The licensing maze

ILSA offers agents high-tech help in meeting complex requirements

By Elisabeth Boone, CPCU

“Trapped in the licensing maze?”

That’s the headline of the brochure produced by Insurance Licensing Services of America, Inc., and to any agent who’s ever tried to navigate the choppy waters of state licensing requirements, the question is purely rhetorical.

The state system of insurance regulation has many benefits, but a major drawback in the minds of agents, brokers, and insurers is the time, money, and encyclopedic knowledge required to obtain and maintain licenses in the 50 states and Washington, D.C., as well as Canada, Puerto Rico, and the Virgin Islands.

Perhaps no one understands better the baffling complexity of licensing regulations than Arleen Taveras, who is regarded as a leading authority on insurance licensing laws, pre-licensing, multi-exposure issues, and surplus lines and counter-signature laws.

Taveras holds the ARM (Associate in Risk Management) designation and has 23 years’ experience in the financial services industry, working in insurance as well as commercial investment banking. She is a past member of the National Association of Insurance Brokers’ Licensing Task Force and is a member of the Society of Insurance Licensing Administrators.

For seven years Taveras worked at the New York City headquarters of a worldwide insurance brokerage firm, where she reported to the senior vice president and legal counsel in the risk consulting department. In that capacity she established a licensing and compliance department at the corporate level and centralized the firm’s licensing function in the United States and Canada.

Automation gap

When Arleen Taveras contemplated establishing ILSA, a key factor drove her decision.

“At that time, there was a tremendous lack of automation in the industry,” she says. “As the head of the licensing function for a leading brokerage, I was frustrated by receiving applications that were typewritten. It took a long time before we were able to send the applications to the insurance department.

“My husband, Ted, and I had been thinking about establishing our own firm for some time; and we decided that with my expertise in licensing and his IT experience, we could definitely fill a void,” Taveras says.

In 1997, the Taverases formed Insurance Licensing Services of America, Inc. (ILSA). Based in Groesbeck, Texas, which is located between Houston, Austin, and Dallas/Fort Worth, ILSA employs a staff of 70 licensing and technical specialists. Drawing on Arleen Taveras’ depth of experience in the licensing arena and Ted’s background in management, communications, and information technology, ILSA provides a full complement of licensing and related services to retail and wholesale insurance agencies and carriers.

Among those services are individual and corporate property/casualty and life/health licensing for retail and wholesale agents and brokers; licensing and licensing bonds for adjusters, surplus lines agents, third-party administrators, and managing general agents; nationwide surplus lines tax filings; volume appointments; agent and agency contracts; purchasing group registration; continuing education tracking; name and address changes; annual corporate reports; and background investigations.

The breadth of services ILSA provides and the highly automated systems through which it delivers those services make the firm unique in its field, Taveras says.

“There are a couple of firms that offer some of the services that we provide, but none offers the vast array of services we have,” she explains. “When we launched ILSA, the firms that provided licensing services typically specialized in property and casualty or life and health lines. When we decided to start this business, our goal was to automate the licensing process as much as possible,” Taveras says. “That allowed us to handle a high volume of work, and it also freed up our staff so they could begin to research and automate beyond the standard lines of insurance, so early on we were able to handle licensing for surplus lines, adjusters, TPAs, and MGAs.”

What’s more, she comments, “Automation freed up time for us to query our clients about what additional services they might need. From our clients’ responses, we were able to develop the other services that make us unique in the industry, like preparing annual corporate reports required by insurance departments.

“Sometimes our clients don’t wait for us to query them,” Taveras says with a laugh. “They come to us and say, ‘This is a nightmare; please research it.’ We’re always willing to do the research, but we don’t roll out a program until we’ve been able to automate it,” she declares.

Into the maze

As noted earlier, there’s a reason ILSA designs its services to help clients through the “licensing maze.”

For agents and brokers, “the fact that each state has different requirements and fees is the biggest hurdle,” Taveras observes. “The uniformity initiative among the states has come a long way, and that has made it a lot simpler. However, there are still a lot of challenges just to stay in compliance.

“For example,” she explains, “you may have met the corporate qualification requirements in a given state; but that, in turn, involves other administrative functions you need to take care of, such as preparing the annual corporate return from the corporate tax filing.”

Surplus lines licensing, Taveras continues, is a maze all by itself. “Over the last several years, that area has developed significantly. Back in the early 1990s, you could only get a nonresident surplus lines license if you had a purchasing group. Now a broker can get a nonresident license in just about every state, so brokers are asking us to get them licensed everywhere,” she says.

“What they sometimes don’t realize is that obtaining those licenses requires tax filings, and some of the filings must be made monthly, quarterly, semiannually, and annually. Even if you don’t place business in that state, you still have to do the filings.

“It’s a tricky area,” Taveras continues. “Often a broker gets excited and says, ‘This is great; I can get all these licenses,’ but there has to be a compliance program in place before you secure all these licenses.”

Over the years of her career, Taveras has encountered numerous misconceptions about licensing on the part of agents and brokers.

“Some agencies’ marketing reps believe that as soon as they unveil their marketing plan, they can immediately obtain insurance department approvals,” Taveras says. “Another mistake we see very often is that agency owners believe they can operate legally in a state by just having individual producer licenses. When their carriers inform them that they need a corporate license from a specific state, they’re taken by surprise. We frequently find ourselves explaining that if they market under the agency name, that entity needs a corporate license.”

To maintain licenses in an agency or brokerage’s state of domicile, the firm must be able to document its producers’ compliance with continuing education requirements. “Our CE tracking service is part of our license renewal service,” Taveras says. “We send out e-mail notifications to the agency or its designated contact and let them know how many CE credits they need to comply with their home state’s requirements, and by what date. Often a client will call us and ask us to recommend a continuing education provider,” she continues.

ILSA maintains a database of CE providers that it can sort by parameters like location or license type. ILSA also can refer clients to Internet CE providers with which it has relationships. Once a client has completed the CE requirements, a copy of the completed certificate can be faxed or e-mailed to ILSA, which then scans the certificate into its electronic file system.

Unpleasant surprises

Agents and brokers who unwittingly fail to comply with licensing requirements can find themselves on the receiving end of some unpleasant consequences, including fines, penalties, and suspension or revocation of licenses.

“The insurance departments will impose steep fines; they can also issue an order to cease and desist,” Taveras explains. “Once an agency has been the subject of an administrative action in one state, it has to be reported to every state in which the agency holds a license. It has to be done within a certain time frame, and it has to be done at every renewal—and with every new license application—so it follows you forever,” she says.

“For example, say you have a resident license in your state and you apply for a nonresident license in another state,” Taveras says. “You do something that causes an administrative action in that one nonresident state—maybe you didn’t send them a letter of certification to show them you were in compliance with your continuing education requirements.

“Now all of a sudden you have an administrative action, so when you apply for licenses in other states, you have to send a copy of that administrative action to all of those states, and you have to make sure you report it at renewal time,” she continues. “If you don’t report it, you get another administrative action.”

Other potential landmines await the unwary agency or brokerage owner. “A lot of agents don’t realize the importance of address changes,” Taveras remarks. “Failing to notify the insurance department of an address change on a timely basis can result in administrative action.” What’s more, some states, like New York, have stringent requirements governing the use of business names.

The minutiae of state licensing requirements may be baffling and frustrating to agents and brokers, but for Insurance Licensing Services of America, they’re all in a day’s work.

“We’re used to all this,” Taveras says. “To us, none of this is complicated because we’re dealing with it every single day. What I tell agency owners is: Don’t assume that the licensing process is the same as when you last submitted an application in a given state—or that the process is the same as in another state you might have recently dealt with.

“Every time you submit an application, you need to double check the requirements, check to see if the fees or the forms have changed, check on the state’s name usage requirements, the secretary of state’s corporate qualifications, appointments procedure, and whether a bond is required for the type of license the agent is obtaining. Those are just a few of the considerations involved in securing a license,” she says.

Assessing clients’ needs

After reviewing the list of items outlined above, you’d think most agency or brokerage owners would head straight for ILSA before even looking at a license application, just to avert the possibility of bringing the wrath of insurance regulators down on their heads.

Some owners do approach ILSA before undertaking the task of obtaining out-of-state licenses, Taveras says, whereas others may first try it on their own and then ask ILSA for help. Still others are able to handle some aspects of the process in house and retain ILSA to provide services that are beyond the agency’s scope.

“In a lot of cases, we’ll take over a project in midstream,” Taveras says. “The client might already have submitted some applications, and then they’re just overwhelmed with the follow-up process or the rejection letters. We’ll do the follow-up on all the applications they’ve submitted, and we can complete the project quickly by dealing with all the items that are deficient,” she says.

“We know which states will accept follow-ups by e-mail or phone, and we have good relationships with many insurance department personnel,” Taveras continues.” If necessary, we’ll start the whole process from scratch.”

When an agency owner turns to ILSA for help in following up on applications, Taveras says, “We’ll call the insurance departments and ask them to put a hold on the application. Agents may not know that a lot of states will keep the fee the agency sent in with the application, so if a new application is submitted, the agent has to pay a second fee. In most cases, the insurance department will agree to give us seven days to correct any deficiencies in the application so we can complete the process and save the client that second fee,” Taveras explains. ILSA, she adds, stands ready to help clients in emergency licensing situations.

Technology in insurance departments is becoming more sophisticated, Taveras notes. At present, 39 states currently accept electronic licensing applications, and this allows ILSA to process an application within 48 to 72 hours. Even without electronic licensing, she points out, ILSA’s automated system can process some 18,000 license applications per month.

In the complex landscape of insurance licensing, there’s only one sure thing: Rules, forms, fees, and requirements are constantly changing. The ILSA staff thrives on the challenge of responding to emerging needs with new automated systems that streamline processing. Even as the industry moves toward more uniformity in state licensing laws, Taveras says, ILSA is engaged in an ongoing initiative to research, develop, and deliver new services to its clients. *

For more information:
Insurance Licensing Services of America, Inc.

Phone: (254) 729-8002
Web site: