In the United States, insurance producer licensing is regulated at the state level. While there are variations, most states follow a common pattern based on the NAIC (National Association of Insurance Commissioners) model act.
The core question is whether your marketplace is engaging in activities that constitute "selling, soliciting, or negotiating" insurance. Some states also use the term "effecting" insurance contracts.
If you're doing any of these activities, you generally need a producer license in each state where you're doing them—regardless of where your company is incorporated.
The state that matters is typically where the insured risk is located or where the customer is located, not where your company is headquartered. A Delaware corporation operating a marketplace used by California residents to insure California property needs California producer licensing (if doing licensed activities).
- Making direct appeals to purchase insurance
- Advertising specific insurance products to identifiable prospects
- Following up with potential customers about insurance purchases
- Using marketing that positions you as the provider of insurance
Higher risk (likely solicitation):
- Sending emails or notifications urging users to "get insured" or "protect your purchase"
- Displaying insurance offers with "Buy Now" or "Get Coverage" calls-to-action
- Presenting insurance as a marketplace offering ("We offer insurance for...")
- Following up with users who viewed but didn't purchase insurance
- Using chatbots that recommend users get insurance
Lower risk (may not be solicitation):
- Factual disclosure that insurance is available through a partner
- A single mention with immediate redirect to the licensed broker
- Broker-branded content that the marketplace merely hosts
- Discussing policy terms, conditions, or exclusions with customers
- Explaining what coverage the customer should get
- Recommending coverage amounts or deductibles
- Comparing products and advising on which is better for the customer
Higher risk (likely negotiation):
- Customer support staff explaining what a policy covers or doesn't cover
- Chatbots that answer questions about exclusions, limits, or deductibles
- Displaying "recommended" coverage levels based on user inputs
- Ranking products as "best for you" or "most popular for your situation"
- Helping customers choose between coverage options
Lower risk (typically not negotiation):
- Displaying raw product information without recommendation
- Redirecting all coverage questions to the licensed broker
- Using approved scripts that state "I can't advise on coverage—the broker can help"
- Transmitting a completed application to the insurer
- Accepting premium payment on behalf of the insurer
- Issuing binders or certificates of insurance
- Any action that causes coverage to attach
Higher risk (likely effecting):
- Processing the insurance purchase within marketplace checkout
- Collecting premium payment (even if passed through to insurer)
- Generating policy documents or certificates
- Sending coverage confirmation to users
- Controlling the "bind" or "purchase" button/flow
Lower risk (typically not effecting):
- Redirecting to broker-controlled payment and binding
- Broker sends all policy documents directly
- Marketplace receives notification of binding but doesn't control it
California defines the licensing trigger broadly:
"No person shall solicit, negotiate with respect to, or effect contracts of insurance...unless then licensed as an insurance agent or broker."
- Solicit: To make a request or petition, to endeavor to obtain by asking
- Negotiate: To treat with another respecting a purchase and sale
- Effect: To bring about, to produce as a result
California's Enforcement Posture:
The California Department of Insurance (CDI) has historically taken a broad view of what constitutes licensed activity. Key enforcement focus areas include:
- Unlicensed insurance activity - Operating without required producer license
- Commission sharing - Paying commissions to unlicensed persons who participated in solicitation
- Holding out - Presenting yourself as an insurance provider when you're not licensed
California also has specific rules for surplus lines placements, which are common in specialty commercial insurance like M&A rep and warranty coverage.
California Insurance Code § 1724 and related sections generally prohibit paying commissions to unlicensed persons for insurance-related services. However, referral fees may be permissible if:
- The referrer does not solicit, negotiate, or discuss coverage
- The fee is not contingent on whether a policy is issued
- The arrangement is properly documented
This is fact-specific—consult with counsel before structuring referral arrangements.
While most states follow similar patterns, there are meaningful variations:
| Issue | Common Approach | Notable Variations |
|---|---|---|
| Definition of "solicit" | Broad—includes urging or attempting to sell | Some states more narrowly define; fact-specific inquiry |
| Referral fee rules | Generally allowed if no solicitation + non-contingent | NY has specific guidance; TX has restrictions; varies widely |
| Entity licensing | Required in most states if entity does licensed acts | Some states only require individual licensing |
| Surplus lines | Special broker license required | Procedures and eligible risk definitions vary |
| Non-resident licensing | Reciprocity with home state | Some states have additional requirements |
If your marketplace will operate in multiple states, you need a state-by-state licensing map. Don't assume that what works in one state is acceptable everywhere. The cost of multi-state licensing is often a significant factor in choosing between Model A (licensed) and Model B/C (unlicensed).
Many states recognize that mere referrals—simple introductions without solicitation or negotiation—do not require licensing. However, the boundaries are strict:
Generally acceptable for unlicensed referrers:
- Providing the name of a licensed producer to a potential customer
- Passing along contact information for follow-up by the licensed producer
- Stating that insurance is available without urging purchase
- Receiving a flat, non-contingent fee for the referral
Generally NOT acceptable without a license:
- Discussing the insurance products with the customer
- Answering questions about coverage, terms, or pricing
- Recommending specific coverage or products
- Receiving compensation contingent on whether the customer buys
- Following up to encourage the purchase
A useful mental model: If the marketplace is taking "additional steps" beyond making an introduction—collecting underwriting data, showing quotes, explaining options, facilitating checkout—it's increasingly difficult to argue referral-only status.
Most states require both entity licensing and individual licensing:
- Entity license: The company/LLC must be licensed as an insurance agency or broker
- Individual licenses: Persons who solicit, negotiate, or effect must be individually licensed
- Designated responsible person: Most states require a licensed individual to be designated as responsible for the entity's insurance activities
If you choose Model A (licensed marketplace), you'll typically need to:
- Form or designate an entity to hold the license
- Appoint a licensed individual as the designated responsible person
- Apply for licenses in each state where you'll operate
- Maintain ongoing compliance (continuing education, renewals, appointments)
Once licensed, you'll have ongoing obligations:
- License renewals - Typically every 1-2 years, state by state
- Continuing education - Required hours for licensed individuals
- Carrier appointments - Must be appointed by each insurer you represent
- Reporting - Address changes, disciplinary actions, etc.
- Record keeping - Transaction records, customer files
- E&O insurance - Errors and omissions coverage typically required
These obligations are a significant reason why many marketplaces prefer Model B or C when their business model allows it.