This post is part of a series sponsored by Actentsync.
Insurance is a relationship-based business, like anyone will tell you. However, formally portraying a complex network of relationships that connects underwriters to insureds is far from simple. A producer can be appointed under the protection of a financial marketing organization (FMO) in a few states, while writing business with MGA, which works for the same carrier with MGA and does not work (probably New York) in a specific country (probably New York) by performing FMO in a specific state.
These complex hierarchies are crucial to understanding the structure of the operator contract and how many checks the committee should have and who is responsible for any business and the compliance oversight that comes with it. However, traditional and manual approaches to dealing with these relationships are insufficient. And the risk that represents your distribution channel hierarchy is more obvious than when facing a state audit.
Five state audits for insurance agencies and carriers
Insurance agencies and operators should conduct internal audits of their business control, operational efficiency, flexibility and distribution management – this is given (if you want to evaluate the performance of your team there, perform a fast, interactive distribution channel management evaluation). But sometimes, operators and agencies find themselves under a state audit microscope.
States have different ways to review their operators and agencies to best practices and comply with laws and regulations. Each state has its own process and expectations, but the five most common audit activities for insurance are:
No. 1: Pre-ordered Market Behavior Exam
Some states require agencies and/or carriers to conduct regular market behavior tests. This may be an annual event or it may happen every five years. In market behavior activities, the state will taste a part of the business and study how the business is solicited, negotiated, sold and served. This may be as detailed as checking emails and ads, or may be as superficial as verifying an agent’s license and commission payments.
Knowing that you have a regular review of your business practices will undoubtedly help give you a timeline and some motivation to plan ahead. But even if you know it’s coming, collecting the necessary data and staying locked with the country can be a time- and resource-intensive experience.
No. 2: Random Market Exam
Some states perform regional sampling and randomly select companies for review. For example, North Carolina chooses businesses involved in a region and conducts a market behavior test based on random sampling. As long as it does not exceed once within three years, any insurance business can be randomly reviewed.
Random audit practices seem to be a threatening strategy that incentivizes insurance business to keep records clean, but random market behavior exams can also give businesses a visionary mindset.
No. 3: Complaint Investigation
When consumers complain to state insurance companies about insurance companies or agencies, you are destined to receive calls. Complaint investigations may be as simple as carriers, providing an explanation for the claims they reject, as consumers are not covered by consumers in a particular event. But, especially when there is evidence of wrongdoing, these complaint investigations can snowball.
No. 4: Data Calls and Internal Report Authorization
Especially in the wake of a wide range of market events such as a pandemic or hurricane, states will issue specific authorized data calls to operators that require carriers to report such as claims and how quickly they cover and how many agents or regulators are deployed to the region. Other data calls may be routine requirements, such as DOL trust rules regulations, requiring annuity insurers to run reports on their top sales staff and scan for distortion or stirring practices.
No. 5: Follow-up Investigation
Any of the first four investigations, reviews or examination activities may find problems. The state can find evidence of wrongdoing, or carriers and agencies can be so slow that they can collect information that speed alone becomes the red range of the state. In this case, the state will follow up with carriers and agents to dig deeper to see if the first violation was quarantined and promptly corrected, or whether evidence of system compliance and data management issues was demonstrated.
Review: Time is money
Any instance of a regulator (even an upstream distribution partner) could mean:
- Working hours, working hours, evacuate employees from regular work and create delays and stress in other areas of your business
- Legal Fees
- State Fees: Many states charge employees by charging their hourly wages and by charging companies that are audited
We have said it before, and we will say it again, when it comes to regulatory investigations, fines are not punishments.
When it comes to your data on manufacturers, regulators, and distribution channels, the ability to generate a difference between a touch with a button and a time stamp that manually connects to a paper trawl, and the verification schedule can mean hundreds of thousands of dollars in review.
An example: Large national airlines
Recently, we met a carrier with about 10,000 producers that maintain nearly 30 commission levels and perform five different hierarchical types based on different business purposes such as regional sales tasks and commission structures.
What if North Carolina audits carriers? There are about 600 agents holding resident permits in the state, assuming that employees need 10 minutes of staff to verify and collect sales and positions of agents based on which agents they sign up for, and how they get commissions for different products. Even in just 10 minutes each, the staff must extract reports of producer data within two and a half weeks –100 hours Nothing else besides compiling producer information.
Solve manual hierarchy management: 3 basic elements
If you go beyond time-intensive and risky manual processes, you may get distribution channels and compliance management solutions in the market. Any solution that really gets you ready for review will include these non-merchantists:
- Real-time tracking and change management: The changes in the distribution of producers, changes in hierarchy and commission structures are accurately reached the day, everything is recorded in other systems and is easy to integrate.
- Retrieve valid appointments through historical data: Your team should have the ability to view hierarchical snapshots today and other points in time.
- Comprehensive approval workflow: Your system should clearly document approvals and any support documents or comments to establish quick verification and timidly govern.
Actentsync hierarchy management brings these core capabilities to life in the management ecosystem so you can validate data and better manage partners at speed without sacrificing any time for audits that may arise.
To learn about how to move from responsive to proactive approaches to addressing hierarchical management and whether you are ready for audits, watch a demo or schedule a personalized consultation.
