What the New Federal Licensing Law Means to Insurance Agencies
- January 21, 2015
An AgencyEquity Exclusive
Dan runs a small insurance agency in a mid-Atlantic state. His market niche is insuring businesses in the outdoors recreation industry, such as guides and outfitters who offer mountaineering, paddling, snow and equine services. Related to that, he insures nonprofit environmental conservation and outdoor activities organizations.
Because the market for these types of operations in his own state is limited, he offers his services countrywide, insuring hiking guides in the Rockies as well as the Appalachian Trail. That market reach, though, has come with its own special cost: The expense and difficulty of maintaining the appropriate licenses in all 50 states. Each state has its own unique laws, regulations, requirements and fees for insurance producer licensing. Complying with them all has been a full-time job by itself.
That may soon change, however, as a new federal law, the National Association of Registered Agents and Brokers Reform Act of 2015, takes effect. This law may make multi-state licensing much easier for Dan and insurance producers like him.
The law creates a non-profit organization called the National Association of Registered Agents and Brokers (NARAB). This organization, which will not be a federal government agency and cannot receive federal funds, will provide a simple process for producers to meet multiple states' requirements and obtain non-resident licenses. However, individual states will still retain much of their authority in areas such as setting licensing fees, making and enforcing rules for producer conduct, and continuing eduction requirements.
A producer who joins NARAB will automatically be authorized to sell, solicit and negotiate insurance in any state to which he pays the state licensing fee. However, he will be able to sell only those lines of coverage for which he is licensed in his home state. All applicable state laws and regulations will also automatically apply to him, but he will have to meet only the continuing education requirements of his home state.
Membership in NARAB will be voluntary, but all individual producers and business entities (other than those whose licenses have been suspended or revoked) will be eligible to join. NARAB will set criteria for membership, including personal qualifications, training and experience, but it may not unfairly hinder small insurance producers from joining. The qualifications it sets must meet or exceed current National Association of Insurance Commissioners standards. Producers will have to renew their memberships every two years.
Those who reside in states that do not require criminal background checks will undergo a check of FBI records for evidence of past criminal activity; NARAB may deny membership based on the results of that check. NARAB will also have the authority to suspend or revoke a producer's membership or place him on probation for failing to meet membership requirements, suspension or revocation of a license, or conviction of certain crimes.
NARAB will collect state licensing fees from producers and forward them on to the states. It will also notify all states and the NAIC when:
- A producer joins the association
- A producer becomes newly authorized or unauthorized to operate in a particular state
- It disciplines a producer.
States will inform NARAB of disciplinary actions against producers.
One significant advantage for producers is that NARAB will free them from some of the state requirements that apply to them now. For example, states will be prohibited from requiring them to submit to criminal background checks or register with the government as a foreign company.
Also, the improved ability to obtain non-resident licenses should open up additional markets for producers. Agencies with specific market niches, like Dan's, will have an easier time expanding into other states. This will potentially increase their revenues and profits. The resulting increase in their financial strength may give them the means to acquire other agencies. Conversely, if an agency is looking for buyers, the expanded market should help it command a higher sale price. If two agencies have equal revenues but one has access to markets in its niche in three other states, the second agency should have a higher valuation.
The association will not be up and running overnight. The law takes effect on January 12, 2017 or the date that the association incorporates, whichever is later. Much work has to occur between now and then, including appointing a board of directors, hiring staff, and determining standards and fees. However, if it performs as envisioned once it's online, it should make multi-state licensing much less burdensome for insurance producers.
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