Why insurance agencies should consolidate regulatory partners
Navigating the compliance maze: There are clear benefits to using a national compliance vendor.
Maintaining compliance is a critical function for insurance retailers, wholesalers and MGAs, but as a cost center it can be difficult to prioritize against revenue-generating activities. Failure to comply with state regulations can lead to serious consequences such as fines, consent orders, and reputational damage.
As agencies expand or merge across state lines, what was once a fairly straightforward process becomes increasingly complex, and the best way to handle it may be to delegate it to a third party.
The evolving compliance landscape
Agencies often choose to handle compliance in-house or rely on specialized vendors for specific compliance functions such as licensing or surplus lines. But as agencies grow — by entering new markets, acquiring other agencies, or offering new lines — the picture grows more complex. Before you know it, you’re spending valuable time and energy on compliance, which means less time working for and with clients. Adding new compliance vendors seems like the most logical solution to address this challenge, but it also increases complexity and the risk of information falling through the cracks. In addition, compliance itself is growing in complexity, with the need to satisfy frequently changing requirements across 50+ jurisdictions, including states, the District of Columbia, and various territories.
Changes in the operational environment of agencies also create challenges. The trend toward agency consolidation, expansion into new jurisdictions and product lines, and a growing need for agility and adaptability in an increasingly competitive environment all make meeting regulatory compliance across a highly fragmented national market increasingly difficult.
The challenge of maintaining compliance across multiple jurisdictions
There’s more than just the sheer number of jurisdictions to consider. Each state, district or territory has its own requirements, and many can be arcane, burdensome, and consequential in terms of violation all at the same time. Some of these are statutory, such as variations in licensing, registration and reporting requirements and processes, or the degree of coordination between the Secretary of State, Department of Insurance, and other regulatory bodies. Others are more ephemeral, such as shifts in priorities. For example, we’ve noticed that some states have recently started cracking down on Secretary of State registrations, an area that most previously overlooked.
Here are just a few of the requirements and procedures that can vary from state to state:
- Zero report requirements: Different states have varying rules about zero reports, which can lead to confusion and inconsistencies in reporting practices.
- Choosing a Designated Responsible Licensed Producer (DRLP) and maintaining continuity if that person should leave the agency.
- Affiliation requests and filings: Many of our clients struggle to understand the difference between affiliations and appointments, which can lead to compliance issues, especially when working with multiple vendors.
- Data transfer and technical knowledge of state electronic filing and reporting systems including SLIP (Surplus Lines Information Portal) and OPTins (Online Premium Tax for Insurance).
- Requesting, maintaining, and terminating appointments, as well as keeping track of active appointments across different states and lines of authority.
- Maintaining cybersecurity and data privacy to comply with legislation such as New York’s 23 NYCRR 500, the NAIC Insurance Data Security Model Law, and California’s Consumer Privacy Act.
- Tracking deadlines such as expiration dates and renewal requirements. Missing these deadlines can result in fines and sanctions.
- Inefficiencies in communication and data sharing caused by a lack of integration between specialized vendors, placing a heavier burden on agency staff to manage multiple relationships and data sources.
- Loss of institutional insurance knowledge: It’s no secret that the insurance industry is suffering from a “brain drain” as seasoned employees retire and agencies scramble to replace them with less experienced workers. As a result, departing employees often take with them critical accumulated insurance knowledge including detailed understanding of compliance issues.
The benefits of engaging a compliance expert
Delegating compliance tasks to a trusted partner and expert can accelerate compliance activities, reduce the risk of non-compliance and/or fines, and improve your company’s bottom line by freeing up the team to focus on core business activities. Engaging with a partner also helps you handle peak periods without overworking staff or hiring temporary employees. In addition, a vendor that focuses exclusively on compliance will be able to provide expertise and a continuity of up-to-date knowledge that would be nearly impossible to recreate in-house. But should you choose one vendor, or many/? As we’ll see, here are a number of reasons for finding a partner that can provide multi-jurisdictional expertise.
The smarter approach: A national compliance expert
In balance a single vendor approach has many advantages over in-house or multi-vendor solutions. That’s because a single trusted partner is best positioned to provide deep knowledge, process management, and technology enablement to deliver results, such as:
- Comprehensive end-to-end services under one roof, including licensing, surplus lines, corporate registrations, and more.
- Greater efficiency and cost savings by streamlined processes and reduced administrative burden. You can also leverage an experienced vendor’s expertise and relationships for better pricing.
- Improved risk management, including centralized tracking and monitoring of compliance requirements; proactive identification and resolution of potential issues; and less chance of things falling through the cracks.
- Enhanced adaptability and agility, thanks to seamless support for business changes and expansion and the ability to navigate evolving regulatory landscape.
- Dedicated expertise and industry knowledge — not just a deep understanding of insurance compliance, but also established relationships with regulatory bodies.
As agencies large and small face decisions around handling compliance, the benefits of using a national compliance vendor become clear. Best in class compliance practices mean gaining access to broader and deeper expertise. A partner that can bring this expertise and -ensure that the process is managed seamlessly and accurately reduces headaches, costs, and risk.
Dan Epstein is the chief executive officer of ReSource Pro, a strategic operations partner to insurance organizations. For more information, visit https://www.resourcepro.com/.
These opinions are the author’s own.
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