Marketplace & Regulation
An appointment is defined as the authority given by an insurer to a licensee to transact insurance on behalf of an insurer. Only licensed agents may “transact insurance” in Florida, and the agent’s license is only valid if at least one insurer has appointed the agent for that line of insurance. When an insurer appoints an agent, a new relationship is created that allows the agent to:
¨ describe the company' s insurance policies to prospective buyers and explain the conditions under which the policies may be obtained,
¨ solicit applications for insurance,
¨ collect premiums from policyowners, and
¨ render service to prospects and to those who have purchased policies from the company.
The authority of an agent to undertake these functions is clearly defined in a "contract of agency" (or agency agreement) between the agent and the company. Within the authority granted, the agent is considered identical with the company. The concept of “agency law” governs the relationship between an agent and the company he or she represents.
A licensee may not transact insurance until he or she is appointed by an authorized insurer for the class of licensure held. For example, if an individual is licensed for the classes of life, health and variable annuity, and wishes to market all three types of products, he or she must be appointed by either an insurance company authorized in its certificate of authority to transact all three of these lines of business or by separate companies for each line.
For example, if you become licensed for life and variable annuities, and Company XYZ appoints you for life only, then you will still be required to obtain an additional appointment with an appropriate company for the variable annuity portion of your license if you intend to market variable annuities.
It is the agent's responsibility to obtain the desired and appropriate appointments for his or her licensure. The agent should be involved in his or her appointment process and should be aware of the actions that are requested by an insurance company relative to his or her license. Florida law states: "Upon the expiration of a person's appointment ... the person shall be without any authority conferred by the appointment and shall not engage or attempt to engage in any activity requiring an appointment."
If a licensee loses an appointment for any line of business, his or her qualifications for that portion of his or her license will remain valid for 48 months. However, the licensee may not engage in insurance activity for that line of business until a new appointment is obtained. If the agent remains unappointed for 48 months, the license lapses.
For example, an agent was licensed for life, health and variable annuity in 1996 and obtained appointments for all three lines. In April 2002, the company who had appointed her for variable annuities chose not to renew her appointment. Her variable annuity license remained valid (although she could not solicit variable annuity business without an appointment) until April 2006. If she did not obtain a variable annuity appointment by then, her variable annuity license lapsed and she will have to take the variable annuity portion of the exam again to be re-licensed.
Florida law requires insurers to conduct a background check prior to appointing an agent. Specifically the insurer must inquire as to the criminal history, credit standing and moral character of each appointee. After the background check, the company will file the appointment paperwork, plus filing fee, with the Department of Financial Services. Appointments need to be renewed every two years. If the agent fails to comply with continuing education requirements, the Department will not allow renewal.
Under the law of agency, an agent is the lawful representative of the principal, which in this case is the insurance company. Thus, the payment of premiums or other sums to the agent is the same as paying them to the insurance company. Because of this, the agent has a fiduciary responsibility to turn the funds over to the insurance company immediately, and not to use them for his or her own purposes. If held by the agent, these funds should be held in a segregated account, i.e., separate from personal funds. Converting those funds to personal use is a crime known as embezzlement or conversion. The severity of the crime depends on the amount of funds that were misapplied.
In addition, Florida law requires agents to keep records for at least three years if the transaction pertains to premium payments. The Office and the Department may examine these records at any time.
Generally speaking, agents will show proposals for companies that have appointed the agent. Agents may, however, show proposals for other companies – provided the agent is licensed and appointed for that particular line of insurance. The agent may furnish materials and show proposals for any company authorized to sell that line in Florida. However, if the agent actually writes the business, the company must formally appoint the agent when the agent submits the application. Furthermore, the company may not pay the agent a commission until the appointment is actually issued.
Agents may split their commissions with another agent who is Florida-licensed and appointed for that line of insurance. Splitting of commissions with non-licensed persons is considered “rebating”, which is permitted only under tightly regulated circumstances.
For example, John Williams holds a life license and is an appointed life agent. While he feels comfortable discussing traditional life insurance and fixed annuities with his clients, when it comes to variable annuities he refers his clients to Maria Perez, a licensed life and variable annuity agent. Maria cannot pay John a referral fee or split the commissions on variable products with John, since he does not hold a variable annuity license.
She could, however, split a commission on an equity indexed contract with John, as the EIA is considered a fixed annuity, and he is licensed for that line of business.
Insurance companies, in general, are limited in paying commissions to licensed individual agents only. Insurance companies, however, may pay commissions to an incorporated insurance agency that is properly registered or licensed with the Department of Financial Services. State law requires all employees, officers and directors of these agencies who transact insurance business to hold a valid Florida agent license.