In the United States it is mandatory for people working in the insurance industry to obtain a license before they begin to practice selling insurance. The requirements of each state for licensing are different and an insurance professional who is qualified to offer insurance advice in one state may not be able to offer the same advice in another state.
Because licensing is a key requirement of insurance practice and because it is relatively easy for a qualified agent in one state to re-qualify to work in another state, there are many systems in place to facilitate this re-qualification. In fact in many cases an insurance agent or broker can complete this certification online without having to attend a testing center.
There are other professionals working in insurance that also have to get licenses in order to operate on behalf on an insurance company but from a client perspective the important aspect of licensing is that the agent or broker they work with to obtain their insurance policies and coverage is properly authorized and licensed to provide help, advice and insurance policies that meet the requirements of their state or states of residence and operation.
What does licensing mean to the agent or broker?
Firstly it means that the agent or broker will have been properly trained in meeting all their responsibilities under state law in respect of client information capture and processing of the appropriate paperwork for the insurers to ensure the legal validity of any policy purchased through them.
They are also required to report on their activities to state departments or agency as necessary to inform them of certain mandatory information related to their sales activities. This is so that the state can audit the performance of agents and brokers to make sure that they are complying with all relevant local legislation particularly where a breach might affect policy holders or the contract with the insurance company.
The state will also conduct a thorough background investigation of the licensed individual to ensure they are a proper person to be handling insurance matters and will include a determination of a broker or agent’s criminal history (if any should apply).
Some states may also require a bond from the licensed practitioner to protect their clients against malpractice or insufficiently able advice when it comes to their insurance policy/policies.