The insurance sector reduces risks, helps divide risks from a small group to a larger community, and provides long term finance. A license is an agreement between two parties given by one party to another. It assures the receiving party a permit to own something or to carry out a service or any activity.
Today, a license is provided by the government when applied. These licenses have a time duration after which they are expired and renewed. If not, then doing such work or possessing such an item would be legally forbidden.
Licenses are of different types and purposes. A license used nowadays is one of driving. This driving license allows one to be legally eligible to operate a vehicle. A gun license helps the authority to determine the legality of an individual owning a firearm. Having a license is crucial when involved in legal constraints.
For example, a driver is liable for a car accident if he does not own a license, even if he is not the initial cause of the accident. The driver would end up bearing the costs. The concept of licensing is created so that the activities are carried out with the authority’s permission so that nothing is done without them agreeing. If there is to be no concept of licensing, all vices would be. Licensing helps retain law and order in a region.
Like one for driving, there is a license to own an insurance agency. One cannot operate an agency without being registered with a state. To do that, one must have a license and this license is provided by the state if the terms and conditions of the agency are acceptable to that of the state. A is charged for this. After this, one can legally operate his insurance agency. This license is renewed after some time. This license is given after receiving a certificate from the state. No one is given a license without this certificate.
Importance of running a licensed insurance agency:
Insurance brokers have licensed insurance agents. To deal with more than one type of insurance, brokers have to get a license for each. Those have are after hours of checking, hours of training and passing the insurance test.
These agents communicate and try to sell insurance to their customers. It involves reaching an argument that will benefit both parties.
Working with a licensed insurance broker has several advantages. The license of insurance agents can be canceled. The reason for this may that an agent is not qualified. In this case, the license card and identity, if issued, will be retrieved.
People prefer going to insurance agencies that are licensed rather than those that are not. Those that are not insured are in the phase of getting insurance or renewing it. Many companies are present that portray to customers that they are registered, with the state, and are insured. They do this to accumulate customers who then become the victim of fraud. Before applying for any insurance, one must confirm that they are registered and insured.
One should not fall into their trap and opt for those that have a good reputation.
Advantages of a licensed insurance agency:
Licensed insurance agencies are never a fraud. They employ trained and experienced professionals that will provide the required insurance plan. They are cost-effective and abstain from imposing unnecessary costs on their users. Non-licensed companies perform such acts, which scam the people. A variety of insurance plans are available with licensed brokers from which one can select the one that fits them best. As the agents are experienced and have been in this practice for several years, their recommendations are helpful.
Licensed brokers save you time. A person can spend hours surfing the internet to find the required plan and still be unsatisfied. Instead, he should consider visiting these companies. Their agent provides many insurance plans from which he can choose the suitable and get over with it.
It is a one-time visit and saves time. It reduces the hassle of going through multiple phone calls and meeting different managers. Moreover, it is always better to consult a professional rather than deciding with no knowledge of its outcome that disrupts the peace of mind.
Furthermore, applying for the insurance itself can be a complicated procedure. With the help of such companies, this process takes place with ease. At times, people do not understand the terms and conditions of an insurance plan and may choose one that proves to be unfavorable. Licensed insurance companies come in handy to avoid such alarming situations.
Insurance companies help to portray all the risks involved in different insurance plans. Risks are inevitable in all decisions but knowing all the risks in all the insurance plans allows one to choose a plan which they feel they can deal with.
People can also opt for individual licensed insurance agents. A family can have their insurance agents deal with their matters. These agents are part of society and unlike insurance companies, they have a better understanding of the needs and wants of a family. A company is main motive is profit that means that it will carry out decisions with maximum profit and minimum risk. With individual agents, although they do their job to put food on the table, their customers are their main priority. Hence they take a decision that mainly favors their clients.
Disadvantages of licensed insurance companies:
All the benefits and perks that these licensed companies provide come with their risks and drawbacks. One major issue is the consumption of time. It is a problem of any source of insurance may it be a broker or an independent agent. To compensate the levied cost is a time-consuming procedure as inspection and certain legal formalities are looked into. This period is shortened by efficient management and quick response but is not followed by most companies. Insurance companies do not compensate for all losses. They give their decision after inspection and provide compensation for the damage that they feel is reasonable.
Although one of the objectives of licensed insurance companies is to encourage savings, they do not provide facilities for saving as a bank does. Moreover, the main purpose of creating such companies is profit. One other way by which they achieve this objective is that they intentionally try to cover the least possible costs of the insured having a sum of money with them.
Insurance companies also lead to a rise in criminal activities. The customer’s the damaged goods with the view that they will receive the insured amount in compensation. This is, however, a rare incident that they receive the costs as upon investigation, the company can notice that was done by the insured and was intentional.
Today, an issue faced by insurance companies is the competition faced by the competitor firms. It is a reason why many new insurance companies shut down in their initial stages of operation. There is a lot of doubt among people regarding the company as it is a recently established company and could be a fraud. People consider insurance to be an unnecessary expense. Companies are engaged in devising ways to attract more customers by using effective ways to sell their insurance.
Owning an insurance company means that the company will assume to be responsible for all the issues of their clients regarding their insurance. Issues of clients cannot remain hidden for a long time and when revealed, results in disastrous consequences. The reason for it is that clients expect the company to share all the hurdles and feel uneasy and dissatisfied if this is not done.
Such issues are the result of poor management in the company and lack of communication between the company and their clients.
Steps to creating a licensed insurance company:
Before owning a company and competing in the market, one must have a license to practice the business. There is a requirement for a company to receive it. Each state has a board or commissioner that deals with such requirements. The first condition is that the insurance agents must have fulfilled the requirements to practice. Their license must be up to date; they must have attained the proper education and have done the CE course work to understand the new products and changes in the law.
The department of states insurance regulation has to be contacted. A business should enquire about the laws and requirements as they are different in each state. The department of insurance regulation issues licenses for a business and individual agents. After this, all the forms sent by the insurance department must be filled and send back. Any information regarding course work should be added. A small fee is also deposited and is sent to the state department for processing.
Then a business plan is set up. It devises methods to operate the business. Its objective is to make a plan that attracts stakeholders. Furthermore, it also helps to set goals and identify potential risks. At a minimum, the plan should include all those involved in the business, ways to get hold of customer attention; should mention the financial plans of the business recognize and their target market, and do something that makes the company unique from competitors in the market.
Upon completing this, a business must now choose its legal structure. There are several structures like a sole partnership, partnership, Corporation, etc. Some of these may be costly and difficult to use but help out in the future, whereas others are cheap and easy to use but lead to problems in the long term. Therefore this decision must be taken with care as it may affect prospects.
One can finally start his business after selection of its name and registration with the state. A tax id is given and a business should now purchase insurance for itself to protect the investment done.
Can I own an insurance company without being licensed?
It is possible to run an insurance company without a license, but it will not be treated in the same way as a licensed company is. It is possible when a person has an ownership interest in an agency. In this way, the individual would not be treated like a licensed insurance agent or a licensed broker and his earning from the sale of insurance would be should as if it is gained by different means.
However, certain conditions also apply. Such companies can only operate if they are in partnership with Corporations licensed by the state. For a company, it is another company and for an individual, it can be an officer. Berkshire Hathaway is an example of such a company. It is a holding company that owns many insurance companies without a license. So the possibility is there but it is not advisable to do as applying for a license is an easy process. One will face more problems having a license rather than not having one.
Types of insurance licenses:
There are various types of insurance licenses available. An insurance company will choose a license according to the type of insurance they sell. If a company sells to different insurances, like fire and marine, they will get a separate license for both.
When a company wishes to sell insurance has to get a license for fire and property insurance. This license allows a company to sell different types of insurance products that a property and casualty insurer provides. Some of these are earthquake, flood, automobile, personal property, etc. Long term care insurance, 24\7 care coverage, and bodily harm are also included in this.
Limited line automobile insurance allows insurance companies to carry out automobile insurance in a state. In some states, this may also include automobile licenses for motorcycles only. States have laws that state the purpose of insurance for use of automobiles. A common purpose is a private passenger vehicle for private use.
Similar to the license of fire and casualty insurance is of property lines insurance. A difference between the two is that the property lines license only allows the sale of insurance of personal products such as automobiles and personal property. This type of insurance license also allows personal watercraft, umbrella, and liability insurance. The liability insurance allows coverage above the limits of the normal automobile and personal property insurance.
Moreover, a life only insurance license allows individuals to deal with life insurance products only. This includes human lives coverage and other benefits to the insured like income is provided for accidental death, dismemberment and disability. The insurance license lists all the products a business is authorized to sell with the license in a particular state.
A license for accidental and death insurance is similar to that of life only insurance except that it allows the selling of a larger number of insurance products than that of life only insurance. A largely used insurance product it contains is health insurance that covers costs of sickness and accidents. Another is workers’ compensation that covers the cost of injuries to workers during employment, wage replacement, etc.
Should people run insurance companies without a license?
Although it is possible to operate an insurance agency without a license, it is advisable not to do so. It leads to the creation of many legal issues with the state. Running insurance in itself requires a large investment of time and effort. Such legal constraints will only add fuel to the fire. The process of getting a license is a fairly cheap and easy one although it at times may be very time-consuming. However, it provides a sense of relief when dealing with such issues, if they ever arise.
People who seek need of insurance products should also consider going to licensed companies. It is a safer method and increases the chance of the recovery of their investments when the insurance agency falls.