In 2014, the Florida Legislature enacted a law that makes significant changes to the way insurance agencies are licensed in Florida. The new law amends Florida’s insurance agency licensure law, and is intended to streamline the licensing process and better align the regulation of insurance agencies in Florida with other states. The Florida Department of Financial Services (the DFS) began implementing the law on January 1, 2015; however, to date, the DFS has not released any official guidance on how it will interpret the revised provisions of the law or how it will tackle the logistical issues that are likely to arise during implementation. The key provisions of this law, along with some potential issues, are discussed below.
Historical Florida Law
Prior to 2005, a Florida insurance agency was required to be licensed by the Florida DFS only if its owner or another principal in the agency had been convicted of a specific crime or had committed certain enumerated violations of law. Florida law was, therefore, substantially different from the laws of most other states.
At that time, most other states had adopted the 2000 amendments to the National Association of Insurance Commissioners (NAIC) Producer Licensing Model Act (PLMA), which required or permitted agencies to obtain a license. The adoption of PLMA, along with the National Insurance Producer Registry (NIPR), increased the uniformity and reciprocity of agency licensing, resulting in simplified multi-state licensing for agencies. As indicated above, Florida law was substantially different from the laws of those states that adopted the PLMA, as Florida law did not require or permit agencies to obtain a license. Consequently, Florida resident agencies had difficulty obtaining non-resident agency licenses in other states.
In 2005, the Florida Legislature enacted Senate Bill 1912, which substantially changed the way insurance agencies were regulated. Under the revised law, every individual, firm, partnership, association, or any other entity was required to obtain an insurance agency “license” or “registration” for each place of business at which it engaged in any activity that required licensure as an agent. The primary differences between agency registration and agency licensure was who qualified for each and when each was required to be renewed.
Generally, “licensure” was required for all agencies, including solo practitioners operating under their own names, and all branch offices of an insurance agency, unless they qualified for registration under one of following four exemptions:
- An incorporated agency whose voting shares are traded on a securities exchange
- An agency designated and subject to supervision and inspection as a branch office under the National Association of Securities Dealers
- An agency whose primary function is offering insurance as a service or member benefit to members of a nonprofit corporation
- An agency wholly owned by agents currently licensed and appointed under the Florida insurance code who were engaged in business in Florida before January 1, 2003
The advantage of registration was that it was perpetually effective, while licenses had to be renewed every three years. In addition, the officers, directors, and owners of a registered agency did not have to submit to the fingerprinting requirements imposed on license applicants. Registered agencies were also not subject to compulsory or discretionary refusal, suspension, or revocation as described in sections 626.6115 and 626.6215, Florida Statutes.
Although registration offered some advantages to an agency, Florida was the only state that registered insurance agencies rather than licensing them. Accordingly, registered agencies that sought to be licensed in other states ran into the same difficulties discussed above that all Florida resident agencies had prior to the enactment of SB 1912 in 2005. This resulted in numerous agencies surrendering their registrations and applying instead for licensure. The DFS reported that, on average, from 2010 – 2014, 38 registered agencies per month cancelled their registrations.
New Florida Law
House Bill 633 was enacted by the Florida Legislature on April 25, 2014, and subsequently signed by Governor Rick Scott on June 13, 2014 (the Agency Act). The Agency Act amends the insurance agency licensure law to streamline the licensing process and to better align the regulation of insurance agencies in Florida with other states. Under the Agency Act, which becomes effective January 1, 2015, agents who are sole proprietors conducting business in their individual name, and who do not employ or otherwise use the services of or appoint other licensees, will no longer be required to obtain both an agent and agency license. In addition, the Agency Act repeals the provision allowing insurance agencies to obtain a registration in lieu of a license, leaving licensure as the only option going forward. Most significantly, however, the Agency Act eliminates, under certain circumstances, the requirement that all branch office locations transacting Florida business be separately licensed, allowing instead the branch locations to be included in the licensing records of the licensed principal agency.
The Agency Act repeals the provisions of section 626.112(7)(a), Florida Statutes, which allowed qualified insurance agencies to obtain a registration in lieu of a license. Effective October 1, 2015, all agencies that are currently “registered” will have their registrations automatically converted into licenses. Moreover, agency licenses will no longer require renewal every three years. Rather, licenses will be perpetual and continue in force until cancelled, suspended, revoked, or until it is otherwise terminated or expires by operation of law. Accordingly, agencies whose registrations are converted into licenses will continue to benefit from not having to renew their licenses.
The DFS has not issued any formal guidance on how this process will take place; however it is our understanding that the DFS will begin notifying agencies that their registrations have been converted to licensure via email in early October 2015 or shortly before that. Moreover, the DFS has indicated that the new license number and issue date will likely remain the same as was on the original registration.
While the registration process under the old law did offer some advantages to the agency (i.e., registrations were perpetual and were not subject to compulsory or discretionary refusal), the Florida Legislature softened the loss of the registration option by, as discussed above, making licenses perpetual. Moreover, registered agencies that sought to be licensed in other states and were unable to obtain licensure because they were not “licensed” in their home state will now have the opportunity to use their converted license to obtain nonresident agency licenses in other states.
As discussed above, beginning January 1, 2015, the DFS will no longer issue registrations and will solely issue licenses to agency applicants. Although some of the licensing requirements under the prior law remain the same (i.e., requirement to accept uniform application for nonresident agency licensure), the Agency Act amended key provisions of Florida agency licensing law relating to branch agencies and agencies operated by sole proprietors. The key amendments are discussed below.
Branch Office Location Licensing. Florida defines an agency that is subject to licensure as “each place of business at which it engages in an activity that may be performed only by a licensed insurance agent.” Under prior law, this essentially required every branch office location of an insurance agency to be licensed as agencies, as well as the homes of insurance agents if the agents engaged in sales activities from their homes. In this respect, Florida law differed greatly from most states, whose licensing requirements were typically “entity based” rather than “location based.”
The Agency Act brings Florida’s branch agency licensing requirements more in line with the laws and regulations in other states, converting Florida’s “location-based” licensing requirement to an “entity-based” licensing requirement. The new law accomplishes this by eliminating the branch office location-licensing requirement for any branch location established by a licensed agency that:
- Transacts business under the same name and federal tax identification number as the licensed agency
- Has designated a licensed agent in charge of the branch location as required by section 626.0428
- Has provided the address and telephone number of the branch location to the Office of Insurance Regulation (OIR) for inclusion in the licensing record of the licensed agency within 30 days after insurance transactions begin at the branch location.
Thus, under the new law, the corporate agency will maintain the agency license and will maintain and report to the DFS a list of its branch locations operating under the entity’s license.
Removing the license requirement for each and every branch office moves Florida closer to the PLMA and the laws adopted in most other jurisdictions. Most importantly, by removing the branch office licensing requirement, large multi-state insurance agencies will no longer be subject to the overly burdensome licensing requirements that Florida imposed.
The changes discussed above do, however, present some logistical questions for which the DFS has not yet released any official guidance. One such issue is the effect the elimination of the branch office licensing requirement will have on those branch locations licensed under the previous law. As we understand it, these agencies will be allowed to retain their current licenses or they can choose to work with the DFS to transition to the new format. The DFS is working on adding new functionality to the MyProfilesystem on the DFS website that would allow the corporate agency to add new branches and inactivate closed branches through the corporate agency’s MyProfile account. Until such functionality is available, branch agencies desiring to transition to the parent record may need to contact the DFS for assistance.
Agencies Owned and Operated by Individual Agents. Prior to the Agency Act’s enactment, agents who were sole proprietors and who did not employ other agents were required to be licensed as both an agent and an agency. The Agency Act eliminates this requirement and exempts insurance agencies that are owned and operated by a single licensed agent conducting business in his or her individual name and not employing or otherwise using the services of or appointing other licensees from obtaining an agency license. The DFS believes this change was appropriate because insurance agents are vetted during the agent license process and, therefore, licensing the agency served no purpose. Additionally, Florida was one of the few states, if not the only state, that required double licensing for agents who are sole proprietors.
To qualify for this exemption, the individual agent must not employ or use the services of other licensees, and the agent must conduct business in his or her individual name. Accordingly, agents desiring to use the exemption under the new Agency Act must only engage in business in his or her own name or use a d/b/a that contains both the first and last name of the individual agent (e.g., Kevin Fitzgerald Insurance Agency). Although no official guidance has been released, it is our understanding that the DFS interprets the new law as requiring both the first and last name of the individual agent in the d/b/a name. Thus, an individually owned and operated agency named “Fitzgerald Insurance Associates” would not qualify for the exemption.
Incorporated agencies and agencies formed as limited liability companies that use a name that is different than the individual agent’s name would also not qualify for the exemption. Likewise, if an individual decided to use a d/b/a other than as outlined above, he or she would lose the exemption. As we understand it, however, this exemption will not be limited to sole proprietorships. Rather, the DFS has indicated that incorporated agencies or agencies formed as limited liability companies that would otherwise qualify for the exemption (i.e., individually owned and do not employ or otherwise use the services of or appoint other licensees), and who utilize the first and last name of the individual agent in the company’s name, will qualify for the exemption regardless of whether “Inc.” or “LLC” is added to the name of the agency. Thus, an agency named “Kevin Fitzgerald Insurance Agency, LLC” would qualify for the exemption.
The Agency Act takes a giant leap forward in bringing Florida law closer in line with the PLMA and the laws of most other jurisdictions. First, by removing registration as an option and requiring licensing for all agencies, Florida has removed a large obstacle that registered agencies faced when trying to obtain non-resident agency licensing in other jurisdictions. Second, the transition from a location-based licensing requirement to an entity- based licensing requirement eliminates the overly burdensome requirement faced by large multi-state agencies adding branch locations in Florida. Finally, it removes the double licensing requirement imposed on agencies owned and operated by individual agents.
There are some logistical questions that remain unanswered by the new Agency Act, and it remains unclear if or when the DFS will begin releasing FAQs and other guidance on the transition. In the meantime, individually owned agencies that qualify for the exemption may begin reaching out to the DFS to begin the process of surrendering their license. In addition, branch locations that qualify should begin the transition process as soon as possible.