A focus on uniformity

Lobbyists in the US travel insurance industry have worked tirelessly for a number of years to bring insurance licencing laws in the US into alignment across state borders. The aim is to reduce the legislative burden on travel retailers who sell travel insurance and to shift the regulatory focus more fairly onto insurers. Warren Brown looks at the progress made by these lobbyists in recent years

When someone in California is planning an out-of-state family reunion through their local travel agency, they may be offered travel insurance for that trip. However, their brother-in-law – who lives in Georgia but is intending to purchase the same trip from the Californian agency – may find themselves in a situation where the insurance isn’t available to them. This isn’t consumer discrimination, but a complicated situation arising from the variations in licensing requirements between US states when it comes to the selling of limited lines insurance – of which travel insurance is a prime example.

However, the complex and onerous situation is changing for the better, as the National Conference of Insurance Legislators’ (NCOIL) Limited Lines Travel Insurance Model Act, adopted by the Conference in 2012, is lessening the licensing burden on travel agents and agencies. All but 19 states have now implemented the Model Act, meaning that in over half of all US states, travel agents don’t need a licence to ‘sell or disseminate’ travel insurance and they can sell such insurance to travellers in other states that have implemented the Model Act as long as consumer protection requirements are met. What are the real benefits behind this Model Act, though, and what is its ultimate aim?

Licensing laws

As Jack Zemp – vice president and deputy general counsel with Allianz Global Assistance USA and chair of the United States Travel Insurance Association’s (UStiA) law and regulatory committee – explains, state law requires that a person who ‘sells, solicits or negotiates insurance business on behalf of an insurer’, must be licensed in the state in which the insured resides. This is all very well, but licensing requirements vary widely between states, leading to confusion over what can be sold by whom, and to where. Licensable and non-licensable activities also vary depending on state, making it even harder for those selling travel insurance to know what they need a license for in each state. Selling insurance across state boundaries in the US, then, requires extensive knowledge of the specific licensing requirements of each state in which you wish to sell insurance; and for travel agents who are often simply selling insurance as an add-on to a trip, these requirements were considered to be unnecessarily restrictive and complex – not to mention expensive. The Limited Lines Travel Insurance Model Act is providing an alternative option for travel retailers who wish to sell trip insurance without the need for licensing.

The focus by the legislature on regulation and compliance within travel insurance came as a result of its growth as a significant product line and the evolution of the online travel insurance marketplace. The origins of the Model Act date back to 1999, when a federal law was passed requiring states to enact uniform laws and regulations to govern the licensure of those individuals and entities authorised to sell insurance within their states. In response, the National Association of Insurance Commissioners (NAIC) – the US standard-setting and regulatory support organisation created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five US territories – wrote the Producer Licensing Model Act to help compliance with the federal requirements, but it largely overlooked limited lines insurance. As Jack Zemp told ITIJ in 2010, “There was inconsistency in the interpretation of requirements for limited lines (including travel).” At the time, he was talking to ITIJ about a new set of standards that had been produced through consultation with UStiA and the American Society of Travel Agents (ASTA) by NAIC – the Uniform Licencing Standard and Implementation Guideline for limited lines insurance producers. These Standards and Guidelines came about following a 2008 study by the NAIC that examined licensing rules relating to insurance producers and sellers between states. The NAIC study discovered significant variations between states in terms of how limited lines insurance was dealt with. For example, it isn’t easy to be licensed in your home state and then also be licensed in another state as a non-resident (i.e. as a company without a physical office presence in that state). Additionally, in one state, ‘travel’ might be defined one way, while in another state a different definition could have been used, further complicating the process. Two years after the production of the Standards and Guidelines, in 2012, NCOIL – a non-partisan organisation of state legislators focusing on insurance legislation and regulation – issued a model law that took NAIC’s standards as its blueprint, resulting in the Limited Lines Travel Insurance Model Act. Although it is called an ‘Act’, however, each state still has to adopt it individually.

The focus by the legislature on regulation and compliance within travel insurance came as a result of its growth as a significant product line

The Act has very clear definitions, which are important to understand. These are:

A. ‘Limited Lines Travel Insurance Producer’ means a:
1. Licensed managing general underwriter,
2. Licensed managing general agent or third party administrator, or
3. Licensed insurance [producer/agent] designated by an insurer…

B. ‘Offer and disseminate’ means providing general information, including a description of the coverage and price, as well as processing the application, collecting premiums, and performing other non-licensable activities permitted by the state.

C. ‘Travel Insurance’ means insurance coverage for personal risks incident to planned travel, including but not limited to:
1. Interruption or cancellation of a trip or event;
2. Loss of baggage or personal effects;
3. Damages to accommodations or rental vehicles; or
4. Sickness, accident, disability or death occurring during travel.
Travel insurance does not include major medical plans, which provide comprehensive medical protection for travellers with trips lasting six months or longer, including for example, those working overseas as an [expatriate] or military personnel being deployed.

D. ‘Travel Retailer’ means a business entity that makes, arranges or offers travel services and may offer and disseminate travel insurance as a service to its customers on behalf of and under the direction of a Limited Lines Travel Insurance Producer.’

Nuts and bolts

According to the new Act, travel retailers (such as travel and insurance agents) do not need to be licensed if they simply offer and disseminate travel insurance products on behalf of a limited lines travel insurance producer. If their activity extends beyond this, such as evaluating or interpreting policy benefits and conditions, they will need to be licensed. Having a Model Act allowing travel retailers to more easily sell travel insurance across the US, then, is a welcome option. However, it doesn’t replace the current licensing approach if a seller needs to do more than ‘offer and disseminate’. Furthermore, as John Fielding, counsel with Steptoe & Johnson LLP, explains, ‘during the transition time, if you’re doing business in states that don’t have the model, you [still] need to be licensed in those states [that you’ll be selling in]”.

For the travel retailer that is only distributing (offering or disseminating) the product, a uniform approach across all states will make compliance much easier, as it will allow the seller to provide insurance to travellers in other states without the complication of considering the particular insurance licensing requirements in those states. With the many distribution channels of travel insurance, and the ability to sell a policy anywhere, it is imperative, though, that sellers pay particular attention to state guidelines – especially in those states that have not yet adopted the Model Act, as regulators and customers often hold the seller accountable for mis-selling insurance, rather than the actual insurer. And should a travel seller not be in compliance with the various legal requirements of the state in which the policyholder lives, they could be in serious breach of state laws. In a joint presentation at the International Travel & Health Insurance Conference (ITIC Americas) in San Juan, Puerto Rico, in 2013, Zemp and Fielding pointed out that if a seller has breached a state’s licensing law, the penalties for the ‘responsible party’ could include ‘fines, cease and desist orders and criminal prosecution’. Depending on the context, the validity of the consumer’s policy could also be in jeopardy.

the onus then falls on the limited lines travel insurance producer to be licensed as a business entity to ensure that their travel retailers ... undergo the correct training and make any necessary disclosures

In fact, a key impetus of the Model Law stemmed from the problem of regulators treating travel agents like insurance agents; but whereas insurance agents are focused on selling insurance and finding the right solution for the client, travel agents are focused on selling trips, not insurance – the insurance is just an add-on. As Zemp explains: “Because travel agents don’t act like insurance agents, we have sought a way to get a more workable process for those travel agencies and suppliers offering our products.” ASTA adds: “Once in place nationwide, this standard will save agencies thousands of dollars in annual licensing costs while reducing the risk of state fines for non-compliance.”

For those states that are adopting the Model Act, the travel retailer will certainly benefit from an approach to selling insurance that makes compliance easier and reconciles well with the main work of travel agencies. But, the onus then falls on the limited lines travel insurance producer to be licensed as a business entity to ensure that their travel retailers (now listed on the license) undergo the correct training and make any necessary disclosures related to the policy sale, such as who the underwriter is, general policy terms, and contact numbers for claims and assistance, to their customers. While the approach for licensing and registration is simplified for the travel retailer, the insurance producer is accountable for the product and is essentially acting as a regulator.

Currently, there are approximately 19 states remaining that have yet to implement the Model Act, and this makes for a very challenging transition period. Administrators and retailers still need to be aware of and comply with the rules for states that are using the existing licensing approach as opposed to the uniform model of the Act. As at writing, eight states (Delaware, Illinois, Massachusetts, Nebraska, New Hampshire, New Jersey, Ohio and Pennsylvania) are pending or under review for adopting the Model Act by the end of 2014. For 2015, the balance includes 11 states (Connecticut, Maine, Minnesota, Nevada, New York, North Dakota, Oregon, South Carolina, Tennessee, Vermont and West Virginia) plus any rollover from 2014.

With the regulatory burden on insurance sellers lessened, the risk of compliance failures and subsequent enforcements is being reduced, and thus consumers better protected; while travel insurance sales will continue to be a value-added source of revenue. Mark Carney, UStiA’s president, is pleased with the progress being made to adopt the uniform licensing recommendations: “It has taken a lot of hard work on the part of UStiA, with assistance from ASTA. There is still work to be done and, in the end, we believe that travel agents, the travel industry, and US consumers will benefit. Adopting uniform regulations will make it easier for travel agents to provide their clients with information on travel insurance, and also facilitate a more seamless sales process.” And Zemp is positive about the future: “With the UStiA and ASTA’s member’s support, we have been successful in having 30 states so far to adopt the NAIC/NCOIL model or something close. We are continuing our work to lobby the remainder of the states over the next year.”

Finally, ASTA president and CEO Zane Kerby told ITIJ: “ASTA is proud to partner with UStiA and others in the campaign to replace the 50-state ‘crazy quilt’ that governs how travel agents offer travel insurance to their customers with a single standard for state regulation of travel insurance. We have made great strides to date, [and] our target is to eliminate a significant regulatory burden for the agency industry, saving them thousands of dollars in annual licensing costs and reducing their risk of state fines. In terms of challenges that remain, dealing with state legislatures – as we have to do in most states – is inherently risky and unpredictable. But, as our success has shown, these challenges are rarely insurmountable and as a coalition we are able to identify and address them. As we push forward with our allies on this issue, we view this campaign as a ‘win-win-win’ for agents, insurance providers and consumers alike.”