You must be as mad as a Mad Hatter to
venture into the fantasyland of U.S. insurance
In Lewis Carroll’s story Alice’s Adventures in Wonderland,
Alice falls down a rabbit hole into a fantasy world populated
by peculiar creatures and strange rules.
Anyone entering the U.S. insurance regulatory system for the
first time must feel a lot like Alice did when she fell into
that rabbit hole. It doesn’t quite make sense, there is
no one set of rules, and some think it is populated by
Unlike in many other countries, the business of insurance in
the U.S. is not regulated at the federal level. It is regulated
by the states, each with its own twist on regulating insurers,
brokers and others engaging in the “business of
insurance.” That’s 50 states plus the District of
Columbia, Puerto Rico, the Virgin Islands, Guam, and the
Northern Mariana Islands with different rules.
The system works just fine if you operate in a single state,
which some do, but it is a regulatory labyrinth if you operate
across state borders, which all Council members do.
Over the years, The Council and others in the industry have
lobbied for a more uniform system. Those efforts have met
strong resistance from smaller agents. While the majority of
state regulators support greater uniformity, they have made
little progress in that direction, and what progress they have
made probably wouldn’t have happened without the threat
of federal regulation hanging over regulators’ heads.
That’s as true today as it was 10 years ago when
Congress passed the Gramm-Leach-Bliley Act, which included a
Council-sponsored provision designed to compel the states to
enact licensing reforms. These provisions mandated that states
put in place a more uniform agent/broker licensing system or
face federal regulation.
After the legislation passed, the National Association of
Insurance Commissioners developed the “Producer Licensing
Model Act,” which was intended to bring more uniformity
to the agent/broker licensing system. To date, 48 states have
adopted some parts of the model with the notable exceptions of
California and Florida.
While adoption of the NAIC model has made it easier for
producers to get licensed across state lines, it hasn’t
eliminated the differences among the states. A glaring example
is that some states require the business entity to be licensed,
while other states do not.
For you newcomers and for some of our international readers,
here are a few insights into how agents and brokers are
regulated in the U.S.
- Licensing of agents and brokers differs in a major way
from many other nations. In the U.S., we license individuals.
Many states also require the business entity to be licensed,
but the primary focus of regulation is on the individual
agent and broker. That’s not to say the business entity
doesn’t have responsibilities for its producers, but
the individual is responsible for obtaining and maintaining
- Most states have adopted the NAIC model’s
activity-based definition of producing as “sell,
solicit and negotiating.” This approach ensures that
anyone involved in those activities is licensed, regardless
of whether they work for a bank, an insurer or an insurance
- Some states have adopted the model’s generic term
“producer” for agent or broker and defines it as
any business or person who sells, solicits or negotiates
insurance in the state. This term doesn’t eliminate the
legal differences between an agent and a broker, and most
states still require agents to be appointed by an insurance
- To become a producer, an individual must be licensed in
one state as a resident. The person does not have to be a
U.S. citizen but does have to show proof of eligibility to
work in the U.S. (green card or visa). To obtain a resident
license, states require pre-licensing education courses and
passage of an exam. Some states exempt individuals from
courses and/or the exam if they have a professional insurance
designation or a college degree in insurance. States also
require the producer to take continuing education courses to
maintain the license.
- Most states require background checks, and some states
require the submission of fingerprints. Convicted felons
generally can’t get licensed unless they obtain a
special waiver from the state insurance regulator.
- Individuals licensed and in good standing in their home
state can apply for a non-resident license in other states.
Many, but not all, states have adopted reciprocity, which
means the state will accept the licensing qualifications of a
producer’s resident state for the purposes of
- The license renewal process varies by state. For example,
some states use the birth month for license renewals, some
set a date, and some use the date the original license was
Welcome to America’s rabbit hole.
Kemper is The Council’s vice president of Industry