For which of the following actions can an agents license be suspended or revoked?

Earning your insurance agent license is just half the battle. Now you need to protect it against state suspension or revocation. Here’s what to do.

Sometimes the allure of easy money overcomes good judgment. That was the case for a New England insurance agent. Instead of doing the hard work of generating leads, assessing needs and closing insurance sales, he created customers out of whole cloth.

He submitted 40 phony insurance applications with one insurer, netting nearly $50,000 in commission advances. He submitted 145 sickness and accident insurance applications from 83 fabricated prospects, collecting $64,000 in commission payments with another carrier. When his state’s insurance department learned of his scheme, it revoked his license, meaning he could no longer do business there.

Fortunately, this unethical agent is a rare case of someone who preferred stealing from insurance companies instead of doing business honestly. Most insurance agents who sell for life, health, property-casualty and other policy types believe in persuading real people, not fictional ones, to buy insurance.

However, being dishonest isn’t the only way to lose your agent license. Suppose you fail to uphold the administrative requirements of your license by failing to get it renewed on time or neglecting to complete your annual or biannual continuing-education requirements. In that case, you might lose your ability to do business in your state. Each year, thousands of agents are prohibited from selling insurance for these and other easily preventable reasons.

The Reality of Insurance Regulation

The insurance business is one of the most highly regulated industries in America. The advantage of regulation? Fewer defrauded consumers. The disadvantage? The heavy compliance burden insurers and agents must shoulder. And since companies and agents often operate in multiple jurisdictions, compliance requirements can snowball geometrically. This is especially difficult for self-employed agents and owners of small insurance agencies.

To keep your agent license, you need to know precisely what your state insurance department expects of you. That means familiarizing yourself with your state’s insurance statutes (not scintillating bedtime reading, to be sure). But if you persist, you’ll learn that agents can lose their license for many different reasons, including the twelve enumerated in Section 12 of NAIC’s Producer Licensing Model Act (ratified in all jurisdictions except ten states and three territories). They include:

• Providing incorrect, misleading, incomplete, or otherwise false information in an agent license application.
• Violating a state insurance law, regulation, or subpoena in the agent’s domicile state or any other state.
• Trying to get licensed through misrepresentation or fraud.
• Illegally withholding, misappropriating, or converting any money or property received while doing business as an agent.
• Intentionally misrepresenting the terms of an actual or proposed insurance contract or insurance application.
• Being convicted of a felony.
• Engaging in an unfair trade practice or fraud.
• Using fraudulent, coercive, or dishonest practices or demonstrating incompetence, untrustworthiness or financial irresponsibility while conducting business in your state or elsewhere.
• Having your agent license in another state, province, district, or territory denied, suspended, or revoked.
• Forging someone else’s name on an insurance application or any other document needed in an insurance transaction.
• Cheating on the insurance-agent licensing exam.
• Knowingly accepting insurance business from an unlicensed individual.
• Failing to comply with an administrative or court order imposing a child-support obligation.
• Failing to pay state income tax or to comply with any administrative or court order directing state income tax payment.

Many agents are surprised when they learn they can lose their license for failing to make good on their child-support or state income tax obligations. One of the most common reasons for losing one’s license is failure to pay state taxes. For instance, in a recent Wisconsin media report, 18 out of 28 insurance agents targeted for enforcement lost their licenses because they were delinquent on their state income taxes.

If you lose your license for any reason, you will be barred from the industry until you can regain your credential (if possible). Losing your ability to earn money from your chosen profession is something to be avoided at all costs. For this reason, it’s essential to familiarize yourself with your state’s insurance laws, including the specific steps you must take to qualify for and to renew your license.

While You’re At It . . . Watch Your Other Risks and Legal Exposures

Many of the actions listed above can put you at legal risk with your state insurance departments. Some can also lead to client dissatisfaction and even E&O litigation. In addition to keeping yourself licensed, here are some of the significant E&O risks you should watch for.

For life and health agents, possible claims include:

• Failing to provide insurance.
• Not explaining product features and benefits effectively, resulting in misplaced expectations.
• Making an administrative error that costs a client money.
• Failing to make a requested policy change correctly or on time.
• Not correctly calculating a policy premium.

For P&C insurance agents, common allegations include:

• Not carefully explaining policy provisions.
• Failing to adequately identify risk exposures.
• Failing to recommend needed insurance coverage.
• Communicating inaccurate or incomplete client information to an insurer.
• Failing to provide timely notice of a claim.

Preventing E&O Lawsuits is Your Best Policy

Keeping your agent license in effect is job one. Job two is avoiding E&O lawsuits. Here are some helpful risk-mitigation strategies that should keep you out of court:

• Use checklists to discuss risks to mitigate with insurance.
• Explain policy declarations pages to clients. Then have them sign and date those pages.
• Conduct periodic needs assessments with all clients.
• Use agency-management and customer-relationship-management (CRM) software to document all policy changes and client conversations and meetings.
• Confirm all coverage decisions in writing.
• Ask clients periodically to review their policies and to advise you of needed changes. Document this request in writing.
• Identify potentially litigious clients and take steps to provide extra education and communications to nip problems in the bud.

If you get sued, it’s essential to have E&O insurance to cover your legal expenses. With such coverage, your insurer will pay for your attorney costs, settlements, and legal judgments, not you.

In short, whatever type of insurance license you hold, the possibility of getting sued is ever-present. Transferring the financial impact of these risks to an insurer will preserve your assets, significantly reducing stress and letting you sleep well at night.

Having E&O insurance is essential for an insurance agent or broker risk-management program. Learn more about the 360 Coverage Pros Errors and Omissions (E&O) insurance program.

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