Frequently Asked Questions

Insurance agents can be classified into two separate categories: retail agents and wholesale agents. A retail agent is an insurance licensee who acts as an intermediary between an individual/entity seeking insurance coverage and an insurance carrier to underwrite the insurance coverage sought. 

Retail agents may also work with other intermediaries such as wholesale brokers and MGAs, who have carrier-binding authority, to place coverage. By comparison, a wholesale agent does not typically interface with the individual/entity insured directly but rather acts as an intermediary between retail agents, in an aggregating capacity, and an insurance carrier or the insurance carriers’ MGA to bind coverage.

Insurance brokers may be divided into two separate categories: retail broker and surplus lines broker. A retail broker is an intermediary who represents the individual/entity seeking insurance and an insurance carrier, or Carrier’s MGA, to underwrite the insurance coverage sought. A surplus lines broker is also an intermediary between the insured and the carrier who specializes in the placement of coverage for high value or other risks, which are not readily insurable through the admitted carrier market, with carriers on the states’ E&S whitelist of approved carriers.

A wholesale broker is a type of insurance broker who acts as an intermediary between a retail broker and an insurer while having no contact with the insured. Wholesale agents place business brought to them by retail agents. Unlike a retail broker, wholesale brokers have direct contact with the insurer, whereas the retail agent who produced the business does not. The same broker can function as a retailer or wholesaler, depending on the specific situation.

There are two types of wholesale brokers: managing general agents and surplus line brokers. The latter works with the retail agent and the insurer to obtain coverage for the insured; but unlike a managing general agent, a surplus lines broker does not have binding authority from the insurer.

A managed general agent is a specialized type of insurance agent/broker that, unlike traditional agents/brokers, is vested with underwriting authority from an insurer. Accordingly, MGAs perform certain functions ordinarily handled only by insurers, such as binding coverage, underwriting and pricing, appointing retail agents within a particular area, and settling claims.

Typically, MGAs are involved with unusual lines of coverage, such as professional liability and surplus lines of insurance, in which specialized expertise is required to underwrite the policies. However, MGAs also write some personal lines business, especially in geographically isolated areas (e.g., western Oklahoma, North Dakota) where insurers do not want to set up a branch office.

Insurance Third Party Administrators (TPAs) manage and process claims on behalf of insurers. Their scope of services can vary, though typically include gathering appropriate information about a claim, determining if the claim is payable, and even paying the claimant on behalf of the insurer. In this capacity, they may function as first-line customer service organizations for insurance companies. 

Insurance TPAs must have a valid license issued by the state they operate in before they can offer services. This ensures that Insurance TPAs are qualified and knowledgeable about the industry. Licensing also helps protect consumers from any potential fraud or negligence on behalf of the insurance TPA. 

Managing general agents (MGAs) and TPAs have some overlapping roles. The key differentiator is that MGAs help carriers sell and market their products, while TPAs help with managing and processing claims.

The simplest way to think about reinsurance is “insurance for insurance companies.” More specifically, reinsurance is a contract between an insurance company and a reinsurance company; it’s a tool insurance companies use to manage risks and limit the amount of capital required to support those risks. 

Reinsurers are typically larger, more established companies and often specialize in particular types of risks or lines of business. Reinsurance intermediaries act as go-betweens for reinsurers and insurers and are required to be licensed in most states. 

There are two types of reinsurance intermediaries: intermediary brokers and intermediary managers. An intermediary broker is an entity that solicits, negotiates, or places reinsurance on behalf of a ceding insurer without having the authority to bind reinsurance on behalf of the insurer. By contrast, intermediary managers have binding authority from the reinsurers and in that capacity effectively act as managing general agents or underwriters. 

An insurance aggregator allows business and personal insurance buyers to compare the policies, coverage, and prices of different insurance companies' offerings in one place. They are usually, but not always, online platforms. Aggregators provide an efficient way for consumers to get instant quotes from multiple insurers, allowing them to make informed decisions about purchasing the right policy. Though aggregators do not usually sell insurance directly, they are a type of insurance intermediary and as such need to be licensed by the Department of Insurance in each state in which they operate.

An insurance adjuster is a professional who helps assess the damages and resulting payments associated with insurance claims. There are three kinds of adjusters: public, independent, and company (or staff adjusters). Public adjusters represent the insured, while independent and staff adjusters represent the insurer. 

Insurance companies hire adjusters to inspect, evaluate, and talk to people involved in an accident or natural disaster. The adjuster then determines how much money the insurer should pay out on the claim.

Insurance carriers provide policies that cover a single specific risk or a number of specific risks under agreed terms and conditions. The three most common types of insurance companies are Standard Line Carriers, Surplus Lines Carriers, and Captive Carriers.

A Standard Line Carrier sells insurance policies such as life, health, auto, and home insurance to the general public. A Surplus Line Carrier specializes in providing coverage for higher-risk customers. A Captive Carrier is an insurer owned by a larger company that provides insurance only for that company’s employees or products.

In all cases, carriers assess the risks of insuring customers and determine the associated premiums. They also pay out benefits to customers who file claims for covered losses, either directly or through an intermediary such as a Managed General Agent (MGA) or Third-Party Administrator (TPA). Insurance is a highly regulated industry and carriers must be licensed in each state in which they operate, and follow many federal and state laws and regulations.

In sum, insurance compliance means adhering to the obligations as set forth in state and federal laws as well as the codes, rules, and regulations as promulgated by applicable federal and state agencies responsible for oversight of each aspect of the activities of individuals and entities who operate in the insurance space.

Insurance compliance can vary from state to state. Each state promulgates its own legislation. Each state agency promulgates administrative codes, rules, and regulations that govern individuals as well as entities (including carriers), which are chartered, licensed, registered, and/or transact insurance on an admitted and non-admitted basis within a state.

The insurance industry is policed by a number of different state and federal agencies. These include, but are not necessarily limited to: 

• Department of Insurance
• Department of State
• Department of Taxation
• Department of Banking
• Department of Financial Services or their state-named equivalent

There is also federal agency oversight of some insurance-related activities, as is the case with regard to variable annuity products by the SEC. Given the breadth of government agency oversight, maintaining compliance across the entire regulatory spectrum requires consideration of a myriad of different laws, as they may be applicable to each individual’s or entity’s specific insurance operations.

An insurance compliance manager necessitates understanding the applicable regulatory footprint of their organization’s business operations while continuously monitoring for new regulatory developments that may impact their organization, and assessing risks associated therewith.  They are also responsible for developing and executing policies, procedures, and internal controls to keep risk at levels acceptable to senior management with the aim of mitigating exposure to regulatory censure.

Yes, even if it happened 20 years ago.  As part of a state’s license due diligence process, states do take into account a licensee’s character and fitness to be licensed, and so prior felonies and misdemeanors may have a bearing on whether a state ultimately grants an insurance license. Disclosure typically requires the submission of a copy of the court record, disposition documentation, and a personal explanation relating to the felony and/or misdemeanor.

As a general rule, yes. Performing background checks on those serving in a position of authority at an entity licensee or having control over the licensee enables insurance regulators to eliminate prior to the issuance of an insurance license anyone it deems inappropriate, due to prior bad acts, from serving in a position of authority that may seek to take advantage of the unsuspecting insurance consumer.

Most states require DBAs to be approved prior to use by an insurance licensee. In most states, DBAs may not be used if they have not been approved by the state agency regulating insurance and are additionally properly registered in accordance with state registration requirements, such as those enumerated under the state business corporation law or limited liability company law.

The answer may vary based on a multitude of different factors. However, the answer is most frequently no: a non-resident insurance business entity does not need to be qualified to do business with the Department of State and Tax Department in every state it is conducting business in if it is licensed in every state nationally. 

As there is no single right answer for all insurance entities, we highly encourage each business entity to seek out guidance from appropriately qualified legal experts. Not doing so could cost your agency thousands of dollars per year in administrative and professional costs. To start, you can contact our team for a free consultation.

The answer may vary based on a multitude of different factors. However, the answer is most frequently no: a non-resident insurance business entity does not need to be qualified to do business with the Department of State and Tax Department in every state it is conducting business if it is licensed in every state nationally. 

As there is no single right answer for all insurance entities, we highly encourage each business entity to seek out guidance from appropriately qualified legal experts. Not doing so could cost your agency thousands of dollars per year in administrative and professional costs. To start, you can contact our team for a free consultation.

Insurance regulatory compliant means conducting business in accordance with the body of laws, codes, rules, and regulations which constitute the framework within which all activity associated with the transaction of insurance is governed at the state and federal level, as applicable. This framework includes, but is by no means limited to, regulation as it relates to: 

• Insurance products
• Forms
• Rates
• Services
• Income (commission, service, and referral fees)
• Premium tax
• Sales and marketing communication
• PHI and PII
• Data integrity
• Individual and entity licensure/registration/charter issuance
• Operating policies, procedures, and, in the case of insurance captives and carriers, capital requirements

The three main reasons for insurance regulation are:

• Create and maintain a framework for the attainment of an orderly insurance marketplace by balancing the needs of consumers and carriers and regulating the conduct of all market participants
• Protect consumers
• Generate revenue for the state through the collection of application processing fees, premium taxes, and regulatory fines

Overall, state departments of insurance play a vital role in maintaining a fair, competitive, and stable insurance marketplace while ensuring consumers are adequately protected and informed about their insurance-related rights and options. Their primary activities include regulatory and financial oversight of insurance carriers, licensing and regulatory oversight of insurance agents and brokers, and consumer protection and education.