The world seems to shrink a bit every year. Recent machinations related to London brokers crossing the pond to meet with retail firms and their clients is the latest example.
The U.S. firms that directly participate in the London markets generally do so through offices they have established there with locally licensed agents and brokers. Although U.S. and U.K. licensure rules are substantively indistinguishable, some London brokers appear to be coming to the United States to meet with clients and prospects without being appropriately licensed.
As a general matter, each individual who is meeting in person with a U.S.-based client and/or a local agent or broker and is discussing in any way a specific insurance contract with a U.S. risk (selling them, soliciting purchase orders, discussing the terms or conditions, etc.) needs to be licensed in the United States.
General marketing meetings during which the agent, broker or firm is being marketed but no specific insurance contracts are discussed do not require a license. To the extent your firm is sending producers to the U.S. or is hosting them, you may want to ensure your people are abiding by the law; otherwise, you are risking regulatory repercussions.
Recently The Council, Lloyd’s, the Lloyd’s Market Association, the London & International Insurance Brokers’ Association and NAPSLO issued an alert to remind stakeholders of the requirements of U.S. producer licensing laws. The following is a summary of the alert.
License Requirements for Doing U.S. Business
As a general rule, all U.S. states require a license for the solicitation of insurance within the state. The National Association of Insurance Commissioners’ Producer Licensing Model Act defines “solicit” as “attempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a particular company.” Although state laws differ slightly on the definition of “solicit,” the NAIC’s definition serves as a helpful and generally applicable benchmark.
In addition to solicitation, the following types of activities generally trigger state producer licensing requirements: negotiating insurance contracts, transacting insurance and selling insurance. Again, the states have adopted minor variations on these broad categories of licensable activities. For example:
- In California, a license is required for anyone who solicits, negotiates or effects contracts of insurance in the state.
- In Florida, a license is required for anyone who solicits or transacts insurance in the state
- In New York, a license is required for anyone who sells, solicits or negotiates insurance in the state.
- In Texas, a license is required for anyone who sells or solicits insurance or procures or collects premiums in the state.
Non-U.S. Broker Best Practices
General advertising, marketing and promotion of services (i.e., without reference to specific insurance products, terms or conditions) typically do not fall within the above-referenced categories of licensable activities. The distinction between marketing and solicitation turns in part on whether the broker appears to be extending an offer of a particular kind of insurance to an insured or group of insureds or simply offering brokerage services to the general public. To the extent a broker has any direct contact with an insured (or group of insureds) in a state, however, a state regulator is more likely to find that a license is required.
Some states are more aggressive than others in enforcing their licensure laws. For instance, in California, without a surplus lines broker license, “aiding a nonadmitted insurer to transact business” in the state is a misdemeanor offense.
So be mindful of these parameters when conducting insurance-related activities in the United States. Anything that can be construed as the sale, solicitation or negotiation of an insurance contract needs a license. Because the states’ specific approaches vary, we advise you to review each state’s laws, regulations and guidance to ensure you are not engaged in impermissible activities.