Standards Boost Efficiency of Licensing, Appointments and Contracts

Technology developments in the past few years have delivered cost and time savings to virtually every facet of the insurance business. But in few areas have the benefits been so dramatic as in the producer licensing and appointment arena. This breadth and depth of expense and efficiency gains comes, in large part, from the number of repetitive—and often duplicative—transactions that take place in processes between producers, carriers and the states.

Tech helps agents get licensed
The use of Internet technology and standards has made it markedly easier in most states and jurisdiction for agents to get and renew resident individual licenses. Different states achieve varying degrees of sophistication in their electronic offerings, ranging from simple enhanced communication via Web sites to full-fledged, interactive, online functionality.

Changes also have taken place in how non-resident licenses are processed. About one-third of all states participate in electronic non-resident licensing, through the National Insurance Producer Registry (NIPR), a non-profit subsidiary of the National Association of Insurance Commissioners. Agents can get non-resident licenses and new lines to an existing license using an electronic application. Agents who hold an active resident license in one of the home states in the NIPR producer database can apply to other participating states for life, accident and health or sickness, property, casualty, personal lines, or variable life/variable annuity non-resident licenses.

But this state licensing of agents is just one area where technology is helping. Producer appointments—not the type of normally thought of by agents, but a process in which states and carriers communicate with each other—is another, and perhaps more far-reaching tech-based success story. It’s an area in which major progress has been made over the past four or five years.

Carriers and electronic communication
In this process, a carrier appoints individual producers with state insurance departments to the carrier’s legal entity or entities that actually underwrite insurance policies. One commercial insurance carrier, for instance, has between 15 and 20 distinct companies in its group. The broad number of legal companies address pricing tiers, product lines or geographic locals. The appointment to each company is a legal, compliance process all carriers must perform.

When I worked for a carrier, we had relationships with 6,000 distinct agents, but had to handle some 150,000 of these appointments. At the carrier I mentioned earlier, 10,000 contracted agencies represent some 90,000 individual producers and nearly 900,000 appointments, which are done each year.

Over the last few years, there’s been an enormous leap forward in how carriers deal with the 50 states on getting these appointments completed.

An electronic interface has been set up between carriers and NIPR that sends appointments received each day to individual states, so those states can link agents to specific companies. For the license to be appointed, NIPR uses information in its producer database that shows that the producer license is, in fact, valid and certified.

What use to be a 100 percent paper process, fraught with errors, is now virtually 100 percent electronic, and error-free, for participating carriers.

A transaction that once took up to 120 days to get done now can be knocked out in a matter of 48 to 72 hours.

But timing and accuracy are not the only benefits.

An executive from the large company cited earlier says that what use to cost about $6.80 per transaction under the old paper process now costs $1.

When you have a carrier spending anywhere between $10 million and $14 million a year in appointment fees, not to mention the operating costs, that makes a dramatic difference.

Producer contract standards in process
A related area is what agents more traditionally think of as “appointments”—but which is more accurately described as producer contracts—getting a contract to write business with a certain carrier. When agencies want to execute new contracts with carriers, they complete individual applications for each. But in most instances, they answer the same or similar questions on each application. They’re asked their name, address, license number, what states they’re licensed in, background information and so on. It’s a paper process between the agency and the carrier. And it’s the type of thing that is ripe for application of standards. As my company executive friend described it, there is a need, a crying need, for a standard on requesting these appointments.

ACORD has developed and is implementing an agency contract or appointment standard for the life insurance community. We plan to take that standard, check its effectiveness, verify or add or delete whatever is necessary, and apply it to the P/C business. And once that standard has been approved and in play, we need for every carrier and agency to be able to use it.

This will require agencies, large and small, to recognize the value and benefit of incorporating standards into their proprietary programs—or, in some cases, see the need to actually automate their contracts. It also will require participation by vendors that offer products to manage licensing and continuing education. Those vendors can incorporate the soon-to-come—and in the life case, existing—standard data-stream, and the carriers will be able to capture the data.

This will represent a big step forward, and will benefit agents because it’s all electronic. No longer will agents have to fill out different applications for different carriers.

Agents can continue to put pressure on their distribution system to modernize the data exchange. Those who use vendors can encourage them to have a seamless connection to their carriers of choice. Such action will move the industry, and agents in particular, even closer to error-free, speedier processing of routine business communication.

It’s a move that offers opportunities to capitalize on the work we’ve been doing at ACORD, and what our partners have been doing to boost overall industry efficiency.

Joel Volker, ACORD’s chief counsel, is responsible for all contracts and licensing agreements and the development and maintenance of ACORD forms.