A producer who becomes an agency owner takes on a second job without giving up the first. The second job is building the system: the entity, the licenses, the carrier contracts, the procedures, and the records that let other producers write business under your name without putting your license at risk. The first ninety days decide whether that system exists or whether the agency runs on memory. This article lays out the tasks in the order they depend on each other.
What operational tasks come first?
The sequence matters because each step produces something the next step needs. The agency license requires the entity. Carrier contracts require the license. Producer appointments require the carrier contracts.
- Form the legal entity. Choose the structure with your accountant and attorney, register it with the state, and obtain a federal tax identification number. The name you register is the name that goes on the license, the bank account, and every contract, so settle it first.
- License the agency. Insurance agencies hold a business entity producer license, separate from the owner's individual license, in the home state and in each other state that requires it. The application names a designated responsible licensed producer, usually the owner at the start.
- Bind entity-level errors and omissions coverage. Your individual E&O policy may not cover the agency or its other producers. Carriers typically require the entity to be a named insured before they contract with it.
- Open the agency bank account. Commissions paid to the agency need a destination in the agency's name, and premiums collected on behalf of carriers, where that occurs, must be held according to state trust-account rules.
- Choose the system of record. An agency management system or CRM holds clients, policies, producers, licenses, appointments, and communications. Choose it before the second producer joins, not after.
- Write the first procedures. Three to begin: how the agency verifies a producer's license before they solicit, how it tracks appointments, and how long it keeps client records. One page each is enough to start, and a reviewer will ask for them.
Key terms
- Business entity producer license
- The state license issued to an agency as a legal entity, separate from the individual licenses of the people who work in it.
- Designated responsible licensed producer
- The individual named on the agency license as responsible for the agency's compliance with insurance law.
- Hierarchy
- The structure of contract levels between the carrier and the producer, through which commissions and overrides flow.
- Written supervisory procedures
- The agency's documented rules for how it supervises producers, reviews advertising, handles complaints, and keeps records.
- Record retention
- The schedule stating how long each kind of record is kept and where, set with reference to state requirements and carrier contracts.
How should you structure carrier relationships early?
The owner's instinct is to contract with every carrier at once. The better pattern is to decide, carrier by carrier, whether the agency should hold a direct contract or work through a brokerage, and to add carriers when a real case needs them.
| Consideration | Direct carrier contract | Through a brokerage |
|---|---|---|
| Access | One carrier per contract | Several carriers through one relationship |
| Production expectations | Common; carriers may expect a volume commitment to maintain the contract | Usually carried by the brokerage, not the agency |
| Paperwork | A full contracting packet per carrier, for the agency and each producer | One contracting process, with appointment paperwork submitted by the brokerage |
| Contract level | Set by the carrier for the agency | Set by the brokerage's contract with the carrier and the agency's level under it |
| Support | The carrier's wholesaler or regional staff | The brokerage's contracting, case design, and compliance staff |
| Who files appointments | The carrier, on the agency's request | The carrier, on the brokerage's request |
Three structural decisions follow:
- Who holds the appointment. Where a carrier allows it, appoint the agency as an entity and then each producer under it. Where the carrier appoints individuals only, the agency's contract still governs how commissions flow.
- How commissions flow. Decide whether producers are paid by the carrier directly at their own contract level or by the agency after the agency receives the full commission. Each is workable; each needs a written agreement with the producer that says so.
- How deep the hierarchy goes. Every level between the carrier and the producer is a level that takes part of the commission and adds a party to every dispute. Keep it as shallow as the business allows.
What compliance obligations start on day one?
The day the agency license is issued, the agency is a regulated entity, and the following apply whether or not a single policy has been written.
- Producer licensing. Every person who solicits under the agency must hold an active license in the lines and the state involved. The agency verifies this before the producer starts and tracks expirations afterward.
- Appointments. Every producer must be appointed by the carrier before soliciting its products, within the timing the state allows.
- Advertising review. Marketing materials that mention a carrier or a product generally require the carrier's approval before use, and the agency should review everything else for accuracy before it goes out.
- Record retention. State law and carrier contracts set minimum retention periods for applications, policies, correspondence, and complaint files. The agency's schedule should meet the longest one that applies.
- Privacy. Federal (Gramm-Leach-Bliley Act) and state privacy rules require notices to clients about how their information is used and safeguards for how it is stored. A written information security policy is the usual starting point.
- Anti-money laundering. Insurers of covered life insurance and annuity products must maintain anti-money laundering programs (31 CFR Part 1025) and push training and reporting duties down to agencies and producers. Training completion and suspicious activity reporting procedures are expected.
- Complaint handling. A written process for receiving, logging, responding to, and escalating client complaints, including when to notify the carrier.
- Supervision. The designated responsible licensed producer is accountable for the conduct of the agency's producers. Written supervisory procedures describe how that supervision happens.
- Agency license renewal and continuing education. The agency license renews on its own cycle, and the responsible producer's individual continuing education continues.
Carriers may verify any of this when they contract with an agency and again during periodic reviews. The article on carrier compliance reviews lists the documents reviewers request, which is a useful target for what to have in place.
What should the first ninety days look like?
A rough phasing, with the understanding that state processing times set the real pace:
Days 1 to 30: legal and licensing. Entity formed, tax identification obtained, agency license applied for, responsible producer named, entity E&O bound, bank account opened. Nothing is sold under the agency name yet.
Days 31 to 60: carriers and systems. Agency management system chosen and populated with the owner's existing book where the prior contract allows it. First carrier contracts signed, directly or through a brokerage. Appointments requested for the owner under the agency. The three starting procedures written.
Days 61 to 90: producers and routine. First producer contracted, licensed, and appointed before soliciting. Advertising review, complaint handling, and privacy procedures added. A calendar of license and appointment renewals, continuing education deadlines, and E&O expiration in place. The agency can now describe its compliance program in writing, which is what a carrier reviewer will ask for.