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Why MGAs Should Proactively Verify Producer Data

By | April 27, 2022

Why MGAs Should Proactively Verify Producer Data

This post is part of a series sponsored by AgentSync.

Despite common industry misconceptions, managing general agents and underwriters (MGAs and MGUs) are also on the hook in a variety of ways for proactively verifying producer licensure.

Insurance carriers are often burdened with producer compliance for appointments, and agencies are typically working up-close and personal with producers and their licensing compliance, but because MGAs and MGUs occupy the middle of an insurance distribution channel, there is a common misconception that they need concern themselves with neither facet of producer compliance.

Before we get into the reasons to stay ahead of producer verification, keep in mind we’re solid advocates of compliance, but our blog isn’t your compliance. So, do your due diligence on your regulatory requirements.

Your MGA should verify producer data

If you’ve heard Reagan’s favorite Russian proverb, “trust but verify,” then you probably understand that just because your producer says they’re licensed in five states and appointed with your fave three carriers doesn’t make it so. Sometimes they’ve simply missed a deadline for renewal. Sometimes the error isn’t as easily remedied.

Regardless of why a producer’s self-reported information might be incorrect, if your MGA isn’t taking steps to protect itself from bad data, then you’re taking unnecessary risks. Let’s look at some of the reasons your insurance MGA or MGU should be proactively verifying your producer data against a source of truth:

Carrier contracts may hold MGAs responsible for producer management

While all MGAs or MGUs are required to write and underwrite a certain amount of business on behalf of their carrier partners, there are many other duties they can take on like claims paying or making producer appointments. Whatever duties your MGA takes on should be outlined in your contract with each insurance carrier.

Depending on the contract, you may be required to hold the appointments on behalf of your carrier partner. If that is the case, your MGA is essentially taking on responsibility for maintaining the insurance carrier’s oversight of producer compliance. If you’re an MGA or MGU and you’re interested in helping us understand more about your duties and responsibilities, please take our anonymous MGA fundamentals poll.

Whether producer management rests on your shoulders or not, by proactively verifying producer licensing and appointment data, you’re protecting your carrier in a way that lessens both of your risks. That’s a valuable service, and one that gives you an edge in their distribution channel.

Verifying producer licensing protects assigned commissions payments

Almost every state and territory has a producer law that is modeled in some way off the National Association of Insurance Commissioner (NAIC) Producer Licensing Model Act, either in its current form or previous versions. It clearly states no one can pay commissions to someone operating outside of full licensure.

It’s easy to read that as “paying commissions is a carrier problem,” but if you make money off of your producers’ sales through assigned commissions – where a carrier-producer contract “assigns” you some portion of your affiliated downstream producers’ commissions – then licensure is tied to your livelihood.

As a fun thought exercise, let’s imagine you recruit an agency with top-selling producers who know how to move a product. Then, a few weeks or months after you’ve opened that flush pipeline, the carrier realizes those insurance agents have a bit of a spotty compliance. What does that commission loss do to your pipeline?

Insurance license verification in growing and retaining up- and downstream partners

Whether you’re talking to carriers or agencies, data matters. Everyone wants to know where you’re able to sell and for whom. But if you’re not verifying producer licensing and appointment data, then you’re guessing you have about so many agents who are probably good to sell in more or less however many states. That ain’t data.

Being able to speak to the facts of your producer licensing and appointments is an attractive quality in a partnership. Verifying makes you less of a risk for your partners and also speaks to the quality of business you’ll bring to their distribution chain.

M&As, MGAs, and producer management

The MGA space is one of disruption. Mergers and acquisitions are currently a fundamental part of the landscape in the MGA space, and, much like growing your insurance distribution network, being party to M&As is about good data. You’ve probably heard horror stories about announced M&As that fall through or radically change price points halfway through. It’s often a matter of internal data not matching public perception.

Verifying producer information not only assures potential buyers of your compliance risk level, but also saves you in the reputational risk of a deal gone sour.

Proactive risk protection with agency partners

Let’s take a Mario Puzo minute here and pretend you’re Michael Corleone. When do you want to know Fredo’s gone sour? Is it after the assassination attempt? Or is it before?

If you’ll forgive The Godfather references, the point here is that some uncautious agencies aren’t worth the risk they bring. But you may not realize it until it’s too late and your name surfaces in a deposition exploring the sales funnel that’s being named in an inappropriate sales investigation.

By proactively verifying insurance producer licensing, you’re not just getting ahead of risks each producer may pose. You’re also collecting data that can show you plainly if you have an agency with a culture of high risk, an agency that poses a threat to your growth and reputation.

If you’re ready to avoid the heartbreak, see how AgentSync can help painlessly verify insurance producer licensing and appointment information.

Topics Insurance Wholesale

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