First published in ITIJ 120, January 2011
The adoption of uniform licensing standards and guidelines for travel agents and other sellers of travel insurance across the US (as reported in ITIJ 119) sounds like such a rational move one might wonder why it has taken so long, and why the struggle has been so heroic. Milan Korcok has the answers
As Jim Grace, president of the US Travel Insurance Association (UStiA), commented in releasing news of the adoption: “We have come a long way, and couldn’t have accomplished this without the help of our members and the support of ASTA (American Society of Travel Agents) … (but) we still have a lot of work ahead, to ensure that each state’s insurance commission implements these guidelines.” Grace was referring to the adoption of new language by the National Association of Insurance Commissioners (NAIC), with the assistance of UStiA and ASTA, that will allow travel retailers, including travel agencies and agents, to offer and disseminate travel insurance products without a license so long as specified consumer protection requirements are met – a move, he said, that would assure the travelling public ‘that there will be more consistent control over those who sell travel insurance’ and would ‘provide travel agencies with a value-added source of revenue’.
Unlike many countries where such standards and guidelines are set at a national level and superimposed over a single administrative entity, the regulation of insurance in the US has traditionally been scattered over a dog’s breakfast of federal and state jurisdictions, each demanding and scrapping over a piece of the bone, and each state jealously guarding its own prerogatives. What this means to the consumer who works in New York and trains home to Connecticut is that he or she can come under different, and possibly very inconsistent, sets of marketplace rules when buying something as basic as travel insurance.
travel insurance often slides under the radar of legislators, regulators and consumer advocates, unlike the status it has in the UK and Europe, where travel insurance is much more of a top-shelf product
Compounding the problem, for the seller as well as the consumer, is that travel insurance is not a ‘major’ line of insurance as are Life, Accident and Health, or Variable Life. Thus, travel insurance often slides under the radar of legislators, regulators and consumer advocates, unlike the status it has in the UK and Europe, where travel insurance is much more of a top-shelf product that consumers and the media pay attention to. In the US, travel insurance is one of five ‘core limited lines’ of insurance along with car rental, credit, crop, and surety insurance. In addition to these core limited lines, some states authorise limited lines licenses for many other entities such as pet cover, self-storage, communications equipment, pre-paid legal, and motor club insurance among others. It should be noted, however, that travel insurance – in respect to these new licensing standards – does not include major medical plans providing comprehensive medical protection for long-term travellers, those working overseas as expatriates, students living abroad, or deployed military personnel. For the record, the NAIC defines travel insurance as ‘including but not limited to: interruption or cancellation of a trip or event; loss of baggage or personal effects; damages to accommodations or rental vehicles; sickness, accident, disability or death occurring during travel.
Writing in the 2010 spring issue of the FORC Journal (Federation of Regulatory Council, Inc.), Greg E. Mitchell, head of the insurance regulatory practice group for the legal firm Frost Brown Todd, LLC, noted: “Limited lines producer licenses run the gamut among the various states as to the type of insurance products covered and the applicable regulatory requirements. Issues with uniformity and reciprocity continue to be a source of utter confusion to regulators and trade alike.” He notes that a current review of the NAIC’s state laws reveals 55 different types of limited lines licenses available in the various states. In addition to the numbers of available limited lines licenses, the regulatory requirements for issuance of these licenses also vary widely among the states. Thus: some states may require a travel agency to have one employee at each location in possession of a limited lines license; another state may require the company and managing employee to have a limited lines license; others may not require a limited lines insurance license where travel-related coverage is offered concurrently with the sale of a travel product; and so on. Mitchell explains further that ‘licensing the counter person at a car rental company, the counter person at the self-storage facility, or the travel agent at a travel agency does little to provide consumer protection when the substantive issues of regulatory consumer protection lie with the insurer or the MGA/MGU who developed and distributed the limited lines product’.
UStiA, in concert with ASTA, began working to streamline the licensing process in the spring of 2008 within the umbrella of the NAIC, which was recasting a new Uniform Licensing Standard and Implementation Guideline for limited lines insurance producers. It was a tough pull, but in October 2010, UStiA and ASTA were able to announce that they had ‘achieved a milestone in the quest for adoption of a uniform licensing standard for travel agents and other sellers of travel insurance’. Yet, as UStiA president Jim Grace emphasised in making the announcement, this was not the end of the road: there was still a long way to go in implementing the standards and guidelines across all 50 states and territories, where sellers of travel insurance meet day-to-day with their customers.
He noted that currently, each travel agency, travel agent, and others selling travel insurance must be licensed in the states where they conduct business. But the new NAIC amendments ‘lay the groundwork for states to adopt one standard licensing approach’, and in those states that adopt the amendments (all are expected to), travel retailers – including travel agencies and agents – will be allowed to offer and disseminate travel insurance products without a license as long as specified consumer protection requirements are met. “By providing one set of licensing standards across all 50 states, the travelling public can be assured that there will be more consistent control over those who sell travel insurance,” he added.
Under the new NAIC Standards and Guidelines, in states where the new standards apply, travel agents and other sellers will not be required to have a license to provide brochures and other general information about coverage and price, to collect premiums, distribute buyers’ guides and applications, process applications, receive and record information from policyholders to pass on to insurance producers for their response, to schedule appointments with insurance producers to discuss insurance, or to conduct other activities on behalf of licensed producers. But the information, marketing materials, and fulfillment packages they provide must clearly identify the insurance producer by name and include their contact information. The bottom line is that the customer must know who he or she is dealing with each step of the way.
there was still a long way to go in implementing the standards and guidelines across all 50 states
Accordingly, licensed producers will have to keep registers of each travel retailer that offers travel insurance on their behalf, they will be required to appoint one of their employees as a Designated Responsible Producer (DPR) responsible for seeing that the producer remains in compliance with the insurance laws, rules and regulations of the states in which they are doing business, and that they comply with such details as employee background checks as required by each state. In addition, they will have to ensure that each employee of the travel retailer whose duties include offering and disseminating travel insurance receives a programme of instruction or training.
Stand up and be counted
Jack Zemp, a tri-chair of the UStiA’s law and regulatory committee, explains that though almost all states use versions of the NAIC Producer Licensing Model Act as well as the NAIC Uniform Resident Licensing Standards, ‘there was inconsistency in the interpretation of requirements for limited lines (including travel)’. He told ITIJ: The new standard addresses this inconsistency for travel insurance (and) … depending on a state’s laws and regulations, it will determine if it can adopt the new standard by legislation, regulation or bulletin.” He added that UStiA and ASTA would continue to work collaboratively with regulators to promote the adoption of the new standards as soon as practicable: “We anticipate that most states will adopt the required change within two years,” he said.
As with many financial regulatory issues, the impetus for more transparent licensing was initially prompted by legislative action. In 1999, a federal law was passed requiring states to enact uniform laws and regulations governing the licensure of individuals and entities authorised to sell insurance within their states. In response, NAIC wrote the model Producer Licensing Model Act to help insurance producers comply with the federal requirements. The Act, however, was implemented mainly by the six major insurance lines – Life, Accident and Health, Property, Casualty, Variable Life and Variable Annuity, and Personal. Limited lines of insurance, such as travel insurance, were largely ignored. In 2002, NAIC adopted the Uniform Resident Licensing Standards, which broadened the focus on licensing beyond the major six, to include the limited lines of insurance. Now, eight years later, travel insurers are ignored no longer.