US Insurance Agency and MGA Licensing: Producer, Surplus Lines and MGA Licences in All 50 States

How resident and non-resident licensing works across 50 states

Every multi-state licensing programme starts in one state. Under the NAIC model, a producer's home state is the state where it has its principal place of residence or principal place of business and is licensed as a producer. The agency and its individual producers obtain resident licences there first.

Every other state is a non-resident licence. A state must grant one to a person who is currently licensed and in good standing in its home state, has filed the home state application or the NAIC Uniform Application and paid the fee, provided the home state grants non-resident licences to that state's residents on the same basis. The state may check the applicant's status through the NAIC Producer Database rather than asking for a certificate. No further exam or pre-licensing course is required for lines already held at home.

Reciprocity is why the order matters. A non-resident licence can never be wider than the home state licence, and if the home state licence lapses, the non-resident licences that depend on it are at risk. A producer who moves home state must file a change of address and certification from the new state within 30 days, and a person who moves into a state must apply for a resident licence within 90 days, without a new exam for lines already held.

The designated responsible licensed producer

The DRLP is the licensed individual the regulator holds responsible for the agency's compliance with that state's insurance laws. The model makes naming one a condition of the business entity licence. NIPR's non-resident business entity requirements show a DRLP is required in all 50 states and DC.

In practice, the DRLP must usually hold an active licence in the state, resident or non-resident, with lines of authority that match those the entity is applying for. Washington, for example, requires its single DRLP to be listed as an affiliated individual and to hold at least one line matching the entity's request. California charges a US$32 line of authority group fee linked to the lines its designated responsible producer holds.

The business entity licence can be suspended or revoked where an individual's violation was known, or should have been known, by the entity's partners, officers or managers and was neither reported nor corrected. Choosing an experienced DRLP, and keeping that person's own licences current in every state, is therefore a control, not a formality.

Lines of authority and limited lines

A licence authorises named lines of authority. The entity, its DRLP and each producer must hold the lines for the products they sell. Limited lines licences cover narrow products sold alongside another service, and many are designed for embedded distribution, where the retailer's staff sell under the entity's licence after training rather than holding individual licences.

MGA licensing under state MGA laws

Most states regulate MGAs through a law based on the NAIC Managing General Agents Act (#225). Under the model, an MGA is a person that manages all or part of an insurer's business and acts as its agent, producing and underwriting gross direct written premium of at least 5% of the insurer's policyholder surplus in any quarter or year, together with either adjusting or paying claims above a set amount (US$10,000 per claim in the model text) or negotiating reinsurance for the insurer. A firm calling itself an MGA that does not meet this test is not an MGA under the law, but remains a producer.

The model requires an MGA to be a licensed producer in the state where the risks are located and, where it represents an insurer domiciled in the state for risks elsewhere, to hold that state's producer licence. Several states go further and issue a separate MGA licence. On NIPR, Texas, Ohio, Oklahoma, Kentucky, Nebraska and Utah all list an MGA licence class for non-resident business entities. Texas applies its own definition: a person with supervisory responsibility for an insurer's local agency and field operations, or authority to accept or process policies sold by other agents, on property and casualty business.

The heart of every MGA law is the written contract. No business may be placed until it is signed, and it must contain the terms in the table below. The insurer then carries its own duties: it must hold audited financial statements for the MGA's two most recent fiscal years showing positive net worth, obtain an annual actuarial opinion where the MGA sets loss reserves, review the MGA's underwriting and claims operations on site at least every six months, and notify the regulator within 30 days of entering into or ending the contract. The MGA's acts are treated as the insurer's acts, and the regulator may examine the MGA as if it were the insurer.

Surplus lines licences

Surplus lines insurance is cover placed with an insurer that is not licensed (not admitted) in the state but is eligible to write there. It is used for risks the licensed market will not take. Only a surplus lines licensee may procure it. Under the NAIC Nonadmitted Insurance Model Act (#870), which follows the federal Nonadmitted and Reinsurance Reform Act, the placement is subject solely to the rules of the insured's home state, and the surplus lines tax is paid to that state by the licensee.

A resident surplus lines licence is issued to a holder of property and casualty licences who applies, pays the annual fee and, where the state requires it, files a bond or errors and omissions policy in favour of the state and maintains an office in the state. A non-resident surplus lines licence follows the same reciprocity rule as producer licences. Before placing cover, the licensee must confirm the insurer is eligible, which for an insurer outside the United States means appearing on the NAIC Quarterly Listing of Alien Insurers, and, unless the buyer is an exempt commercial purchaser (a large commercial buyer meeting tests set in the model), make a diligent search of the licensed market first. Each placement is reported to the state with an affidavit on that search.

Third party administrator licences

Under the NAIC guideline (GL 1090), a TPA is a person who underwrites, collects charges or premiums from, or adjusts or settles claims on residents of the state in connection with life, annuity, health or stop-loss cover, and workers' compensation in one version of the guideline. A licensed MGA acting within its licence is excluded. Claims adjusting on other property and casualty business falls under each state's adjuster licensing rules instead.

The guideline uses a home state licence and non-resident licences. The home state application includes organisational documents, NAIC biographical affidavits for directors, officers and anyone holding 10% or more of the voting interest, and audited financial statements for two years showing positive net worth. Only business entities can be newly licensed. A home state TPA files an annual report with audited financial statements by 1 July each year. Ohio's non-resident TPA licence, for example, carries a US$200 state fee on NIPR.

Carrier appointments

A licence allows a producer to sell. An appointment is the insurer's notice to the state that the producer acts as its agent. Under the model, in states that require appointments, the insurer files the notice within 15 days of signing the agency contract or receiving the first application, pays the appointment fee and may pay a renewal appointment fee. Some states do not require formal appointments at all.

When the relationship ends, the insurer must notify the regulator within 30 days, whether or not the termination is for cause, and send a copy to the producer within 15 days of that notice. Texas ties its MGA licence to appointments: if the holder is not under appointment with an insurer when the licence comes up for renewal, the licence lapses.

Continuing education, renewals and ongoing duties

Under the model, a licence stays in force while the renewal fee is paid and resident individuals complete their continuing education by the due date. A lapsed individual licence can be reinstated within 12 months without a new exam, with a penalty of double the unpaid renewal fee. Non-residents meet CE by meeting their home state's requirement where the states recognise each other's CE.

Ongoing duties apply between renewals. Licensees must report a change of address within 30 days, notify the regulator before using an assumed business name, report administrative action in another jurisdiction within 30 days of final disposition, and report a criminal prosecution within 30 days of the initial pretrial hearing.