September 15, 2015

Just-in-Time Appointments Update: How will these potential changes affect you?

By: Leslie Kosal

Back in May, Patrick Masi raised some questions from the SILA conference regarding Just-in-Time (JIT) appointments and the authorization process. With the SILA 2015 National Education conference right around the corner, those questions are slowly being reviewed and answered.

At the August NAIC National Meeting in Chicago in August for example, the NAIC Producer Licensing Working Group (PLWG) continued discussions that started at last year's SILA conference regarding the language surrounding agent appointment practices in the Producer Licensing Model Act (PLMA). Representatives of SILA presented information about how carriers handle requests for business from agents.

The PLMA FAQ, last updated by the PLWG in 2011, was at the heart of the issue:

Question 2: PLMA Section 14B starts a clock of fifteen days for insurer compliance by providing that "the appointing insurer shall file?within fifteen (15) days from the date the agency contract is executed or the first insurance application is submitted." (Emphasis added). When is an application deemed "submitted"?

Answer 2: An application is submitted when it is dated received by the insurer. The use of any other event will undermine the ability of the states and insurers to achieve uniform national practice for regulatory notifications. This is because any other temporal event is unknown to the insurer, which has the compliance responsibility. That is, "submitted" should not mean when a producer mails an application, since different producers might use different means of communicating applications; different producers will mail applications at different times; mail pick-up and delivery varies among localities; et cetera. The one certain time of submission is when the application is dated 'received' by the insurer.

Question 3: If a state adopts PLMA Section 14, is there an option for the state to require an insurer to execute an agency contract with a producer prior to accepting the first insurance application from a producer that has not yet been appointed?

Answer 3: No. PLMA Section 14B provides that "the appointing insurer shall file, in a format approved by the insurance commissioner, a notice of appointment within fifteen (15) days from the date the agency contract is executed or the first insurance application is submitted. (Emphasis added). The use of the word "or" in the model act clearly allows an insurer to notice appointment upon the earliest of two events. Pennsylvania has adopted modified language and is not in complete agreement with this answer."

Under PLMA, carriers have adopted different practices, depending on their business model. Some carriers appoint upon receiving the first piece of business, others appoint when an agencycontract is signed. A concern that was discussed at the PLWG sessionwas the impact to the consumer if a carrier rejected a piece of business that they received, and no appointment was made. Also in some cases, a carrier may accept the business, but assign it to another agent for various reasons while the consumer may not be aware that this change in agent occurred.

Two aspects of this process were considered:

• The phrase "upon the earliest of two events" is in the FAQ but not in the actual PLMA language
• The concept of "shall file" from PLMA Section 14B requiring an appointment even if the business is rejected by the carrier (of course provided the submitting producer is duly licensed in the state).

A proposal to remove the choice of which event would trigger an appointment was made and failed, with only four of the fifteen states presented supporting the motion. Many states indicated that they wanted to confer with their legal counsel. The question of when a producer is acting as an agent of the insurer, as opposed to as a broker, was also raised. Industry trade representatives requested the opportunity to provide more information to the working group.

The working group will continue to discuss the issue and explore revising the FAQ language. There working group stated it did not desire to make changes to the PLMA itself.

The potential implications on carrier processes and cost are substantial since it could reduce the practice of just-in-time appointments in various states. Policy considerations will likely drive the resolution. For example, would the additional processing cost be worth the consumer protection provided? Could the outcome result in carriers limiting the agents they accept business from, reducing consumer choice? Would appointing all agents, a significant cost to carriers, ultimately be passed along to consumers via higher premiums or other fees.

The topic will be revisited and further discussed in a few weeks at this year's SILA conference in Nashville. Do you plan to attend? If so, don't forget to stop by booth 16 and 17 to learn more about how we're addressing the many regulatory updates and how we're incorporating those in our Sircon solutions.

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Leslie Kosal

Leslie Kosal is Director of Product Management for Sircon for States® and core regulatory products in Vertafore's Sircon solution portfolio. While most of her colleagues know her as their friendly neighborhood insurance licensing expert, Leslie is also a co-owner of a beer & wine store with her husband in Okemos, Michigan.