Must a Retired Agent Maintain a License to Receive Payments From Former Agency?

The Free Legal Service Program I run for the IIAG has provided me with yet another topic for a blog post.  The above question was recently asked of me by a caller to that program.  You would think that there would be clear answer to this question, as it is a situation that has occurred often in the past and with the average age of agency owners continuing its climb toward 60, this situation will most certainly occur even more often in the future.

Unfortunately, there is no clear answer to that question, although I think I know what the Insurance Commissioner’s Office would say.  The applicable statute is O.C.G.A. Section 33-23-4.  On the one hand, paragraph (e) of that statute states that the “the payment or receipt of renewal or deferred commissions” by “any agency or a person” who has “ceased to be” an agent will not be prevented by the earlier provisions of the statute, which state that commissions generated by the sale of an insurance product can only be paid to a licensed agent, limited subagent, or counselor.  If the payments to be made to a retired agent can be characterized as renewal or deferred commissions, which in many instances will be the case, it appears that the agent does not have to maintain a license to be eligible to receive them.

I say appears because the language of that section of the statute also refers to the payments being made to a “licensee” who has “ceased to be an agent, limited subagent, or counselor.”  The use of the word “licensee” after having referred to “any agency or a person” implies that the person to whom the payment of renewal or deferred commissions is being made must still have a license of some sort issued by the Insurance Commissioner’s Office.  This conclusion is supported by the next paragraph of the statute, which exempts an agent who has been licensed for 10 or more consecutive years from the requirement that they be appointed by a least one insurance company, as long as they are not performing the duties of an insurance agent “other than receipt of deferred or renewal commissions.”

Similar language is also found in the section of the Georgia Insurance Code that governs the continuing education requirements for licensed insurance agents.  Agents who meet the same criteria stated above are not required to satisfy any continuing education requirements.  There would be no reason for the above statutory sections if a person who was no longer performing the duties of an insurance agent could receive renewal or deferred commissions without having to maintain a license of any kind.

One may ask what kind of license must such a person maintain if they are not required to be appointed by an insurance company or to satisfy any continuing education requirements.  The answer is found in a regulation first adopted by the Insurance Commissioner’s Office in 1996 and then readopted in 2003.  It describes the requirements for the issuance of a “nonactive license.”   Such a license must be renewed and “all renewal fees” paid annually.   So it appears a retired agent must continue to pay the Insurance Commissioner’s Office an annual fee for the privilege of receiving “deferred or renewal commissions.”

If such an agent doesn’t want to have to pay a fee for that privilege and run the risk of losing that privilege if their nonactive license is revoked or suspended, which presumably it can be for the same reasons as the license of an active agent, it would be better if whatever payments are to be received from their former agency as a result of their retirement be structured so they cannot be characterized as “deferred or renewal commissions.”

Relationships With Business Groups & Other Potential Sources of Customers – What Can Be Done?

I recently received a call on the IIAG Free Legal Service Program that I operate from an agent who was considering establishing a relationship with a business association, for whose members the agent was interested in writing insurance.  The agent had developed a special expertise regarding the insurance needs of the business association’s members and wanted to gain access to them through their association.

The business association on the other hand was interested in receiving compensation beyond a mere referral fee for assisting the agent in gaining access to its members.   In exchange for that compensation, the association was willing to provide assistance to the agent beyond just giving the agent contact information for its members.  Establishing such a relationship with a business group can be a very effective way for an agent or agency to significantly increase its customer base.

The creation of a relationship with a person or entity that is not licensed by the Georgia Insurance Commissioner’s Office raises two significant issues under the Georgia Insurance Code that must be successfully dealt with.  First, there is the prohibition on the sharing of commissions with a person or entity that does not have the proper license from the Insurance Commissioner’s Office.  Second, there is the prohibition on engaging in activities that constitute the sale, solicitation, or negotiation of an insurance product without the proper license from the Insurance Commissioner’s Office.

The first issue can be resolved by entering into a payment arrangement with the unlicensed business group that is not tied in any way to the amount of commissions received by the agent or agency on insurance business written for the group’s members or even to whether any insurance business is written at all.  The agreed on compensation for the performance of services by the business group should be paid regardless of those two factors.

Some people may think that having an employee of the business group get the proper insurance agent’s license and then paying an agreed on share of the commissions received directly to that employee will resolve the first issue.  That would work if the employee was going to keep all the commissions paid to him or her.  However, that is not likely to the case, and if the agent or agency was or should have been aware that the employee would turn over all or any part of such compensation to their employer, then they may well be in trouble with the Insurance Commissioner’s Office.

However, having an employee of the business group get such a license would resolve the other issue raised by the agent or agency’s relationship with that group.  What duties constitute the sale, solicitation, or negotiation of insurance is a gray area and has been the subject of a couple of my earlier blog posts.  Having a properly licensed insurance producer, who is employed by the business group, handle all the insurance related duties that the business group is to perform in exchange for its compensation would avoid any potential problem with the Insurance Commissioner’s Office over that issue.  In the absence of such a employee, the agent or agency would be exposed to potential liability if the Insurance Commissioner’s Office were to determine that one or more of the duties being performed by the business group could only be performed by a properly licensed insurance agent.

Hartford AARP Program Change – An Update

A month or so ago, I wrote a blog post about a proposed change in the agreement for those agencies that participated in the program that the Hartford Insurance Companies have for members of the American Association of Retired Persons (AARP”).  That change would have exposed those agencies to the possibility of being terminated from the program and losing all the policies placed through it without receiving any compensation for that lost business.

I have recently learned that, in response to inquiries by concerned agencies, the Hartford Insurance Companies have stated that the intent of the change in the agreement for the AARP program was not to take away existing business from agencies whose participation in that program was terminated.  Instead, such agencies would be allowed to continue servicing their existing business in the program, they just could not write any new business for it.  Of course, if the general agency agreement with the Hartford Companies was terminated, then the agency would have to move the program business, as well as all its other business with those Companies, to another insurance company or it would lose that business with no further compensation being paid.

The above approach is a reasonable one.  Unfortunately, it was not accompanied by any change in the language of the new agreement for the AARP program.  That language still reads, “Notwithstanding the preceding [agent is entitled to keep expirations if no breach of agency agreement], any [AARP] Member policies not placed with another carrier prior to the expiration of the contractual and/or applicable statutory renewal period of such Member policy shall be renewed with Hartford and immediately transferred to an internal Hartford code upon such renewal.”  There is no exception in that language for the situation where the agency remains appointed by the Hartford Companies.

Agencies should be reluctant to rely on a statement from the Hartford Companies about what they intend to do in the event their participation in the AARP program is terminated, which can happen at any time and for any or no reason, in the absence of any change to the actual language of the program agreement.  In addition, allowing agencies whose participation in the AARP program has been terminated to continue servicing their existing policies in that program raises interesting questions about the various ethical, training, and other requirements imposed on agencies by that program that do not exist under the general agency agreement.

Must the agency still abide by all the ethical, training, and other requirements contained in the AARP program agreement in order to be able to continue to service policies that are covered by it?  Also, how will the agency be able to continue servicing those policies if all its records concerning them must be either destroyed or returned to the Hartford Companies, as required by paragraph 14(b) of the new agreement?  These questions should be addressed up front to avoid any disputes in the future.

The Hartford Companies have made a good start on dealing with the issues raised by the new agreement for its AARP program, but there are still many unanswered questions that need to be addressed before agencies can feel comfortable with their obligations under it.