Insurtech Licensing in the US: When an Embedded Insurance or Comparison Platform Needs a Producer Licence

An insurtech, embedded insurance or comparison platform needs a US producer licence in each state where it sells, solicits or negotiates insurance. In practice that means a licence is needed once the platform recommends or compares specific policies, quotes prices, discusses policy terms, takes applications, or is paid when a customer buys. A platform that only hosts a licensed agency's advertising, or makes simple referrals paid without regard to whether a policy is bought, can often stay unlicensed, but the line is drawn by each state and the referral rules differ.

This guide sets out the legal test, how New York and Washington draw the lines on advertising, referrals and lead fees, the three licensing models embedded platforms use, and where limited lines licences fit. The licences themselves are covered on our page on US insurance agency and MGA licensing.

The legal test: sell, solicit or negotiate

Most states follow the NAIC Producer Licensing Model Act (#218). It says a person may not sell, solicit or negotiate insurance in a state unless licensed there for that line of authority. The definitions are what matter for a platform:

• Sell: exchanging a contract of insurance by any means, for money, on behalf of an insurer. A platform that binds cover or takes payment for a policy is selling.
• Solicit: attempting to sell insurance, or asking or urging a person to apply for a particular kind of insurance from a particular company. A "recommended for you" panel naming an insurer can be soliciting.
• Negotiate: conferring with or advising a buyer directly about the substantive benefits, terms or conditions of a particular policy, where the person also sells or obtains insurance. A chat assistant that explains which policy's exclusions suit the user can be negotiating.

The words "by any means" matter. The test applies to websites, apps, chat tools and partner APIs as it does to people. The model also prohibits any insurer or producer from paying commission, a service fee or other valuable consideration to a person for selling, soliciting or negotiating if that person should be licensed and is not, and prohibits the unlicensed person from accepting it.

What a platform can do without a licence

The model's exceptions are narrow. The one most relevant to platforms covers a person whose activities in a state are limited to advertising, without the intent to solicit, through printed publications or other forms of electronic mass media whose distribution is not limited to residents of the state, provided the person does not sell, solicit or negotiate insurance on risks in that state.

Another exception covers people who secure and furnish information for group insurance or enrolment, or perform administrative services for mass-marketed property and casualty insurance, where no commission is paid for the service. Employer benefits administration has its own exception.

Beyond the model, states have written their own rules on referrals and lead fees. Those rules decide most platform questions.

How New York draws the line

The New York Department of Financial Services (DFS) has published Office of General Counsel opinions on websites and lead fees. Each reflects the department's view at the date of the opinion. Together they give the clearest map of the three categories a platform can fall into.

Sources: DFS OGC Opinions 00-07-07, 01-02-10, 01-06-26, 03-02-15 and 06-05-03.

Two points follow for product design. First, the wording and character of a link decide whether it is the agent's advertisement or the platform's recommendation. Second, the payment basis is decisive for referrals: per lead is acceptable, per sale is not.

How Washington draws the line

Washington's Office of the Insurance Commissioner takes a different approach to referral fees. Under RCW 48.30.133(4), a producer may pay a referral fee to an unlicensed person who refers someone to the producer, without a cap on amount, but the fee must be conditioned on the referred person submitting an application for insurance. The fee may not go to an unlicensed person who sells, solicits or negotiates insurance, or to any insured or prospective insured. Separately, referral compensation such as gift cards or merchandise is limited to US$100 in aggregate in any 12-month period.

The contrast with New York matters for a national platform. A referral fee conditioned on submission of an application is the Washington model. New York requires a fee that is not based on purchase. A single national fee model has to satisfy the strictest state where the platform operates, or the platform must be licensed.

Three licensing models for embedded and comparison platforms

Once a platform's journey crosses into selling, soliciting or negotiating, there are three ways to operate lawfully.

The licensed platform model is the norm for comparison sites that show live quotes from several insurers and are paid commission, and for insurtech agencies that sell direct. The steps are set out in our guide on how to license an insurance agency in all 50 states. Platforms that underwrite as well as distribute become MGAs and should read our guide to MGA licensing in the US.

Limited lines licences for embedded products

Limited lines licences were built for insurance sold alongside another product. The NAIC Travel Insurance Model Act (#632) is the template. A state may issue a limited lines travel insurance producer licence to an individual or business entity. A travel retailer, meaning a business that arranges or offers travel, may then offer and disseminate travel insurance under that licence if:

• the limited lines producer keeps a register of each travel retailer offering cover on its behalf, with the retailer's details and federal tax number, and gives it to the state on request
• the producer designates an employee who is a licensed individual producer as responsible for compliance
• each retailer employee who offers travel insurance completes a training programme
• the retailer gives customers the insurer's and producer's details and explains that buying the insurance is not required to buy any other product or service from the retailer

Unlicensed retailer staff may give only general information about the cover. Questions about terms go to the licensed producer.

Massachusetts shows the same model for other products. Under its portable electronics licence, vendors that sell or lease phones, tablets and laptops may offer insurance on them, and their employees and authorised representatives may sell under the vendor's licence after training, without individual licences. The licence is valid for two years. Self-service storage operators have a similar licence, with no separate licence needed for each location. Both require the entity to complete Massachusetts business entity licensing first.

California prices limited lines separately on NIPR: a non-resident portable electronics licence costs US$321 and a car rental licence US$509 in state fees, against US$188 for a full producer licence.

What regulators look at in insurtech models

When a state reviews a platform, through a licence application or a market conduct inquiry, the questions follow the money and the conversation:

• Who is paid, how, and on what trigger. Per-sale pay to an unlicensed entity is the most common problem.
• Whether unlicensed staff or automated tools discuss policy terms, compare cover or recommend a particular insurer.
• Whether the platform collects application data and passes it to insurers itself.
• Whether every state where customers live is covered by a licence for the right line, held by the right entity.
• Whether compensation is disclosed. Under the model, a producer paid by the customer, or acting for the customer, may not also take insurer compensation unless, before purchase, it obtains the customer's documented acknowledgement and discloses the amount or how it is calculated.
• For limited lines, whether the register, training and customer disclosures are in place.

Checklist before launch

• Map each screen, message and API call against sell, solicit and negotiate
• Decide who is the licensed entity in each state: the platform, a partner agency or a limited lines holder
• Set referral or advertising fees on a basis every target state allows, or license the platform
• Remove insurer recommendations and policy term discussions from unlicensed journeys
• License a DRLP and the entity in each state before the first sale
• For limited lines, build the retailer register, training and disclosures
• Keep evidence of the design decisions for regulator questions

Our insurance, MGA and broker sector page covers the UK equivalent, where FCA authorisation or appointed representative status plays the same role.