As early as the 1920s, most states adopted model resident agency laws under which:

Insurance agents usually may do business only after they have been licensed by the insurance department in their state. The resident agency laws usually provide that any business written in the state must be written through a properly licensed agent. If an out-of-state insurance agent wishes to place insurance there, he must conform to the laws of that state.

 

Frequently he must purchase a non-resident agency or broker's license for the state involved. Usually these laws are for the protection of insurance agents in general, and should be supported by all good insurance men.

Agent's Insurance Guide

Rough Notes Co.

1947

Nearly a century later, the rise of consumer advocacy and the election of state insurance commissioners have changed the focus of resident agent regulation from “the protection of insurance agents in general” to consumer protection.

COUNTERSIGNATURE LAWS: THE MASS MEDIA FACTOR

When the radio was introduced to Americans in the 1930s, independent insurance agents nationwide were sure that their lives and careers would be destroyed by the giant insurance companies and their agents advertising the benefits of their services and policies. Yet, agents survived, and life continued pretty normally for the Independent Agency System until the early 1950s, with the introduction of the picture radio box: black-and-white television.

In 1952, 4% of Americans had a television in their homes. By 1958, 80% of Americans had a television — the most explosive growth of mass media in history. Suddenly the world was in the consumer's living room, and the family gathered around to watch their favorite programs, which included commercials every 15 minutes. Major insurance companies sponsored many of these commercials. Names like Prudential, New York Life, Crum & Forster, Colonial, Agricultural Insurance Co., The Hartford, and United States Fidelity and Guaranty Co. (USF&G) became household words. Television advertising was the ultimate in branding during the second half of the 20th Century.

The mass media message to consumers was one thing. The message to insurance agents was entirely another. The threat of losing business to some “outsider” or non-resident agent was greater than ever. Agents began crossing state lines and obtaining non-resident licenses by the thousands. Large Commercial insurers began writing national accounts, taking business away from local independent agents. Agency commissions were cut substantially (20% to 30%). Insurers explained to their agents that they needed to cut commissions because they were spending a lot of money for “local” television advertising on the agents' behalf. Sound familiar?

Faced with the threat of losing business to non-residents based on mass television advertising, agent groups banned together in the early 1950s and expanded the concept of countersignature. Agent groups wrote their own model laws, proposing to the National Association of Insurance Commissioners (NAIC) and state legislatures that a resident agent must countersign any policy written by a non-resident agent. This was based on the theory that because non-resident agents weren't familiar with state laws, a licensed resident agent should review the policy before delivery to the consumer. The resident agent could assure the public that the policy language complied with state law. The model law also included a requirement that the resident agent be paid 25% of the commission or 5% of the premium, whichever was less.

According to the Agent's Guide:

[Countersignature laws] authorize the agent under his agency agreement to receive and accept proposals for insurance, covering risks of such classes as he is authorized by the company to insure; to countersign, deliver, and continue policies of insurance signed by the authorized officials of the company.

Nearly all states passed countersignature laws. However, the degree of responsibility on the part of the agent varied significantly. Some states required the resident countersigning agent to be physically present with the non-resident agent at the time of the sale. Other states expanded the requirement of “countersign” to include the wet signature of an “authorized” agent on any policy issued in the state, whether written by the contracted agent or a broker representing that agent. Still other states defined “authorized” to mean a hard copy authorization (appointment) filed by the insurer with the state insurance department, authorizing the agent to represent the company.

Keep in mind that this was before state laws required carriers to file policy forms with state insurance departments for approval. The purpose of rate and form filing laws was to provide consumers with confidence that the policy they purchased complied with state law because an expert analyst at the state insurance department had reviewed the policy forms.

In the past decade, countersignature laws have been challenged in most states. Today only Florida, Nevada, and South Dakota still have what most would describe as true countersignature statutes. Recently, the Council of Insurance Agents and Brokers (CIAB) challenged the Florida and Nevada laws in federal court. The CIAB argued that these laws are unconstitutional and do nothing to serve the public in terms of consumer protection because state insurance departments already review policy forms to assure compliance with state laws. The court agreed, ordering that Nevada's countersignature laws be repealed (state insurance regulators have appealed this decision). As a result of this case, Florida and South Dakota will probably repeal their current laws.

ENTER THE INTERNET

With the dawn of every new media technology comes the fear on the part of agents that their customers will either find a new agent or buy insurance direct from the company. This fear was evident during the past decade with the introduction of marketing insurance through the Internet. The Web presented a whole new world of national and global marketing opportunities. Many of you recognized this opportunity and already have an Internet presence. You're only a “click” away from your clients, whether they live across town or across the country. The Internet has enhanced your ability to market nationally; along with this comes the need for compliance with state agency licensing laws. You cannot sell, solicit, or negotiate insurance in any state without holding a valid and current license.

ONLINE LICENSING: THE FUTURE IS NOW

In the late 1980s, I told the attendees at an IMMS Convention, “Some day you'll have the ability to apply for a state insurance license on your agency computer in any state using a standard application form, and have that license approved the same day.” That day has come: 32 states are currently accepting electronic non-resident license applications, with the remaining states expected to be on board by late 2005.

Today, you can log on to www.sircon.com, complete a uniform non-resident application, attach your credit card payment, submit the application to any of 32 states — and, in most cases, obtain your license approval within 24 hours. I've dreamt of this day for more than 20 years. It's a pleasure to represent Innovative IT Solutions and deliver the licensing technology that you deserve.

You're now in a position to encourage your clients and prospects to buy their insurance direct — direct from you!