded on a stock exchange

An agency whose primary function is offering insurance as a service or benefit to members of a nonprofit organization

All other agencies must apply for Licensure.

Every agency location must be licensed or registered with DFS. You may not obtain one license in order to cover multiple agency locations.

Every location must have a licensed and appointed agent in full-time charge of that agency. An agent may not be the agent in charge of multiple locations at the same time. The application will require you to identify the agent in charge of each location.

Registrations may not be recognized by other states for reciprocity. Licenses will be recognized by other states for reciprocity.

Agency licenses must be renewed every three years. There is no charge for renewals. Registrations do not have to be renewed.

Agencies will apply for licensure or registration online at https://aalf.fldfs.com. Renewals, Agent In Charge changes, address updates, requests for Letters of Certification, and other functions will also be performed at the same site

Agencies will not be appointed by insurance companies, and will not appoint the agents that operate within those agencies. Agencies are only authorized to appoint Customer Service Representatives (who may also be appointed directly by General Lines Agents).

The Department has created an extensive and helpful list of FAQs on its web site (www.fldfs.com),that answers even the most complicated question.

For example: If an agency has locations in more than one state, could the agency hold both a resident and non-resident agency license?

Answer: Yes. Since each agency location is being licensed, the resident or non- resident license will be determined by the specific location. Therefore, an agency could hold both a resident license if it has a physical location in Florida, and a nonresident license for an out of state location that is conducting business with Florida consumers in this state.

For answers to similarly esoteric questions (and basic what-ifs), go to the web site.

Differences Are Small But Important

Confused about Registration or License? The differences are critical.

Registration:

Registration is provided to agencies that were in business prior to January 1, 2003, and which qualify as one of the following:

Any agency wholly owned by insurance agents currently licensed and appointed under Chapter 626.

An incorporated agency whose voting shares is traded on a securities exchange.

An agency whose primary function is offering insurance as a service or member benefit to members of a nonprofit organization.

Registration is perpetual and does not have to be renewed.

A registered agency is not subject to compulsory or discretionary refusal, suspension, or revocation as described in ss.626.6115 and 626.6215. However, if any of the principals of the registered agency are found to have violated any part of the insurance code, the agency must obtain an agency license.

Licensure:

A license is obtained by the agencies that were in business on or after January 1, 2003, or the agencies that were in business prior to January 1, 2003, and do not meet the criteria listed above for registration.

A licensed agency is subject to compulsory or discretionary refusal, suspension, or revocation as described in ss. 626.6115 and 626.6215.

An agency license is valid for three years and must be renewed. There is no fee associated with the issuance or renewal of the license.

If an agency registers and then decides it would be more beneficial to be licensed, it may do so. The reverse, however, is not allowed. Once an agency has obtained licensure, it cannot be registered.