Best Practices for Handling Non-Resident Solicitations

Agents who live near the state line commonly serve clients that reside in the bordering state(s). Many agents even have clients who live several states away. When an agent works with a client outside of the client’s resident state, it creates what is commonly referred to as a “cross-border” or “non-resident” solicitation. Non-resident solicitations are not new to the insurance industry; however, they have recently garnered increased attention by some state insurance regulators. With the increased regulatory scrutiny, non-resident solicitations are generating questions from agents on what best practices may be implemented for handling this type of interaction.

We recently received the following question regarding a non-resident solicitation in the “Dear Abby” mailbox:

A prospective client was referred to me by her co-worker who I helped last year. The client works at a company located in my state, but lives in the neighboring state. Do I need to be licensed in the prospective client’s home state in order to meet with her in my office?

The short and simple answer to this question is “no.” The insurance agent must be licensed in the state in which the insurance business is transacted, not the home state of the client. With that said, scenarios involving non-resident solicitations can often times prove to be much more complex.

The scenario described in the question above would be considered a non-resident solicitation because the client would be meeting with the agent in his/her office, which is not in her resident state. Most insurance carriers have developed guidelines on acceptable non-resident solicitations. The carrier guidelines are generally based on various state insurance regulations regarding the issuance and delivery of approved insurance products in the state. Because the insurance industry is regulated by the individual states, agents must be aware of the state requirements in which they are licensed, but a good start is to look at the guidelines in place at the carriers. Most commonly the carrier guidelines include several conditions that must be met in order for the sale to be an approved non-resident solicitation.

First, the client must have a significant tie to the non-resident state, outside of the insurance transaction. This means the client must be in the state for a purpose other than meeting with the agent (beyond the fact that the agent’s office happens to be in the non-resident state). In our reader’s question, this client’s tie to the state was that she is employed in the non-resident state. Other common examples of a significant tie to a non-resident state include: owning a second home, visiting family and friends living in the state, or having regular business dealings in the state.

Second, the solicitation, application and delivery of the insurance policy or contract should all occur in same state. To further explain, the client must be in the non-resident state when the agent discusses the product, when signing the application, and also when receiving the policy or contract. In our question, the client must have gone to the agent’s office to discuss the insurance product, signed the application and come back to receive the issued policy. In this scenario, it is important to emphasize the delivery of the policy or contract also happening in the non-resident state. Recently, some state regulators have focused on the delivery of the policy or contract occurring in the resident state, whether by mail or hand delivery.

In a slightly altered version of the question, suppose the client was still a referral but the client did not work in the agent’s state and did not have any other ties to the state. The client does not have a second home, family or any other business dealings in the non-resident state. The question then becomes, “Could the client still come to the agent’s office to learn about and apply for the insurance product?” According to most state insurance regulation and most carrier guidelines, the answer is “no.” In this scenario, there is no significant tie to the non-resident state other than the location of the agent. It would be most recommended that the agent go to the client’s home state to work with the client. However, this option does require the agent to have a non-resident license in the client’s home state. By using this approach, it would not be considered a non-resident solicitation.

As part of the non-resident solicitation guidelines, some insurance carriers have implemented an additional form that must be completed with the application. This form serves to document the reason for the non-resident solicitation and for the agent and client to attest to the adherence to the company’s guidelines.

All of this may cause an agent to wonder why the concern; why are non-resident solicitations a focus of insurance regulators and insurance carriers? It’s mainly due to product availability and agent licensing. A substantial part of the mission of the state insurance departments is to protect their citizens from purchasing products that have not been approved in their respective states while making sure that only agents and companies properly licensed in their respective states are doing business in their states.  More than ever, state insurance departments are examining transactions in which residents of their states are being sold insurance products outside their jurisdiction. If determined that the non-resident solicitation was inappropriate, the repercussions for agents and insurance carriers can be severe – fines, penalties, remediation, or suspension of agent license or certificate of authority are all possible outcomes.

In situations that involve non-resident solicitations, it’s recommended as a best practice for agents to obtain non-resident license(s) in those states in which his/her clients reside. This allows an agent to meet with clients in their home states, discuss their needs and objectives, and, when appropriate, make a recommendation to purchase an insurance product. Utilizing this approach, the agent avoids potential compliance issues that may develop surrounding non-resident solicitations.

For more information on non-resident solicitations or other compliance-related topics, visit the Compliance section of www.CreativeMarketing.net or contact your Sales Consultant. Or, email [email protected] to potentially have your question featured in an upcoming article.

FOR AGENT USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC. 12567 – 2012/11/12

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