State Regulation, Part I: State Departments of Insurance Often Don’t See The Big Picture

Despite many states adopting the NAIC’s Producer Licensing Model Act, in part or in whole, issues persist from state to state based on the lack of uniformity.

(Image credit. A.O’Donnell.)

No one ever said insurance was simple; indeed, if you have ever worked in the insurance industry, you know it is one of the most highly regulated industries in the United States. Adding confusion to the complexity, each state has its own set of rules and regulations, which more often than not have no reciprocity with one another. Those who work in insurance compliance, specifically licensing, have seen the environment change over the years from paper submission to electronic submission, including the process of onboarding new producers. Yet even in a paperless environment, many licensing professionals still experience frustration.

Processing is actually only a small part of the picture. Despite many states adopting the National Association of Insurance Commissioners’ (NAIC) Producer Licensing Model Act, in part or in whole, issues persist from state to state based on the lack of uniformity.

To illustrate what we mean, here is a mere sampling of what an insurer must consider when complying with each state’s statutes and regulations. When reading the examples below, imagine what it would be like to build all these rules into a database that ensures compliance with every state:

  • In what line of authority must a producer be licensed to sell a particular product in a resident state and nonresident state (different states have different lines of authority for the same type of product)?
  • Does the state require the insurer to appoint the producer?
  • Does a business entity have to be licensed?
  • If the business entity must be licensed, does the insurer have to appoint it?
  • Within how many days must an insurer submit an appointment (when contracted or when the first piece of business is submitted to the insurer)?
  • Within how many days must an insurer send producer notification after the appointment is sent to the department of insurance (DOI)?
  • Within how many days must an insurer send the producer a pre-notice prior to an appointment termination submitted to the DOI?
  • Within how many days must an insurer send a post-notification to the producer after an appointment termination has been submitted to the DOI?
  • What components of license verification (credit, federal, state, county, or criminal search) are required by the state for an insurer to conduct a background investigation, and on whom (producer, officer, or designated responsible licensed producer)?
  • How often must the insurer conduct background checks while the individual is active(initially, ongoing, or after each appointment)?
  • Must an individual be affiliated with the agency, and if so, is the individual appointed separately by the insurer or does the agency appointment cover the individual?

Starting from this list, here are some additional observations of states’ statutes over the past several months:

Each state’s department of insurance (DOI) focuses on its own state, because their first responsibility is to protect their consumers. However, no state should look only at its own issues without considering the big picture. Reciprocity and uniformity are key considerations—unless you are an entity unto yourself, you have to consider your surroundings. After all, looking back at U.S. history, the purpose of forming a nation was to unite individual states to “form a more perfect Union”—that’s actually in the preamble to the Constitution.

The Merriam-Webster Dictionary defines ‘united’ as “being in agreement.” Individual states’ departments of insurance must increasingly consider that 54 other jurisdictions surround them (50 states, DC, and 4 territories). DOIs, now more than ever, must consider the overall circumstance and work in a unified manner, incorporating all states to create uniformity and reciprocity. Yet despite the passage of years and the threat from the federal government to take on the management of producer nonresident licensing, DOIs persist in maintaining disparate requirements. Although some state DOIs labor under the belief that the requirements are uniform across the country, their state-based rules, built into their software systems, continue to exhibit many differences.

This is particularly critical at a time when producers are selling across state lines more than ever before. People relocate for jobs, family obligations, and better living conditions. According to an article written by the National Association of Insurance and Financial Advisors (NAIFA) describing the National Association of Registered Agents and Brokers (NARAB):

In today’s increasingly mobile world, it is a disservice to insurance consumers to have a regulatory system in place that makes it difficult for them to retain their trusted agent regardless of where each resides. According to a 2012 poll, 80% of NAIFA members surveyed have lost clients who moved to a state where the NAIFA member was not licensed. 12% of survey respondents have lost over 50 clients due to their clients moving to another state.

Author’s Note: In our next piece in this series, we will look at current policy attempts to integrating and streamline state-to-state regulation, and where the industry is now.

How Insurers Can Save Money and Maintain Compliance—Part 1: Optimizing the Affiliated Agent Process

Karen Machamer // Karen Machamer, an industry veteran of 23 years,  is expert in the crucial details of regulatory compliance, and is a strong advocate for more consistency within the industry. At time of writing, Karen Machamer was Insurance Licensing and Compliance Manager at VUE Software, Inc. VUE Software specializes in innovating and automating business processes for the insurance industry across Carriers, MGAs, IMOs and Distributors. For further information, please email to

Leave a Comment