18 Best Practices for Insurance Agency Compliance – Part 1

Compliance is an essential part of the insurance agency business. Keeping up with ever changing rules and regulations, however, can be a daunting task. While there is no one-size-fits-all approach to compliance, having solid best practices in place can help your organization avoid costly fines, reputational harm and disruption to your agency revenue stream.

This post is part one in a three-part series where we’re sharing our top 18 best practices for maintaining an effective insurance agency compliance program. The areas outlined herein reflect the combined wisdom from my 20 plus years as a corporate and insurance regulatory compliance attorney and the 100+ years of legal and compliance expertise of the professionals at 3H Corporate Services. From understanding existing legislation to ensuring proper document maintenance, here are our key tips to keep in mind.

1. Seek the Advice of an Expert when Forming or Expanding Your Agency

If you are forming a new insurance agency, considering expanding into new geographical areas, adding products or lines, or upgrading your carrier relationship to, for example, that of a Managed General Agent (MGA), seek the advice of a legal expert in the insurance and corporate compliance arena. I cannot tell you how many times we encounter agencies that don’t have the requisite licenses or Secretary of State registration and Department of Revenue footprint, and equally those that have licenses, Secretary of State and Revenue qualifications they simply do not need. 

While the former situation could lead to revenue stream issues, such as from carriers who refuse to pay your agency production commissions due to your agency’s failure to be properly licensed, as well as state agency fines and penalties, that later situation is  equally concerning  and costly because having an overly large licensing, Secretary of state and Department of Revenue footprint could cost your agency $10-50K in initial formation expenses, not to mention ongoing annual expenses paying state, staff and third-party service providers, including those providing license maintenance and state statutory registered agent representation, to maintain that footprint.

I recognize that this sounds self-serving. But the truth is, not all corporate attorneys have the expertise to optimize your filing footprint. When you consider the initial and ongoing costs, engaging the services of a corporate and insurance regulatory compliance attorney is a smart best practice.

2Use Approved Company Names

Improper usage of a company name is among the more common compliance pitfalls we see. Long, multi-name agencies may get shortened for convenience or marketing purposes. Or, an agency consciously changes the name it uses, but fails to file the proper paperwork in all requisite jurisdictions. Whatever the reasons, using a non-approved entity name creates exposure to state administrative actions.

All businesses, including insurance agencies, may only use their legal name or an approved Doing Business As (DBA) name. For agencies, DBAs are generally approved at the state level by the Department of Insurance (DOI) and/or Secretary of State (SOS). Additional approvals and filing submissions may be necessary at the county, city, or town level, depending upon the state and location in which the DBA is being used.

3Establish a Robust Licensing Protocol

The first contact I have with many new clients comes after they have experienced an insurance licensing compliance issue. In my experience, the level of attention applied by individuals and entities to licensing runs the gamut from high priority to a low priority, with most falling somewhere in between these two poles. Failing to ensure that the requisite licenses are added when expanding into new geographies and adding product lines are common areas of exposure. So too is failing to ensure that material agency and employee licensee changes are reported on a timely basis to the states. An additional area of exposure for MGAs, wholesalers and aggregators is failing to ensure that independent third-party licensees who they’re doing business with remain properly licensed throughout the duration of the relationship.

I cannot overemphasize the importance of allocating appropriate resources to establish and maintain an adequate licensing protocol with a focus on the following:

Capturing and reporting licensee changes. 

Material changes, including changes in ownership, management, DRP, address, entity and individual name, and state administrative action(s), need to be reported to all the states your agency, and licensed employees, are licensed in generally within 10-30 days following the effective date of change.

Ensuring geographic and product oversight.

You must be vigilant as to where your agency and its producers are transacting insurance to ensure your agency, its licensee employees and third-party independent licensee contractors are licensed in the requisite lines of authority in every state in which insurance coverage is being provided.

Tracking independent employee licensure.

It is essential to ensure independent agents are properly licensed where business is being transacted.

4. Consider Naming a Second Designated Responsible Person

At least one licensee, preferably a corporate officer (a corporate officer is required in some states), must be appointed to serve as your agency’s Designated Responsible Person (DRP). The ongoing licensure of the DRP is mission critical to your agency’s ability to transact insurance. Accordingly, there should be no lapse in the DRP’s licensure across the agency footprint. Not all states allow it, but to the extent practicable I recommend that a second DRP be appointed for succession and business continuity purposes.  If you’re reading this and don’t have a second DRP, consider the impact of the sudden, unexpected death of your DRP, then immediately write a note to yourself to initiate action on this today!

5. Allow only Licensed Employees to Transact Business

When it comes to transacting business there are so many places and ways for compliance lapses to occur. I can recall more than a few instances where a new client was unaware of what activities their unlicensed employees are permitted to perform. Only employees licensed in the lines of authority and states where insurance coverage is being provided may transact insurance business. Examples of transacting insurance business include but are not limited to:

  • Selling or soliciting insurance coverage or products
  • Negotiating a contract of insurance prior to execution
  • Executing a contract of insurance
  • Soliciting, procuring, or renewing a contract of insurance
  • Disseminating information as to coverage or rates
  • Communicating regarding one or more terms or provisions of a current, past, or potential agreement to provide insurance or an insurance policy
  • Forwarding or accepting an application for insurance coverage

This is not a comprehensive list. If you have any questions or concerns about what a non-licensed employee may do, I encourage you to consult with an appropriately qualified insurance regulatory compliance expert or get in touch with us here at 3HCS.

The key takeaway here is employees who are not licensed may not transact insurance for and on behalf of your agency. Create and provide all your employees with a clear description of the types of tasks they may/may not perform with an emphasis on what they may not do. And you must maintain management oversight of employee activities being mindful to align tasks/responsibilities which are considered transacting insurance business with those employees who possess the requisite license. (I cover and provide examples of the functions that non-licensees may undertake here.)


These are just a few of the many ways you can keep your insurance agency compliant. By implementing the best practices outlined herein, you’ll be several steps closer to ensuring that your agency avoids exposure to federal and state administrative censure. Please check back for the next installment in this Best Practices series. In the meantime, if you have questions about how to keep your agency compliant or which regulations apply to you, use the form below to reach out. Or give us a call, now.

~Gary T. Harker, Esq., LL.M.