This post is part of a series sponsored by AgentSync.
Insurance producers are expected to be upstanding citizens, and for good reason. They’re responsible for helping consumers select and purchase some of the most important products a person can buy. This is why every state department of insurance has rules about the types of conduct that can get a licensed insurance producer into hot water – resulting in consequences like losing their license, financial penalties, and even criminal prosecution.
For a comprehensive look at all the ways a producer can lose their license, refer to this article. And, for more information on how each state deals with new criminal charges and convictions that come up for already-licensed producers, see our coverage here.
But what about administrative actions? While they may not sound as serious as criminal charges, they’re still a very real, potentially career-ending, concern for any insurance producer who faces them.
Read on to learn more about what state administrative actions are and what steps a licensed producer’s required to take if they face one.
What are administrative actions in insurance?
Administrative actions are disciplinary actions that a state department of insurance may take against a licensed insurance producer and/or a business entity such as an insurance agency. Administrative actions can range from monetary fines and penalties to suspending, revoking, or refusing to renew an insurance producer’s license. A producer or insurance agency generally ends up facing administrative action as the result of violating state insurance regulations that govern their conduct. Again, refer to the list of the standard 14 reasons (although some states have added others) that a producer may lose their license: Any of these reasons can be grounds for an administrative action.
Who enforces administrative actions for insurance producers?
Each state department of insurance is responsible for enforcing its rules and bringing administrative action against insurance producers or licensed business entities that violate them. Each state’s 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 should take many factors into consideration when determining whether to impose administrative action on a producer.
These considerations include:
- For nonresident producers, if the producer’s resident state or the Financial Industry Regulatory Authority (FINRA) already took action against the producer
- If the administrative action may indicate that the producer could be a danger to consumers
- If the charge is one involving dishonesty, theft, financial fraud, or another type of act that’d warrant immediate license suspension or revocation to protect consumers
- If circumstances warrant asking the producer to voluntarily surrender their license
- Whether the producer reported the action appropriately or failed to do so
- Whether the producer had previous criminal or administrative actions taken against them and didn’t disclose them during their insurance application background check
How do state departments of insurance find out about administrative actions taken against a producer?
If a producer’s resident state is the one taking administrative action in the first place, then the state department of insurance is already well aware of the action. Producers become responsible for reporting administrative actions taken by other states or jurisdictions when they occur outside the producer’s resident state.
In such cases, a producer’s resident state may find out about the actions if:
- The NAIC’s Personalized Information Capture System (PICS) notifies a state department of insurance that a nonresident producer didn’t previously disclose a criminal charge or administrative action
- A producer sends a letter to the state department of insurance to inform it that they’ve had an action taken against them by another state or by FINRA
- The state department of insurance gets notice from the state’s department of justice that the producer has been arrested or convicted
Conversely, producers are also responsible for reporting actions taken by their resident state to any other states they’re licensed in. We’ll get more into how producers can do this later.
Administrative vs. criminal actions
Criminal charges or convictions are different from administrative actions, but not entirely separate. That is, having the former can greatly impact getting the latter. Put another way, an administrative action can be the consequence of a producer committing a crime. It can also be a penalty for doing something that violates insurance-industry-specific codes of conduct, even if the violation isn’t a criminal offense.
If a licensed insurance producer is charged with a crime, they’re responsible for reporting the charge to their resident state department of insurance, as well as to the DOI in their nonresident license states. They also need to keep the DOIs appraised of the outcome of the charges, whether that’s a conviction or acquittal, as the result impacts the state’s decision about letting the producer maintain a license.
If the producer’s found guilty of the crime, not only do they face criminal penalties, but they can also face administrative action from their resident and nonresident states’ departments of insurance.
In some cases, the administrative action is the penalty for violating an insurance regulation. While the act the producer committed may be “against the law,” it’s possible the consequences are strictly insurance-license related and not anything like a prison sentence.
Who does a producer need to report administrative actions to?
According to the National Association of Insurance Commissioners State Licensing Handbook, producers must report administrative actions to any state in which they’re licensed. For some producers this may be a small list, while for others it’s 50 states and even some U.S. territories.
“Section 17 of the Producer Licensing Model Act (#218) requires a producer to report, to all states in which the producer is licensed, any administrative action taken against the producer in another jurisdiction or by another governmental agency in this state within 30 days of the final disposition of the matter. Producers are also required to report any criminal prosecution of the producer taken in any jurisdiction within 30 days of the initial pretrial hearing date.”
Reporting administrative actions is extremely important, and if a producer fails to do so, they can face further disciplinary actions, including losing their license across multiple states.
In some situations, depending on the offense, a producer might not have any chance of keeping their license and continuing to sell insurance. However, it’s always better to be honest with each state department of insurance and make the case for why you should be able to keep your license, rather than intentionally failing to report an action.
How does a producer report an administrative action?
All 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands have adopted the NAIC’s Producer Licensing Model Act (PLMA), which dictates that producers have 30 days to report both criminal and administrative actions taken against them to any state in which they hold a license.
While each state has different ways a producer can go about doing this, the simplest and most efficient way is to use the National Insurance Producer Registry (NIPR) Attachments Warehouse – Reporting of Actions. When a producer uploads documentation to the Attachments Warehouse – Reporting of Actions section, the information is sent to any state where the producer holds a resident or nonresident license. By using this method, a producer can quickly and easily fulfill their reporting requirements by uploading documentation into one place and letting NIPR distribute it to each state.
Protect your agency or carrier from unintentional compliance mishaps with always up-to-date information on administrative actions (and a lot more)
While AgentSync can’t keep producers from breaking the rules, it can make sure producers who aren’t ready to sell policies don’t do so. We do this with a daily two-way sync with the industry’s source of truth, which includes up-to-the-day details on any producer with administrative actions in any jurisdiction.
Having always-accurate data on every producer can stop noncompliant sales before they happen. This can save insurance carriers and agencies both money and reputational harm.
If you’re interested in seeing how your organization can take advantage of automated and streamlined producer compliance that includes transparent knowledge of any compliance risks based on accurate data straight from the source of truth, get a demo to learn more.