New to industry - help with licensing question

[swchang]

Hi, all. We (my business partner and I) are new to insurance and looking into becoming licensed. We already asked on the L&H side and got some great and helpful answers, but after speaking with a P&C agent today, I'm wondering if/how things differ on this side of the insurance business.

We want to be licensed in a few different states to split commissions with other P&C agents/brokers. Does anyone know if both of these options are available to us if we want the commissions checks to go to our business name?
1. Only one of the two of us gets individually licensed in a given state AND the business gets licensed
2. We both get individually licensed but NOT the business

Also, L&H seems to be somewhat of a national business where many agents are licensed in states across the country. Is P&C more local whereby most P&C agents are only licensed in their metropolitan area and maybe a couple neighboring states?

Thanks a lot!

 

[fed up]

Getting licensed in additional States is not an issue. Knowing anything about a community is a different answer and keeping the different rules about coverage in different States can be a pain. Also if you want thr brokerage to be paid it will need to be licensed in each State.
Pick a SMALL group of States next to your resident State and knock yourselves out.

 

[marindependent]

Also, L&H seems to be somewhat of a national business where many agents are licensed in states across the country. Is P&C more local whereby most P&C agents are only licensed in their metropolitan area and maybe a couple neighboring states?

Sort of

L&H - can certainly be a more national business, however you have to write enough in each state to justify the additional out of state licesing costs. TX - sure. ND -hum...

P&C is also licened by state, just like L&H - but while you still get licensed in other states - you might not get appointed by carriers in other states. P&C is not based on metro areas [so much] as by states. Although perhaps certain carriers do it that way - that I can not say. Some P&C insurers only want in state agents writing the business there.

Professionally speaking, Id back up and have to understand the marketing model here. While it sounds great to write PC business acrosss the country - its often not practical. L&H - Nationally can make perfect sense.

In terms of splitting commissions with other agents in other states, sure if you are licensed in that State sure - but P&C has lots and lots of backend yearly work - so sending someone a lead on year One does not necesarily mean you are entitled to a future commission in year 3. Many agents just find it more helpful to find awesome agents in other states and they send it to them with no comp OR a solid MGA that takes over the lead and provides a bit of the split.

Best of Luck

 

[swchang]

Thanks to both of you. Seems P&C is more local/regional than L&H indeed. Really good to know.

@marindependent, any thoughts as to the licensing question regarding both as individual vs one individual and the business if we want commission splits to be paid to our company? @fed up seems to agree with the agent I spoke with yesterday (which seems to differ from what L&H agents have told me).

 

[marindependent]

Sure @swchang - I orginally did not answer because not sure of your goal here.

First off, Every Individual involved in the sale, from the Closing Agent to the Referring Agent needs a license in a given state. This is obvious. [If you are two agents that work togehter - I suppose you could have the South Dakota License and the other agent the North Dakota License, etc]

Second off, in regards to getting comp paid to your business... It is a whole nother matter and it makes the situation infintely more complex. This vastly depends on what state you are in. I am in California and it was fairly laborious to get my agency licensed. First you have to get your name approved. Then I incorporated. Then I filed papers with the Sec of State. Only then did I go and get the Agency Licensed. So for one state I have two different license numbers. I pay double fees.

Now, after doing all of this you could probably go and get individual insurers [one by one] to pay your Organization - but only if they are willing. My experience says that many of them do not seem to like that process.

Now - the most important thing is "Why do you want comp paid to your Business and not yourself?" If you want to do this for the reasons of liabilty protection, I will stop you right there and tell you that that is not likely to help. If its because you think its going to make things simpler -I'd suggest to you that it will not until you are referring vast amounts of business out the door [and having them closed.]

Since you are new to insurance let me just wrap this up by retelling you what has been said a thousand times on ths forum - the vast majority of new insurance agents fail. Therefore I would go about this in the most simple manner first before spinning your wheels. In others words go get $10,000 in referral commissions before you worry about some of this, its too time consuming.

You havent even asked the most pressing question yet: What are you going to sell to whom in the P&C world? Many very experienced P&C agents at this very moment are calling it quits amongst the hardest market in a generation. The next major consideration is which insurers will even let you sell their product right now?

Best of Luck.

 

[swchang]

Thanks. So, here's the full picture from the beginning.

We are starting an RIA (registered investment advisor) to function as financial advisors. We were initially planning to be fee-only and refer out clients to insurance agents we know and trust for L&H and P&C needs. When we started talking to agents, they advised us to get licensed ourselves so we could split commissions (not what we were initially thinking, but we certainly appreciated the suggestion). That then led to P&C as well.

So our goal would be to work with our 100-200 clients to advise on insurance needs and then refer out to our L&H and P&C partners. We anticipate our commission splits to come from our partner agents/brokers, not from the insurers themselves. We prefer the business to be paid so that we don't have individual 1099s to deal with and so we can either spend the proceeds down through expenses or distribute them as dividends (S corp).

Does that change your answer at all? Also, just realizing that for a given state if we want to do both L&H and P&C, we might need 4 licenses (all four individual or two individual and two business)...

 

[marindependent]

Does that change your answer at all?

Yes - mostly - thank you.

We prefer the business to be paid so that we don't have individual 1099s

Yep so incorporating and doing it this way likely is OK. And may... be easier. But...it could still be a bit murky with each individual state and their entity license requirements.

We anticipate our commission splits to come from our partner agents/brokers, not from the insurers themselves.

Sure makes sense, and I am thinking though that you will have an easier go with this on L&H.

We were initially planning to be fee-only and refer out clients to insurance agents we know and trust for L&H and P&C needs.

On the P&C side here - you may have more trouble with this than its worth. Some of the agents that are willing to do this - might be great agents [IMO].

The average wealthy persons insurance portfio is somewhere between a car crash and a train wreck. Very few of them are set up properly. Its not an easy niche to master, although many claim to.

One last thing to consider: P&C agents E&O rates are much much higher than L&H. If you are referring clients out and carry a license yourself and are receiving a commission - might be you be liable for P&C E&O issues?

 

[swchang]

Thanks. I think we prefer to be individually licensed if we can still do commission splits to our business this way, since I suspect we would need to register our company as a foreign LLC in other states if we want to have the business licensed. That would add yet another expense to a list of ever growing expenses...

I suspect you are right about the average (wealthy) person's insurance portfolio. Hopefully we will be able to (jointly with our partners) steer them in the right direction!