This post is part of a series sponsored by AgentSync.
In the insurance industry, the term “liquidation” can refer to several different things. First, there is the policy termination. This happens when the policy is valid and the policyholder or carrier decides not to renew the contract. There is also termination insurance – a type of business liability that protects an employer in the event of being sued by a former employee for wrongful dismissal.
In this blog, we focus on another type of termination: The one that occurs when the business relationship between the insurance producer and the carrier ends.
Appointment and appointment of the insurance producer
In the past, we have talked extensively about carrier designation, which marks the beginning of a collaborative relationship between insurance carriers and manufacturers. Now, we focus on the other side of the coin. All good things must come to an end, and when it comes to the relationship between the insurance producer and the carrier, that end is called termination.
What is an appointment cancellation?
Termination occurs when an appointment between a carrier and a single producer or agency comes to an end, making them a major part of the producer's discharge process. You can think of termination as an acknowledgment by the government, the carrier, the manufacturer, and any other stakeholders that the manufacturer is no longer allowed to sell the carrier's products.
Although termination sometimes means only preventing the manufacturer from selling a particular product line issued by the carrier, or only in a specific case, it may also include the end of the relationship.
It sounds harsh, but there are various reasons for termination and some are just based on hostility.
4 common reasons for termination by an insurance producer
1. The producer does not sell
For a manufacturer/carrier relationship to be successful, the manufacturer needs to sell enough of the carrier's products to warrant a paying carrier to maintain the manufacturer's designation in a given situation. The cost of renewing an appointment may not seem like a huge expense, but when applied to the scale, variable costs like these add up quickly. Paying to keep manufacturers running while not making money is just bad business, so if a manufacturer isn't selling it may be grounds for termination. In other words, these types of disconnections are a classic case of “It's not you, it's me…OK, it's actually you”.
Side note – Sometimes a lack of sales is predictable, such as when it comes to the end of Medicare's open enrollment season. In this situation, both the producer and the carrier understand the temporary nature of their relationship and the onus is on the carrier to encourage the producer to return year after year by creating a positive onboarding and exit experience.
Applying for termination may be specific to the line of jurisdiction or region, where the carrier terminates the producer's appointment due to that business or region where the producer is not showing success, while keeping the appointments in their sales areas.
2. The producer moves at will
Jobs are not permanent. It is perfectly natural for a producer/carrier relationship to end because the producer chooses to leave. The talent pool in the insurance industry isn't exactly young, so it's possible that the layoffs are related to a producer's retirement from the profession. Or perhaps, the producer simply decided to pursue a career in a completely different industry, such as basket weaving or underwater welding.
3. The producer dies
Jobs are not forever, and neither are people. This is a bit sad, but when a producer dies, it is safe to say that their existing working relationship must end.
4. The manufacturer violates a federal law or regulation
Perhaps the most common reason for termination is termination for cause, which occurs when a manufacturer violates a state law or regulation that results in the suspension or loss of their license. The Producer Licensing Model Act (PLMA) sets forth 14 reasons that an agent's license may be suspended or revoked, which we discuss in detail here. It is important to note that, although the termination of the cause occurs completely when the manufacturer commits a serious crime – such as financial fraud, it also occurs when the manufacturer acts outside of compliance with any applicable laws and regulations, whether intentional or not. In fact, some states go so far as to automatically terminate every time a manufacturer's license expires.
Agent termination
Sometimes, carriers need to sever their relationship with an entire insurance agency rather than just one producer. Termination of an agency can happen for a variety of reasons. The agency may have been part of a recent merger or acquisition, or perhaps the agency is under regulatory investigation. Whatever the reason, an agency-wide downgrade means that carriers may need to track down and outsource every producer with ties to that company. Done manually, this batch termination can be a huge challenge for the carrier's team, who may struggle for days or weeks checking and verifying that all the relevant manufacturers have been issued correctly.
The elimination process
Regardless of the reason for the termination, the process of getting the job done remains standard. In each case, the carrier must first notify the state insurance department of termination of appointment. In most cases, termination reporting is done through NIPR. Most states require carriers to report the cause of termination. However, this is something it's the insurance industry we're talking about, so there are state variations.
Section 15 of the PLMA requires insurers to report all terminations of producer designations to the insurance commissioner and the producer concerned within 30 days of their occurrence. Termination for cause requires insurers to submit a more detailed report to the government and the manufacturer, as well as any internal investigation information, also within 30 days. While some states allow carriers to deliver termination notices to eligible manufacturers by email, others still require documents to be delivered on paper via snail mail.
Prepare for termination with modern insurtech
Delays in the flow of termination information can lead to serious compliance measures, such as a manufacturer selling products to a carrier that is no longer designated. To avoid getting into legal hot water, carriers and MGAs/MGUs can use a manufacturer's compliance management solution to help communicate license expirations and termination appointments to all stakeholders in real time.
AgentSync's suite of solutions helps insurance organizations maintain compliance throughout the producer's lifecycle, from onboarding to termination and everything in between. If you're ready to see how smarter, more efficient manufacturer management can benefit your business, contact one of our experts today.
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