Across a variety of industries, firms are more and more trying to “embed” insurance coverage into their platforms, offering their customers tailored insurance coverage protection on the level of sale. Embedded insurance coverage merchandise are sometimes carefully built-in with an organization’s web site to allow its clients to seamlessly buy insurance coverage on-line whereas they’re buying different items or companies. But firms contemplating this “embedded insurance” mannequin should confront the difficult, and generally complicated, world of the US’s state-based insurance coverage regulatory regime.
As we’ve beforehand written right here, firms in search of to enter into the highly-regulated insurance coverage area needs to be accustomed to sure key regulatory points. This article offers an summary into the maybe essentially the most elementary regulatory difficulty that’s important to perceive earlier than launching an embedded insurance coverage providing: licensing.
Licensed Insurance Producer
In order to promote an embedded insurance coverage product by way of its web site an organization might have to be licensed as an insurance coverage producer. Any particular person or entity promoting, soliciting or negotiating insurance coverage have to be licensed as an insurance coverage producer (“producer” being a basic time period for both an agent or dealer) or qualify for an exemption from such licensing necessities. A license is required in every state by which the insurance coverage merchandise are provided and for every sort (or “line”) of insurance coverage provided. Where actions are transacted on-line, this sometimes signifies that a license is required in all U.S. jurisdictions.
In acquiring an insurance coverage producer license, an organization should consider sure state-specific necessities associated to company construction, title approval, qualification with the secretary of state, tackle and appointment of sure people as officers. Most importantly, even when the licensed entity shall be promoting the insurance coverage by way of a web based platform with out utilizing any particular person brokers to work together with customers, such entity will nonetheless want to determine no less than one pure particular person, generally known as the designated accountable licensed producer (the DRLP), to be chargeable for the producer’s compliance with all state insurance coverage legal guidelines and rules.
Managing General Agency
Rather than simply promoting insurance coverage to its clients, an embedded insurance coverage supplier might resolve to function as a managing basic company (MGA) so as to have larger management over pricing and designing its embedded insurance coverage merchandise. MGAs are licensed insurance coverage producers who’re delegated authority by their provider companions to underwrite insurance coverage insurance policies and, in sure cases, pay claims. The MGA mannequin might make sense for embedded insurance coverage suppliers with entry to buyer knowledge that might enable them to underwrite and value insurance coverage insurance policies extra cheaply and effectively than the insurance coverage firms with whom they’re partnering.
It is essential to be aware right here that though MGAs are sometimes referred colloquially within the trade as any insurance coverage producer that additionally has the authority to underwrite insurance coverage, state insurance coverage legal guidelines have particular standards of what constitutes an MGA and the regulatory obligations that connect when such standards are met. Therefore, one should analyze whether or not a “MGA”-type mannequin is certainly a real MGA, as a matter of legislation, so as to verify the regulatory and licensure regime that applies.
Marketing Partnership
Instead of turning into a licensed producer itself, an organization trying to embed insurance coverage on its platform might resolve to host a third-party licensed producer. Under this state of affairs, the corporate would solely present the platform by way of which the third-party licensed insurance coverage producer may promote its insurance coverage merchandise, comparable to an organization internet hosting a banner commercial on its web site.
If an organization decides to pursue this route, the corporate will face authorized limits on the way it might market the insurance coverage choices in addition to the way it could also be compensated. Whether or not licensed as an insurance coverage producer itself, an organization will nonetheless want to associate with an adequately licensed (or “authorized”) insurance coverage provider to underwrite the insurance policies.
SaaS Partnership
Although an organization could also be prepared to be licensed as an insurance coverage producer to supply the embedded insurance coverage product on its platform, it could nonetheless resolve to associate with an insurtech to present the know-how obligatory to assist the embedded insurance coverage product. In such circumstances the corporate will associate straight with the insurance coverage provider to promote insurance coverage on behalf of the provider as their agent or dealer in change for a fee however will even associate with an insurance coverage know-how supplier to develop and preserve the SaaS infrastructure and APIs obligatory to function the providing. This possibility might make sense if an organization is prepared to grow to be absolutely licensed itself however lacks the technological know-how wanted to supply a seamless embedded insurance coverage providing on its platform.
Full-Stack Insurance Carrier
While the choices mentioned above stay the most typical within the embedded insurance coverage mannequin, firms can also supply embedded insurance coverage as “full-stack” insurance coverage firms. Like an insurance coverage producer, an insurance coverage provider should, topic to sure exceptions past the scope of this text (e.g., on a surplus strains foundation), be licensed, or “authorized”, in every state by which insurance coverage insurance policies are positioned.
In order to grow to be approved as an insurance coverage provider, an organization will want to disclose intensive monetary and private info to its home regulator, increase vital quantities of capital and adjust to state seasoning necessities which require a non-domiciliary insurance coverage firm to function satisfactorily in one other jurisdiction for a minimal time frame earlier than being approved to transact enterprise in that state. Notwithstanding the numerous capital and regulatory hurdles of turning into a “full-stack” insurance coverage firm, an organization might resolve to grow to be licensed as an insurance coverage provider so as to train larger management over its enterprise whereas capturing extra of the worth chain.
Other Alternatives
There are different “intermediate” steps that firm might contemplate prior to proudly owning a full-stack insurer. For instance, an organization might resolve to purchase a comparatively small share of an current shell insurance coverage firm in partnership with different unaffiliated traders. Such traders might at a later time, topic to any relevant regulatory approval requirement, purchase larger possession of the insurer.
Alternatively, an organization might resolve to kind a “captive insurer”, which has much less onerous regulatory necessities than a full-stack provider however, usually talking, will nonetheless require the usage of a third-party approved “fronting” provider to present the direct protection pursuant to which the captive will then present reinsurance capability.
Although firms trying to embed insurance coverage on their platforms should attend to quite a lot of insurance coverage regulatory points on an ongoing foundation after launching, figuring out what license(s) to get hold of—and what meaning in follow—is a obligatory first step.
Heidi Lawson is the worldwide chair of Cooley’s insurance coverage follow group and is a sought-after lawyer for her worldwide perspective and deep data of the insurance coverage trade. Over the course of her profession, she has developed a breadth of expertise representing purchasers in a variety of insurance coverage and monetary companies targeted authorized work. Heidi’s present follow encompasses each transactional and litigation associated issues, together with regulatory and enforcement actions.
Alexander Traum is a particular counsel at Cooley whose follow focuses on representing insurance coverage and reinsurance firms, insurtechs, insurance-related service firms and different monetary companies entities in quite a lot of insurance coverage regulatory and transactional issues. He writes extensively on insurance coverage regulatory points, notably in reference to new applied sciences and the sharing financial system.
Michael Coburn is an affiliate at Cooley and focuses his follow on advising insurtechs, fintechs, insurance coverage and reinsurance firms, enterprise capital companies and different monetary companies firms on a broad vary of regulatory and transactional issues. He has intensive expertise within the insurtech area, together with advising on the formation and licensing of startup insurtech firms.