This post is part of a series sponsored by AgentSync.
Insurance producers are expected to be upstanding citizens, and for good reason. They are responsible for helping consumers choose and buy some of the most important products a person can buy. That's why every state insurance department has rules about the types of behavior that can get a licensed insurance producer in hot water – leading to consequences such as loss of license, financial penalties, and criminal prosecution.
For a more detailed look at all the ways a manufacturer can lose a license, see this article. Also, for more information on how each state deals with new criminal charges and convictions from already licensed producers, see our coverage here.
But what about administrative actions? While they may not sound as serious as criminal charges, they are still a real, potentially career-ending, concern for any insurance producer dealing with them.
Read on to learn more about what the state's administrative actions are and what steps a licensed producer needs to take when faced with them.
What are the administrative actions in insurance?
Regulatory actions are disciplinary actions that a state department of insurance may take against a licensed insurance producer and/or business such as an insurance agency. Regulatory actions can range from monetary fines and penalties to suspension, revocation, or refusal to renew an insurance producer's license. An insurance producer or agency often ends up facing administrative action as a result of violating state insurance regulations that govern their conduct. Also, see a list of 14 common reasons (although some states have added others) that a manufacturer may lose their license: Any of these reasons can be grounds for administrative action.
Who enforces administrative actions on insurance producers?
Each state insurance department is responsible for enforcing its own laws and bringing administrative action against insurance producers or licensed businesses that violate them. Each state department or division of insurance has the authority to investigate complaints, conduct audits, and impose penalties they deem appropriate to protect consumers and maintain the integrity of the insurance market.
According to chapter 17 of the National Association of Insurance Commissioners (NAIC) State Licensing Handbook, states must consider many factors when deciding whether to impose administrative action on a manufacturer.
These considerations include:
- For non-resident issuers, if the issuer's state of residence or the Financial Industry Regulatory Authority (FINRA) has already taken action against the issuer.
- If the administrative action can show that the producer may be harmful to the consumers
- If the charge involves dishonesty, theft, financial fraud, or any other type of conduct that would warrant immediate license suspension or revocation to protect consumers.
- If circumstances permit, ask the manufacturer to surrender his license voluntarily
- Whether the manufacturer reported the action properly or failed to do so
- Whether the producer has had previous criminal or administrative actions taken and did not disclose them during the background check on the insurance application.
How do government departments of insurance find out about the administrative measures taken by the manufacturer?
If the manufacturer's country of residence is the one that takes the initial administrative action, then the state's insurance department is well aware of the action. Manufacturers are responsible for reporting administrative actions taken by other states or territories when they occur outside the manufacturer's state.
In such cases, the country of origin may find out about the actions if:
- The NAIC's Personalized Information Capture System (PICS) notifies the state department of insurance that the nonresident producer has not previously disclosed a criminal conviction or administrative action.
- The producer sends a letter to the state department of insurance to notify them that it has been prosecuted by another state or FINRA
- The state department of insurance receives notification from the state department of justice that the producer has been arrested or convicted
Conversely, producers are also responsible for reporting actions taken by their country of residence in any other jurisdictions in which they are licensed. We will learn more about how manufacturers can do this later.
Management against criminal activities
Criminal charges or convictions are different from administrative actions, but they are not entirely separate. That is, having the former can have a significant impact on obtaining the latter. Put another way, administrative action can be the result of a manufacturer committing a crime. It can also be a penalty for doing something that violates the insurance industry's codes of conduct, even if that violation is not a criminal offense.
If a licensed insurance producer is charged with a crime, they are responsible for reporting the charge to the insurance department of their state of residence, as well as the DOI in their non-resident licensing states. They also need to keep DOIs under review for the outcome of the charges, whether that is a conviction or revocation, as the outcome affects the government's decision to allow the manufacturer to retain the license.
If a manufacturer is found guilty of a crime, they not only face criminal penalties, but they can face administrative action from the insurance departments of their states and non-resident states.
In some cases, it is an administrative action it is a penalty in violation of insurance regulation. While the manufacturer's actions may be “against the law,” the consequences may be entirely related to the insurance license and not something like a prison sentence.
To whom does the producer need to report management actions?
According to the National Association of Insurance Commissioners State Licensing Handbook, producers must report administrative actions in any state in which they are licensed. For some manufacturers this may be a smaller list, and for others the 50 states and some US territories.
“Section 17 of the Model Producer Licensing Act (#218) requires a producer to report, in all states where the producer is licensed, any administrative action taken against the producer in another location or by another government agency in this state within 30 days. of the final state of affairs. Producers are also required to report any criminal prosecution of the producer taken in any jurisdiction within 30 days of the first date of the trial.”
Reporting administrative actions is very important, and if a manufacturer fails to do so, they can face other disciplinary actions, including losing their license in all states.
In some cases, depending on the case, the producer may not be able to keep his license and continue selling insurance. However, it is always better to be honest with each state insurance department and make a case for why you should be able to keep your license, rather than willfully failing to report the act.
How does a manufacturer report administrative action?
All 50 states, the District of Columbia, Puerto Rico, and the US Virgin Islands have adopted the NAIC's Producer Licensing Model Act (PLMA), which states that producers have 30 days to report both criminal and administrative actions taken against them in any state license holders.
Although each country has different ways a producer can do this, the easiest and most effective way is to use the National Insurance Producer Registry (NIPR) Warehouse Attachments – Reporting of Actions. When a manufacturer uploads documents to the Attachments Warehouse – Reporting of Actions, the information is posted regardless of whether the manufacturer is a licensed resident or non-resident. Using this method, a producer can quickly and easily fulfill their reporting requirements by uploading documents in one place and allowing NIPR to distribute them to each region.
Protect your agency or carrier from unintended compliance risks with up-to-date information on regulatory actions (and more)
While AgentSync can't stop manufacturers from breaking the rules, it can make sure that manufacturers who aren't ready to sell policies don't. We do this with two daily syncs with the industry's true source, which includes the latest information on any manufacturer with regulatory actions in any location.
Having consistently accurate data for every manufacturer can stop non-compliant sales before they happen. This can save insurance carriers and agencies both money and reputational damage.
If you'd like to see how your organization can implement automated and simple manufacturer compliance that includes transparent information on any compliance risks based on accurate data directly from the source of the truth, get a demo to learn more.
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