Insurance Licensing Terminology Glossary

There are many questions regarding the terminology surrounding insurance licensing. Here is a glossary of insurance licensing terms for your convenience and clarification.

 

1033 consent waivers – Allows a banned person from working in the insurance business to apply to the state insurance commissioners for written consent to participate in the insurance business.

 

Active Member – A member of an agency who holds a valid license and appointment, and is actively involved in the daily activities of the agency.

 

Adjuster – A person, usually a salaried employee, who settles or adjusts claims.

 

Admitted or Authorized Company – An insurance company authorized or admitted to do business in a given state.

 

Agency – A firm, corporation, or one or more individuals acting in association with each other as a single entity. An agency may be a corporation, partnership or sole proprietorship. Also known as business entity.

 

Agent – An individual licensed and appointed by an insurance company to sell, solicit or negotiate insurance.

 

Agent, Captive – An agent of a specific insurance company with the responsibility for selling insurance.  Represents only one company.  Also referred to as exclusive.

 

Agent, Independent – An agent in business for himself or herself, selling insurance for many different companies.  Also referred to as nonexclusive.

 

Alien Agency or Company – An agency or company organized and domiciled in a country other than the United States.

 

Appointment – An agreement between an insurer and a licensee authorizing the licensee to represent the insurer in the sale of its insurance products.

 

Appointment Renewal – Continuation of a producer’s existing appointment based on payment of the required fee.

 

Articles of Incorporation – A legal document explaining how a corporation is set up, how its officers are elected and guidelines for operation.

 

Assignment of Commission – Some states allow commission payments to be assigned (made payable) to another party.

 

Authorized Company Representative – An authorized individual who will license, appoint or terminate licensees on behalf of an insurance company.

 

Background Investigation – An investigation of an applicant required in some states prior to issuing a license or appointment. Investigations may include criminal history, employment history and credit checks.

 

Bail Bond Agents – A bail bond is considered a three-part contract between the defendant, the government and the insurance company used to obtain the custody release of a defendant awaiting trial.

 

Broker – A term generally used to describe one who places business with more than one company, and who has no exclusive contract requiring that all business be offered to a single company. Unlike an agent, who is considered to represent a company, the broker usually is considered to represent the client.

 

Broker/Dealer – A firm that acts as an intermediary between buyers and sellers of securities for both the general public and other broker/dealer firms.

 

Business Entity – A corporation, association, partnership, limited liability company, limited liability partnership, or other legal entity.

 

Cancellation – Termination of an insurance license or appointment before the end of the license or appointment period.

 

Carrier – An insurance company. See also Insurer.

 

Certificate of Completion – A certificate issued by a provider to a student upon the successful completion of either prelicense education or continuing education courses. Also referred to as certificate of compliance.

 

Commission – The portion of the premium stipulated in the contract to be retained by the licensee as compensation for sales, service, and distribution of insurance policies.

 

Company Adjuster – An employee of an insurer who adjusts claims on behalf of that insurer for a salary.

 

Consultant – A licensee paid to examine policy benefits, advising or counseling clients about their benefits and advantages or disadvantages of various insurance policies.

 

Continuing Education – Education required in some states to renew the license, unless exempt.

 

Continuing Education Reciprocity (CER) – Simplified filing method for approving continuing education courses by other states.

 

Countersignature – Signature of a resident licensee or representative of the insurer on an application for an insurance policy sold by a nonresident licensee necessary to complete the application.

 

Contract – A signed agreement between an insurer and a licensee outlining what each party is expected to do. Generally the contract specifies the percent of commission the insurer will pay and the amount of insurance the licensee is expected to sell.

 

Corporation – One or more individuals operating under the articles of incorporation as a single business. Corporations typically have officers and a board of directors.

 

Credit Report – A report obtained from a professional reporting company on the financial status of a licensee or applicant. A type of background investigation.

 

DBA – Doing business as, usually referring to a person or firm doing business under another firm name.

 

Designated Responsible Licensed Producer – An individual in an agency who is responsible for the conduct of all the agency’s licensed members and all transactions of the agency.

 

Domestic Agency or Company – An agency or company formed under the laws of the state in which the insurance is written.

 

Errors & Omissions (E&O) Liability – The liability a producer assumes, by the fact of doing business, for errors or omissions he or she may commit in recommending, providing, continuing, or failing to provide or continue the insurance coverage clients require. Producers can protect themselves by purchasing E&O Liability coverage.

 

Fingerprints – A process of checking an applicant’s fingerprints for possible criminal history as required in some states prior to issuing a license.

 

Financial Institutions – A national bank, state bank or savings association. Credit Unions are generally not considered to be financial institutions.

 

Financial Responsibility – Some states require licensees have a surety bond, errors and omissions liability coverage or some other insurance department-approved financial arrangement in case a client files a legal complaint against the licensee.

 

First-Time Applicant – An applicant for an insurance license that has never held a resident license before in the state and must meet that state’s license requirements. A resident individual in this category must pass the license exam. First-time applicants have not yet been appointed.

 

Foreign Agency or Company – An agency or company organized under the laws of a state other than the one where insurance is written.

 

General Agent (GA) – A person, firm or corporation having authority to supervise, hire and terminate producers for one or more insurers. General agents are paid a commission or fee.

Some general agents are given authority to perform other administrative functions normally handled by an insurer such as claim payments, premium billing, verifying coverage and so on. General agents are also authorized to sell, solicit or negotiate insurance.

 

Gramm-Leach-Bliley Act (GLB) – A federal law adopted in 1999 that required states to develop either a reciprocal or uniform approach to nonresident insurance producer licensing by November 12, 2002.

 

Home Office – The place where an insurance company maintains its chief executives and general supervisory departments.

 

Home State – The District of Columbia and any state or territory of the United States in which an insurance producer maintains his or her principal place of residence or principal place of business and is licensed to act as an insurance producer.

 

Independent Adjuster – One who adjusts losses on behalf of companies but is not on their payroll. The independent adjuster is paid by a fee for each loss adjusted, as distinguished from a company adjuster who is paid a regular salary by one company.

 

Insurance Commissioner – Common title for the head of a state department of insurance. In some states, known as the director or superintendent.

 

Insurance Department – A governmental bureau in each state or territory (and federal government in Canada) charged with administration of the insurance laws, including licensing, examination, and regulation of producers and insurers. In some jurisdictions, the department is a division of some other state department or bureau.

 

Insurance Producer – A person required to be licensed under the laws of this state to sell, solicit or negotiate insurance.

 

Insured – The party who purchases insurance from an insurer who agrees to provide benefits or services.

 

Insurer – The party that undertakes the losses or provides benefits or services. Also called the insurance company and sometimes insurance carrier.

 

Letter of Clearance – Usually computer-generated letter stating an individual held a resident license in his or her former home state but has now canceled the license. Letter also states license type and line(s) of insurance for which the individual was licensed. Insurance departments generally require original letter. Letter required for resident applicants who have relocated from one state to another state.

 

Letter of Good Standing – A letter generally issued by the Secretary of State’s office showing an agency is in good standing in the resident state. The letter may also be referred to as certificate of good standing or certificate of existence.

 

License – An agreement between a licensee and a state insurance department authorizing the licensee to sell insurance under the guidelines established by the insurance laws of that state.

 

Licensee – An individual or business entity that holds a valid license and is appointed by an insurer to solicit, negotiate or procure insurance.

 

License Application – An application form that must be completed in order to obtain a new license, an additional license, or a license reinstatement.

 

License Examination – A requirement for all resident applicants who wish to qualify for an insurance license, unless exempt.

 

Limited Liability Company (LLC) – A type of organization that has characteristics common to both corporations and partnerships. Organization must have two or more members having equal status and where no member is personally liable for the debts of, or claims against the organization.

 

Limited Lines Producer – A person authorized by the insurance commissioner to sell, solicit or negotiate limited lines insurance.

 

Limited Lines License – Usually refers to a license that limits the licensee to selling a particular line of insurance. In some states, this license type has more lenient qualifications than a standard lines license.

 

Managing General Agent (MGA) – A person, firm, association or corporation having authority to supervise, hire and terminate producers for an insurer. MGAs are paid a commission or a fee.  MGAs have more administrative authority than general agents and sell, solicit or negotiate insurance either directly or indirectly. They may also negotiate reinsurance for insurance companies.

 

Market Regulation Handbook – A handbook developed by the NAIC Market Regulation Handbook Working Group that contains guidelines for market regulation examinations and investigations including different options for investigation techniques, called the continuum of regulatory responses.

 

Mutual Company – An insurance company owned by the policyholders.

 

Name Approval – Official name, assumed name, or trade name of an agency on file and approved by the insurance department as required in some states.

 

NAIC (National Association of Insurance Commissioners) – An association of state insurance commissioners in the 50 states, District of Columbia and four U.S. territories that is organized for the purpose of exchanging information and working toward uniformity of insurance regulation.

 

National Flood Insurance Program (NFIP) – The NFIP is federal program administered by FEMA enabling property owners in participating communities to purchase insurance as protection against flood losses. Individuals selling flood insurance must be licensed as an insurance producer.

 

National Producer Number (NPN) – The NPN is a unique identification assigned by the NIPR that identifies each entity in the State Producer Licensing Database.

 

Negotiate – The act of conferring directly with or offering advice directly to a purchaser or prospective purchaser of a particular contract of insurance concerning any of the substantive benefits, terms or conditions of the contract, provided that the person engaged in that act either sells insurance or obtains insurance from insurers for purchasers.

 

National Insurance Producer Registry (NIPR) – NIPR is a nonprofit affiliate of the NAIC.  The purpose of NIPR is to work with the states and the NAIC to reengineer, streamline and make more uniform the producer licensing process for the benefit of regulators, the insurance industry and consumers.

 

Nonresident License – A license issued to an individual who is not a resident of that state.

 

Notarized – A notary public must witness the signing of a form or document.

 

Override Commission – A commission paid to an agency or individual for a percent of business produced by its licensees.

 

Partnership – Several individuals acting under a partnership agreement as a single business.  Generally two or more individuals own and operate the business jointly.

 

Partnership Agreement – A legal document specifying a business is jointly owned and specifying the legal and business arrangements of the partners.

 

Person – An individual or a business entity.

 

Prelicense Education – Education or training required in some states prior to taking a license examination to qualify for a resident license.

 

Power of Attorney/Service of Process – The written document that allows the insurance commissioner to receive legal complaints filed against a nonresident licensee.

 

Producer Database (PDB) – An electronic database of insurance producers containing license and appointment information. Every state participates in the PDB and reports information to this central repository.

 

Producer Licensing Model Act (PLMA) – A model act adopted by the NAIC to update and standardize many aspects of state producer licensing.

 

Producer Licensing Working Group (PLWG) – NAIC working group charged with creating and monitoring uniform licensing standards and providing guidance to state insurance licensing departments.

 

Public Adjuster – A type of adjuster hired, usually under a contract, by insureds and are charged with protecting their insured-client’s interests.

 

Qualified Licensee – An individual or agency who already holds a license and has met the license requirements in a specific state. A qualified licensee is already appointed to represent a company and wants to be appointed by new or additional insurers.

 

Reciprocal Agreement – A mutual agreement between two states whereby producers of each state can sell insurance in the other state.

 

Reinstating A License – A lapsed license may be reactivated in some states without repeating the prelicense education and license exam requirements, as long as it is done within a defined time period. Also applies to agencies.

 

Reinsurance – Agreement between insurance companies under which one accepts all or part of the risk for the other.

 

Reinsurance Intermediaries – A reinsurance intermediary acts as a broker in soliciting, negotiating or procuring the writing of any reinsurance contract or binder. Reinsurance Intermediaries act as insurance producers in accepting any reinsurance contract or binder on behalf of an insurer.

 

Reinsurers – Insurers that accept all or part of the risk of another insurer.

 

Rejection – The refusal of an application or fee for license or appointment by the insurance department.

 

Renewal – Continuation of the license or appointment beyond the original date of expiration.

Renewals vary from annually to every four years.

 

Resident License – A license issued to an individual who lives in the state where the license is issued.

 

Retaliatory – Usually pertains to licensing fees. Retaliatory fee is the higher of the home state fee or the nonresident state fee.

 

Revocation – A license that is terminated because the licensee has violated insurance laws or for unethical behavior.

 

Regulatory Information Retrieval System (RIRS) – A database maintained by the NAIC which includes information filed by states to report formal administration actions.

 

Risk Purchasing Groups – Operates under federal law. RPGS are only allowed to place liability coverage. RPGs are purchasing entities, not insurers, formed to pool purchasing power on similar risks and are not generally subject to state insurance laws.

 

Risk Retention Groups – Formed as a result of the Risk Retention Act of 1981, a federal law that enables licensed insurers to form risk retention groups in order to provide group self-insurance. RRGs are fully regulated in one state pursuant to that state’s laws. RRGs are limited to providing non-workers’ compensation.

 

Sell – To exchange a contract of insurance by any means, for money or its equivalent, on behalf of an insurance company.

 

Service Representative License – License issued to an individual employed by and paid a salary by an insurer, managing general agent or general agent. Service Representatives work in the field with licensees to assist them in negotiating, procuring or soliciting insurance.

 

Sole Proprietorship – One individual who owns and operates a business.

 

Solicit – Attempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a particular company.

 

Solicitor – An individual licensed and appointed by an agent to solicit and receive applications for insurance as a representative of the agent.

 

Sponsoring Insurance Company – The insurer a licensee represents in the sale of insurance products.

 

Stamping Offices – Non-profit non-governmental agencies whose offices act as a liaison between the surplus lines producer and the state insurance department.  Stamping office duties vary among the various states in which they exist. Responsibilities may include evaluation of insurance companies for inclusion on a white list, review of surplus lines policies, and education. Stamping offices are funded by stamping fees assessed on each policy of surplus lines insurance written in the state.

 

State of Domicile – State in which insurer or agency was organized and founded.

 

Superintendent – The title of the head of the department of insurance in some states. See Insurance Commissioner.

 

Surety – An insurance or bond that covers obligations to pay the debts of, or default of another, including faithlessness in a position of public or private trust.

 

Surplus Lines Insurance (SLI) – Products are sold by authorized nonadmitted companies. SLI companies provide access to products not available in a state.

 

Surplus Lines Broker License – License issued to a person or firm to place risk insurance with eligible surplus lines insurers.

 

Suspension – A license that is temporarily invalid pending a decision by the commissioner because a licensee has violated insurance laws or for unethical behavior.

 

Temporary License – A resident applicant may apply for and receive a temporary license in some states prior to meeting the prelicense education and license examination requirement.

 

Termination for Cause – The cancellation of the relationship between an insurance producer and the insurer for one of the reasons listed in Section 12 of the PLMA.

 

Terminated License – A license that has been cancelled suspended or revoked. See Cancellation, Revoked and Suspended.

 

Third-Party Administrator (TPA) – An organization or firm that administers self-insured funds or multiple employer trusts.

 

Title Agents – Functions of title insurance agents include conducting title searches, performing underwriting functions, preparing and issuing title insurance commitments and policies, maintaining policy records, and receiving premiums. In addition, many title agents perform real estate closings, and provide settlement and escrow services.

 

Uniform Application – Applications developed by the PLWG available for resident and nonresident producer licensing, business entities, adjusters and Third Party Administrators.

 

Uniform Licensing Standards (ULS) – Set of standards adopted by the Producer Licensing Working Group for the purpose of implementing uniform standards among the states.

 

Viatical or Life Settlement – The owner of a life insurance policy sells the right to receive the death payment to a third-party. Typically the owner insured receives a cash payment and the buyer agrees to make any remaining premium payments on the policy. Sellers of viatical plans are required to show proof of financial responsibility through a surety bond, certificates of deposit or securities.

 

Note:  Special thanks to the Securities and Licensing Association (SILA) for providing us with this insurance licensing terminology. Visit their website at www.sila.org.