Insurance License

Guide to Insurance Licensing for the Non-Insurance Business

If you’re planning to start your own insurance business, getting an insurance license may seem time-consuming and even a little terrifying, but it can be simple or easy if you work with the right partner. Embedded insurance is a great opportunity to increase revenue and diversify offerings and relationships, but you must be licensed before you and your company can do that.

Let’s understand what an insurance license is, why it matters, how to succeed in getting the right licenses for your business, and how to get the support you need along the way.

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Understand Insurance Licenses and Their Importance

Embedded insurance is a great opportunity to increase revenue, diversify offerings, and deepen customer relationships. However, to reap its full benefits, your company must be licensed.

An insurance license is a certification given by individual states in that particular state that allows individuals or entities to sell, solicit, or negotiate insurance. Every state needs a unique license. You must attain a license for each state you intend to sell in if you want to sell insurance more than once.

Without a license, if you or your company try to sell insurance, it can be considered illegal. Because of that, you could be subject to large fines and legal penalties from your state or another state where you have already sold the insurance illegally. This means obtaining a license is the first crucial step in selling insurance.

The good thing is when you work with the right digital insurance partner to obtain this essential license, all of those can be avoided easily. Now, various types of insurance licenses are available. Selling cyber insurance, for example, requires a unique license compared to selling pet health insurance.

The two main licenses needed to become a distribution partner who sells and markets property and casualty insurance on behalf of an individual are the Individual license and the Entity license.

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Know More About Individual Licenses and Entity Licenses

Let’s know more about the Individual License and Entity License:

Individual License in Insurance

An Individual License is referred to as a License of “Agent” or “Producer”, which is given to any individual after completing a course of pre-licensing and needs to pass the tests in their resident state because that is a state where an individual has a residence, or it’s a primary place of business.

The major purpose of this essential license is to educate the holder on the ins and outs of the insurance process and guarantee that they are informed and responsible before selling, soliciting, or negotiating insurance.

How to Secure an Individual Insurance License? 

An individual insurance license should be obtained in your state of residence. Below are the general steps to follow, but each has unique requirements. Make sure that you know all the steps that apply to your state.

• Complete first the pre-licensing education course (varies by state)
• Should pass the practice exam
• Complete the exam of state insurance licensing exam (varies by state)
• In your resident state, apply for your Individual Insurance License

Entity License in Insurance

If someone in your company has already attained their Individual License, your company can apply for its Entity License, also known as an “Agency” License. This license allows the company to sell insurance within the resident state.

If your company wants to sell and market insurance products on behalf of carriers, you need to obtain two licenses: an individual license and an Entity License.

How to Apply for an Entity License? 

If your DRLP has obtained their Individual License, your company can begin obtaining its Entity License.

1. Create an Insurance Agency Entity
2. In the Resident State, apply for the Entity License

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Who Should be Licensed for Your Company? 

When determining who should become licensed on behalf of entities, the individual should hold a position of substance and will likely stay with the company for the long term. This usually means at the executive level, including owner, partner, director, etc.

Once a person obtains a license, they are known as the Designated Responsible License Producer (DRLP), sometimes called a “principal-agent”. DRLPs must be licensed in all jurisdictions in which they are jurisdictional.

The DRLP is usually responsible for compliance oversight of the agents operating under them because the DRLP is held accountable for all the entity’s actions; this kind of oversight is required in most states. When selecting a person or candidate to become an entity’s DRLP, they should first be informed and able to take responsibility.

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Different Types of Insurance Agency Licenses

These are the licenses you’ll require when you start an insurance business. These are the most common licenses you may need to get for your insurance agency:

License of Resident Insurance Agency

This type of Resident insurance agency license allows your agency to operate within state lines. It works like licensed insurance agents and brokers on a business level need to sell insurance policies.

License of Non-resident Insurance agency license

If an insurance agency plans to serve clients in different states, your insurance needs this license with corresponding fees and requirements. However, certain states have reciprocity agreements, which allow agencies to operate out-of-state, and agents can apply for licenses without any need to take the state licensure exam.

License of Policy-specific Insurance agency license

Insurance agencies can specialize in various lines of authority. Generally, to sell policies in each line, you must first obtain the essential licenses.

Based on the policy types that the agent sells, many states have various insurance licenses. Additional fees and certifications are required for these licenses. Some examples include:

• Fire & Casualty
• Limited lines of automobile
• Personal lines
• Life-only agent
• Health and Accident

License of Surplus lines Insurance agency license

This type of specialized license enables insurance agencies to offer policies for highly complex risks that traditional insurers are reluctant to cover. Agencies frequently access such products, also referred to as non-admitted insurers, from surplus line specialists.

Adjuster

Another common type of license is an adjuster. A claim adjuster or insurance is the one who settles insurance claims and meets with clients physically to determine the insurance cost and coverage. However, an adjuster needs a different license.

Third-party Administrators

This Third-party administrator (TPA) license is for brokers, firms, and individuals with many administrative responsibilities, including claims. For example, when an employer self-insures their employees, they need a TPA license to be legally allowed to submit claims.

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Brief Outlook About Insurance Regulatory Development Authority

The primary objective of the IRDA (the Insurance Regulatory and Development Authority) of India is to ensure that the insurance industry obeys the Insurance Act. IRDAI supervises and regulates the Indian insurance industry to protect policyholders’ interests and ensure its orderly growth.

Eligibility Norms for Insurance company license

The eligibility norms for an Insurance Company License are:

1. Any company among these prescribed classes of companies

• Any company which IRDAI recognizes.
• Any registered LLP under the LLP Act, 2008.

2. Any company providing insurance before the commencement of the Act provided only the utmost of 49% of the paid-up capital allowed to be held by a foreign company.

• The net worth of the company should be Rs. 10 Lakh.
• The registered name should contain “insurance marketing firm” these words.

Process to Acquire an Insurance Company License

The procedure to get the Insurance company license to initiate the procedure: someone who is willing to set up an insurance business using Form IRDA/R1 makes an application first accompanied by the required documents, which include:

• Certificate of incorporation of the company (Companies Act, 2013).
• The charter documents are certified copies (articles of association and memorandum of Association).
• The Board has rightly approved a five-year business plan of Directors.
• All the details of the directors, including their address, name, and occupation-related, are aptly verified.
• Certified documents that contain the shareholding agreement between Indian promoters and foreign investors.
• Annual Report’s certified copy of the Indian promoters and foreign investors for the preceding five years.
• Form IRDA/R1 has been submitted for issuance of the registration application.

According to the plan, if all goes well and the reviewing authority (IRDAI) satisfactorily finds the initial submission of Form IRDA/R1, then the candidate can apply for the issuance of a registration certificate in Form IRDA/R2.

Form Must Be Submitted Along with the Following Documents

Below is the list of the forms which must be submitted along with the following documents:

• The Indian promoters and foreign investors provided the affidavit.
• Prospectus’s certified copies of the.
• Documentary evidence that proves the payment of a non-refundable fee of Rs. 5 lac.
• The Documents certify compliance with FDI Rules and ensure that the ceiling on capital held by foreign investments, currently 49%, is being met.

However, the reviewing authority that is satisfied with all aspects of the application will grant the certificate of registration to the insurance company in Form IRDA/R3. Otherwise, if it’s not satisfied with the application, it will reject it and, within 30 days, make known the rejection of the order or rejection along with the reasons.

Reasons For Which the IRDAI License Can Be Rejected

The applicant can be refused, or an insurance company can reject the IRDAI license based on the following reasons:

• Improper or inadequate information.
• Providing information in delay.
• Fails to fulfil the capital requirements.
• Inappropriate conduct of the management.
• Any other just as decided by the Authority (IRDAI).

Non-Eligibility for the Applicant to File IRDA/R1

An applicant will be non-eligible to file IRDA/R1 if:

• When IRDAI rejects the application for the registration request,
• The applicant’s name does not contain the words ‘assurance’ or ‘insurance’.
• Indian promoters or foreign investors have exited the project for any reason.
• Since the latest rejection of the application by the authorities, a period of two years has not elapsed.

What Does an Insurance Company Perform?

Selling products to their partner insurers is the responsibility of an insurance agency. Also, it represents one or many insurance companies and acts as an intermediary, providing potential buyers with information about insurers and the products and services they offer.

Insurance agencies have contracts with carriers, details of policies they are allowed to sell, and the amount they can earn from selling these policies. Additionally, they have the power to bind coverage, which most insurance brokerage firms can’t do.  Generally, there are two types of insurance agencies:

• Agencies of Captive Insurance Agencies

These are the businesses that represent a single insurance carrier, either full-time or as an independent contractor. The insurers may provide operational support like staff, office space, leads, and referrals to potential buyers.

• Agencies of Independent Insurance

These are businesses that work with several partner insurance companies. Subsequently, they are not tied down only to a single insurer; they offer buyers a broader selection of insurance policies. If starting a business isn’t your thing, you must prefer to practice individually first.

How Do Insurance Agencies Can Make Money?

The two main ways for insurance agencies to make money:

Commissions

Through commissions, most insurance agencies get paid. The commission amount depends on these range of factors, which include:

• The various types of insurance agencies (captive or independent)
• Kind of policies they offer
• Sold number of insurance policies
• Based on policies, are new or renewals

Profit sharing

Some insurance companies implement profit-sharing programs for their partner agencies. These agencies achieve revenue targets; insurers typically reward them with written or earned premiums as a bonus.

Conclusion

The insurance industry’s continuous growth presents a huge opportunity for those willing to run an insurance business.  In order to sell insurance products, one needs to obtain an Insurance Company License; a license is required in every state where the insurance commissioner conducts the business. As a result, IRDAI grants permits for various insurance businesses, including life insurance, health insurance, etc.

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