What Is a Full-Stack Insurance Provider?

Full-stack, or hybrid, describes a group that does two different jobs at once: one company places insurance as a licensed producer, and another carries or underwrites the risk. The two usually sit in separate legal entities that are affiliates of each other, meaning each directly or indirectly controls, is controlled by, or is under common control with the other. Holding company law presumes control at ten percent of the voting securities, and a commissioner can find control in fact without that presumption.^1,2

The two jobs are not one permission split in half. A person may not sell, solicit or negotiate insurance without a producer license for that line of authority, and a business entity acting as a producer needs its own license and a designated licensed producer responsible for the entity's compliance. Carrying risk takes something different: a certificate of authority, which the NAIC's uniform application describes as a process used only for risk-bearing entities, meaning the insurance carrier that writes and pays claims on the policies written.^5,6

The brand is not the licensee. A producer doing business under any name other than its legal name has to notify the commissioner before using that assumed name, so the name on the website can be a trade name sitting over a differently named licensed entity. The model act is explicit that a producer license does not create any authority, actual, apparent or inherent, in the holder to represent or commit an insurance carrier.⁵

The risk side is not always an insurer the group owns. A group can instead hold delegated authority as a managing general agent, which manages all or part of an insurer's business and underwrites it, where underwrite means the authority to accept or reject risk on behalf of the insurer. That authority runs on a written contract setting underwriting guidelines: maximum premium volume, the basis of rates, the types of risks, limits of liability, exclusions, territory, cancellation provisions and the maximum policy period.⁴

Delegated authority still leaves the insurer as the insurer. The MGA has to be a licensed producer, its acts are considered to be the acts of the insurer on whose behalf it is acting, and it can be examined as if it were the insurer. Where the underwriting manager is under common control with the insurer and subject to the holding company act, the MGA Act steps aside and that affiliated arrangement is regulated as a holding company matter instead.^4,2

Control over what gets written is the first reason. Holding underwriting authority means the rates, the acceptable risk types, the limits and the exclusions are settled in advance in the group's own guidelines, rather than being someone else's decision on each submission. Within those guidelines, the organization that is talking to the buyer can accept the risk on the insurer's behalf instead of passing it on, which is what makes quoting and binding fast.⁴

One service path is the second. The same contract can also cover claims: reporting timelines, when a claim file goes to the insurer, settlement authority and joint ownership of claim files. A group that produces the business, underwrites it and settles claims on it keeps the loss experience alongside the guidelines that selected the risk, which is the feedback loop that pricing and product design depend on. Insurers in a holding company system run comparable arrangements between affiliates as management agreements, service contracts and cost-sharing arrangements.^4,2

A broker is understood to work on behalf of the customer, not restricted to one company's policies, while the commission is paid by the company with which the sale is made. Put the advising entity and the writing entity under common control and both ends of that arrangement sit inside one economic interest. The duty to shop the market and the affiliate's appetite for the risk are then pulling on the same organization, which is a structural condition rather than an accusation about anyone's conduct.^1,2

The entity that advises you is not the entity that pays your claim, and its balance sheet is not the one behind the policy. A risk-bearing entity is the carrier that writes and pays claims on the policies it writes, and it is that company's own position regulators test: after dividends or distributions to shareholder affiliates, an insurer's surplus must remain reasonable in relation to its outstanding liabilities and adequate to meet its financial needs, and premiums or other funds belonging to the insurer but collected or held by an affiliate are the exclusive property of the insurer. Group scale is not the assessed balance sheet.^6,2

The model acts keep specific decisions at arm's length even inside a group. Binding authority for reinsurance contracts has to rest with an officer of the insurer who is not affiliated with the MGA; the insurer must conduct an on-site review of the MGA's underwriting and claims operations at least semi-annually; and a controlled insurer's audit committee must be composed of independent directors and meet annually with an independent actuary or loss reserve specialist to review reserve adequacy.^4,3

This structure has its own model act. The NAIC's Business Transacted with Producer Controlled Property/Casualty Insurer Act covers a licensed insurer controlled directly or indirectly by a producer, and its minimum standards apply once the business the controlling producer places reaches five percent of the controlled insurer's admitted assets. Those standards require the controlled insurer to give the producer its underwriting standards, rules, procedures, rates and conditions, and require them to be the same as those applied to comparable business placed by other producers.³

Compensation gets the same comparable-business treatment. The contract must specify the controlling producer's commissions, charges and fees and their purposes, at rates no greater than those applicable to comparable business placed by non-controlling producers. Profit-contingent compensation cannot be determined and paid until at least five years after liability premiums are earned, or one year for other lines, and not until reserve adequacy has been independently verified. Each year the controlled insurer must report to the commissioner what it paid the producer, as a percentage of net premiums written, against the comparable amounts paid to non-controlling producers.³

Affiliation makes disclosure matter more, not less, and the rules say so in terms. Before the effective date of the policy, the producer must deliver written notice to the prospective insured disclosing the relationship between the producer and the controlled insurer; where a non-controlling subproducer places the business, the controlling producer keeps a signed commitment that the subproducer knows of the relationship and has notified or will notify the insured.³

Compensation disclosure reaches affiliates by name. Under the Producer Licensing Model Act, where a producer or any affiliate of the producer is paid by the customer or represents the customer for a placement, neither may accept compensation from an insurer or other third party for that placement unless the producer first obtains the customer's documented acknowledgment and discloses the amount, or the method of calculating it and a reasonable estimate. New York goes further for every placement: at or before application, a producer must disclose its role in the sale, whether it will be paid by the selling insurer or another third party, that the amount can vary with the contract and the insurer the purchaser selects, and that the purchaser can ask what the producer expects to be paid, including on any alternative quotes it presented.^5,7

On the insurer's side, a registered insurer in a holding company system must file the identity and relationship of every member of the system together with its affiliate agreements, including all management agreements, service contracts and cost-sharing arrangements. Those transactions must be on fair and reasonable terms with reasonable charges for services performed, recorded so the books, accounts and records of each party clearly and accurately disclose their nature and details, and specified affiliate transactions require thirty days' written notice to the commissioner before they are entered into.²

Start with the declarations page. It shows the name and address of the insurer, the period the policy is in force, the premium and the amount of coverage. That name is the company that owes the claim, and it is the one to look up: a state company profile records a company's license status, financial data, complaint history and history of regulatory action.⁸

Then identify the producer separately from the insurer. Find the licensed entity that actually placed the business, ask whether it is an affiliate of the company issuing the policy, and ask for the disclosures the rules attach to that answer: the written notice of the relationship, and the account of who pays the producer and how much. Treat a brand name as a name until you have matched it to a license.^3,5,7

Judge the two jobs on their own terms. The placement side answers for its producer license, the markets it can actually reach and what it told you about its own role and compensation. The risk-bearing side answers for its certificate of authority and for its own surplus standing behind the policy. One brand over both does not merge them into one set of responsibilities, and evidence about one side is not evidence about the other.^5,6,2