Let’s Stop the Silliness
“I’m supposed to be the franchise player, and we’re in here talking about practice…Not a game…Not the game that I go out there and die for and play every game like it’s my last. Not the game, but we’re talking about practice, man. I mean, how silly is that?”—Alan Iverson, May 2, 2002
Trying to start this column on appointments, that’s all that kept popping into my head. Appointments? Not risk mitigation or structuring insurance solutions for the risks that cannot be mitigated, but appointments? You go out there and you give it your all for your clients, but before you can get from here to there, you have to have an appointment in place? How silly is that? From where we sit in 2017, I would argue, very.
Nine states—Alaska, Arizona, Colorado, Illinois, Indiana, Maryland, Missouri, Oregon and Rhode Island—effectively have agreed. They have eliminated mandated appointment filing requirements (along with the associated fees).
Alaska, Colorado, Maryland, Missouri and Oregon require admitted insurers to maintain an internal list of contractually appointed producers that must be made available to regulators upon request. New Jersey has eliminated individual appointments and now requires appointments only at the firm level.
The rest of the states generally require both individual agents as well as their firms to be “appointed” by every insurer for which they sell policies in that state prior to an agent’s sale of any of their policies. Without an appointment, the agent cannot lawfully transact insurance in that state for that insurer.
On Dec. 7, 1807, the Insurance Company of North America, based in Philadelphia, appointed Thomas McCall to serve as its agent in Lexington, Kentucky. Prior to that time, insurers generally sold policies directly to their customers. In seeking to extend its territory beyond where the company itself was located, the Insurance Company of North America is widely credited with initiating the American agency system.
After the Civil War, many states began enacting statutes to regulate the business of insurance and to license agents and domestic insurers for the first time. They generally allowed “foreign” insurers—those not physically present in the state—to sell insurance in their state through appointed agents. The purpose of the appointment was to require a carrier representative to be present in the state to accept legal service of summonses and complaints to ensure policyholders had an effective right of action to pursue claims payments.
Now we come to the present. Two fundamental things have changed in the intervening 150+ years. First, out-of-state carriers selling on an admitted basis are licensed and required to submit to each state’s summons/complaint service-of-process protocols. (Only admitted carriers are subject to appointment requirements.) Second, states now license agencies in addition to individual producers, and carriers’ primary contractual relationships are at the firm level, not at the individual producer level. But in most states, carriers are still required to make the appointments and generally do so at both the firm and the producer level.
The Current Process
Although it sounds like a simple requirement, the appointment process and attendant requirements vary from state to state in terms of timing restrictions (e.g., pre-solicitation or concurrent submission), cost and content. In addition to the initial appointments, states require appointment renewals (on schedules that vary with each state) and the filing of termination notifications. Appointments are usually made on an operating company basis. Thus, large holding companies with multiple subsidiaries must process the appointments for each operating company for which an agent is authorized to act.
In response to a recent survey, Council firms reported having an average of 33,758 appointments per firm for an average of 1,020 carriers, with some firms maintaining hundreds of thousands of separate appointments for as many as 8,000 separately licensed carriers. The average Council member firm employs five staff members dedicated to ensuring appointments are in place. Some firms report having as many as 22 workers dedicated to that task.
The majority of respondents also reported the lack of an appointment has caused delays and failures in the placement of coverage for clients.
The irony here, of course, is the regulatory and appointment fee obligations are actually on the carriers, not the producers, and our compliance costs likely pale in comparison to theirs. In addition, many carriers have begun to take the position (erroneously in my view) that the individual agent appointments necessitate the performance of criminal background checks to ensure federal compliance. To the extent there is any such obligation, it should be on the employing agency and not on the appointing carrier.
Some producers are appointed by 20 carriers or more, and the idea that they may be subject to several dozen separate criminal background checks seems wholly inappropriate.
So where do we go from here? For all of these reasons, The Council’s board recently voted to initiate an effort to eliminate or rationalize the byzantine appointment requirements. The original carrier service-of-process rationale for creating appointment requirements has been superseded. Agents now are employed by agencies with which the carriers contract.
Continued maintenance of these requirements—which have lost their regulatory purpose (and no longer apply to the right parties in any event)—would be just silly, wouldn’t it?