I received a call on the Free Legal Service Program I operate for members of the Independent Insurance Agents of Georgia that raised the above question. It was one I had never considered before. Most of the questions I receive from agents using that program revolve around ways to compensate people who do not have insurance agent licenses for making referrals (click here for my latest post on that subject). This caller wanted to know if he could share commissions with a licensed insurance agent for the placement of insurance coverage in a state in which the agent was not licensed. The answer to this question would depend on which state’s law applied to the sharing of commissions, the law of the state where the risk that generated the commissions was located or the law of the state where the agent sharing the commissions was located. As with the answers to questions about paying referral fees to unlicensed persons, the answer to this question is also important to agents licensed in Georgia because a violation of the law governing the sharing of commissions can result in the revocation of an agent’s license.
The regulation of insurance is a state specific activity. As many of my readers are aware, the national insurance agent trade associations have fought long and hard to keep federal regulation of the provision of insurance to a minimum and have been largely successful in doing so. Given the state specific nature of insurance regulation, the law of the state in which the risk is located would govern the answer to the question of whether and how a commission generated by insurance covering that risk could be shared.
In Georgia, this question is addressed through the law governing the payment to and sharing of commissions by agents licensed in this state. Under the Georgia Insurance Code, a commission can be paid for the placement of insurance covering a risk located in this state only to a person or entity who has a license issued by the Georgia Insurance Commissioner. Although I have not researched the law on this subject of every other state, the laws of the states that I have researched are very similar to Georgia law. Thus, the caller most probably had to have a license issued by the state in which the risk he was calling about was located to receive a commission for it and thus, would be subject to the law of that state regarding the sharing of the commission received.
When it comes to the sharing of commissions, the Insurance Code of Georgia makes a distinction between agents who are licensed in Georgia and those licensed in another state. A commission can only be shared with an agent licensed in Georgia if that agent has a license for the type of insurance that generated the commission (health insurance commission can’t be shared with agent who has only a P&C license). This rule would apply to both resident and non-resident licensed agents. The Insurance Code also permits the sharing of commissions with agents located in another state if they are licensed “for the transaction of insurance in that state.” There is no requirement that the license issued by the other state be for the same type of insurance that generated the commission to be shared.
Although I have not done any research on the commission sharing laws of other states, my suspicion is that those laws are probably like Georgia law on this issue. This because the provisions of the Georgia Insurance Code regarding the licensing of agents and the payment and sharing of commissions are based on a model law that has likely been adopted by most other states, as well. However, to be safe. any agent that is thinking about sharing a commission generated by the placing of insurance coverage for a risk located in a state in which the recipient of the shared commission is not licensed should check the law of that state to be sure the commission can be legally shared.