This post is part of a series sponsored by AgentSync.
In the insurance industry, the word “termination” has a few different meanings. First, there’s termination of employment, which occurs when an insurance policy expires and the insured or insurance company decides not to renew the policy. There’s also termination insurance, a type of business liability insurance that protects employers if they’re sued by former employees for wrongful termination.
This blog focuses on a different type of termination: termination that occurs when the business relationship between an insurance agent and an insurance company ends.
Appointment and dismissal of insurance agents
So far we have Career Appointmentswhich marks the beginning of a working relationship between the insurance company and the producer. Now let us focus on the other side of the coin: all good things come to an end, but in the case of an insurance producer-insurance company relationship, that end is called churn.
What is de-appointment?
Termination occurs when a carrier’s contract with an individual producer or agent ends and is a key part of the producer offboarding process. Termination can be thought of as an acknowledgement by the state, carrier, producer, and other stakeholders that the producer is no longer permitted to sell the carrier’s products.
Termination may mean prohibiting a manufacturer from selling a particular product line issued by a carrier or only in certain states, but it may also mean a complete end to the contractual relationship.
This may sound harsh, but there are many reasons for firing someone, and only a few are based on hostility.
4 Common Reasons for Insurance Agent Cancellation
1. The producers are not selling
For a producer-carrier relationship to be successful, the producer must sell enough of the carrier’s product to justify the carrier paying the producer’s retention fees in a given state. Renewal fees may not seem like a big expense, but when operating at scale, these variable costs add up quickly. If the producer is not selling, it could be cause for termination, since paying retention fees to a producer that doesn’t bring in revenue is simply bad business. In other words, such terminations are a classic case of “it’s not you, it’s me… well, actually it’s you.”
Side note – sometimes sales are expected to slow down towards the end of the year. Medicare Open Enrollment SeasonIn this case, both producer and carrier understand that the relationship is temporary, and the carrier has the responsibility to create a positive onboarding and offboarding experience that encourages the producer to return year after year.
Termination requests may also be limited to certain jurisdictions or states, in which case the carrier will terminate a producer’s contract only for operations or areas where the producer is not successful, while maintaining contracts in areas where sales are active.
2. The producer quits of his own volition
No job lasts forever. If a producer chooses to leave, it is only natural that the relationship between the producer and the insurance company will come to an end. Not youngmeaning the layoffs could have to do with the producer retiring, or maybe the producer just decided to pursue a career in an entirely different industry, like basket weaving or underwater welding.
3. The producer dies
Work isn’t forever, and neither are people. This is a bit dark, but it’s safe to say that when a producer dies, so does any existing working relationships.
4. The producer is violating state regulations or laws.
Perhaps the most interesting reason for termination is termination for cause, where a producer violates state regulations or laws, leading to the suspension or revocation of the license. The Producer Licensing Model Act (PLMA) provides 14 reasons an agent’s license may be suspended or revoked, which we have discussed in detail above. hereImportantly, while termination for cause will certainly occur if a producer commits a serious crime such as financial fraud, termination can also occur if a producer violates applicable laws or regulations, whether intentionally or not. In fact, some states go so far as to automatically terminate all appointments as soon as a producer’s license expires.
Termination of agency
Sometimes, insurance companies must terminate relationships with an entire insurance agency, rather than just a single agency. Terminating an agency can happen for a variety of reasons. It could be that the agency has been the subject of a recent merger or acquisition, or the agency is undergoing a regulatory investigation. Whatever the reason, terminating an entire agency means that the insurance company must track down and terminate all the agents that the agency has relationships with. Doing a manual bulk termination can pose a major challenge for the insurance company’s operations team, who can struggle for days or even weeks to verify that all the associated agents have been properly terminated.
Cancellation procedure
Whatever the reason for cancellation, the process is relatively standard. In either case, the insurer must first notify the state insurance department of the cancellation. In most cases, cancellations are reported through the NIPR. Many states require insurers to report the reason for cancellation. However, this is not always the case. teeth We are talking about the insurance industry, so differences exist from state to state.
Section 15 of the PLMA requires insurers to report all terminations of producer appointments to the Insurance Commissioner and the affected producer within 30 days of the termination. In cases of termination for cause, insurers must submit a more detailed report, along with any internal investigation information, to both the state and the producer within 30 days. Some states allow insurers to send termination notices to the relevant producer via email, while others still require the document to be mailed in paper form.
Optimizing cancellations with the latest insurtech
Delays in the flow of termination information can lead to serious compliance mistakes, such as producers selling products from insurers that have been terminated. To avoid getting caught up in legal trouble, insurers and MGAs/MGUs can leverage Producer Compliance Management solutions to communicate license expirations and contract terminations to all parties in real time.
AgentSync’s suite of solutions helps insurance organizations maintain compliance throughout the entire insurance agent lifecycle, from onboarding to termination and every process in between. If you’d like to see how smarter, more efficient agent management can benefit your business, Contact our experts today.
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Career
