Author: VU Faculty
Is it an E&O exposure for a licensed agent/CSR to review and sign applications for an unlicensed CSR? If you have a CSR who is not licensed mailing out endorsements to an insured, can he/she sign his or her name on the endorsement's cover sheet? Or, is it better to be signed by a licensed employee? These are common questions we get, with the bottom line question being, "Who needs to be licensed in the agency?"
"Is it an E&O exposure for a licensed agent/CSR to review and sign applications for an unlicensed CSR? If we have a CSR who is not licensed mailing out endorsements to our insured, can he/she sign his or her name on the endorsement's cover sheet? Or, is it better to be signed by a licensed employee? These are common questions we get, with the bottom line question being, 'Who needs to be licensed in the agency?' Also what about using name stamps as a signature on an application for property and casualty?"
Whether someone needs to be licensed or not depends on each state's statutes, regulations, and probably insurance department interpretation or directive. In general, if compensation is on a commission basis, the person needs to be licensed. Other than that, many states indicate that if the person is involved in placing or servicing coverages to the extent that they are advising insureds or making decisions about those coverages. they need to be licensed. Many agencies license EVERYONE. Below are some thoughts from our faculty.
Yes, you have an E&O exposure, a legal exposure, and maybe a criminal exposure. What you describe could be a fraud. You need direction from your insurance department and/or a qualified attorney familiar with laws and regulations in your state.
From an E&O perspective, it is a good idea to have an internal office procedure where applications, etc. are checked by more than one person. Since E&O procedures should be standardized, the extra review should not be limited to only when an unlicensed CSR has originally completed the application, but all apps should reviewed by an extra pair of eyes.
The question that comes to mind, however, is does your licensing law allow unlicensed personnel to advise and place insurance? Several states, including my own, would not allow an unlicensed CSR to complete the application of insurance. Having a licensed person "check out the app" and sign to circumvent the law is a huge E&O exposure.
Regarding the first question, why would you want someone not licensed yet to sign anything? They shouldn't, the licensed agent should. On the second issue regarding a stamp, I look at it as an exposure if you don't know how its used and by whom? I think the name on the stamp is accountable for its use.
I'm not familiar with your state's licensing law, but every state I AM familiar with requires CSRs to be licensed. Where I live, a large captive agency company had several agent offices whacked by the DOI for using unlicensed personnel to service customers. As for the stamp, I believe you're just inviting misuse...sooner or later someone's going to use a stamp for an "emergency" without permission. You should have licensed personnel signing everything in their own handwriting.
Many agencies today are licensing virtually everyone in the agency, including the receptionist. That avoids allegations of using unlicensed people and it helps that all employees have a fundamental understanding of insurance. It also enables employees to fill in for others in an emergency or during heavy demand and it eases advancement since you don't have to wait for someone to get licensed to take over new responsibilities.
I think you're dealing with a specific regulatory or legal question and you need a definitive answer from YOUR state department of insurance rather than a group of insurance nerds from around the country like us. All we can do is advise of the exposures that we're familiar with in our areas.
Where I live, if you have an unlicensed person performing services that should legally be done by a licensed person and having that licensed person simply sign off on it, then the licensed person's license could be in jeopardy at the discretion of the DOI. That may not be the case in your state, but most states I'm familiar with require a license for anyone receiving commissions or involved in the placement of insurance or counseling of consumers. The only way to know is to present specific examples to your DOI and ask for their opinion.
We had a question similar to this from New York state. Just to give you an answer to illustrate the situation in one state, here is the response from Tim Dodge, AU, ARM, CPCU, Director of Research for the IIAB of NY:
There is no law in N.Y. that requires a policy or endorsement to have an agent’s signature on it (see a N.Y. Insurance Dept. opinion on the subject from last winter at http://www.dfs.ny.gov/insurance/ogco2005/rg050215.htm). If your concern is whether the unlicensed CSR should be signing a memo to the insured that accompanies the endorsement, that is an E&O consideration and I defer to the opinions from the VU faculty above.
From a regulatory standpoint, I can tell you that the Insurance Dept. issued two opinions last winter on the permissible duties and compensation of unlicensed CSRs (I know, because I asked both questions on behalf of IIABNY members who needed to know). In one opinion (http://www.dfs.ny.gov/insurance/ogco2004/rg041203.htm), they discussed the permissible duties. The answer was too long and complex for me to summarize here, so I encourage you to read it. The second opinion (http://www.dfs.ny.gov/insurance/ogco2005/rg050116.htm) held that agents and brokers may not pay incentive bonuses to unlicensed CSRs as compensation for upselling to existing clients.
Based on my review of the first opinion, I would say that it is permissible under N.Y. law for an unlicensed CSR to sign a cover letter that states something simple like, “Enclosed is the policy change you requested adding the 2006 Hummer to your policy,” without discussing specific terms or conditions of the coverage. Discussion of coverages requires a license, so it is important not to cross that line. Of course, there are E&O implications apart from the permissibility question, so you must consider these as well.
Last Updated: November 29, 2023
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