Insurer Caution for Using Unlicensed Collection Agencies

Wednesday, February 12, 2014 | 0

Despite insurer operational diligence, a small percentage of non-paying policyholders’ premiums and/or claims debts may be sent to collection agencies for recovery.  Carriers, brokers and agents are cautioned to know that an overwhelming majority of all commercial and consumer collection agencies are NOT licensed to pursue debtors in every State.  Lack of sufficient licensure not only severely impedes collection but more importantly may expose insurers to potential nuisance litigation and financial liability.
 
Even if insured’s are located in states not requiring collection agencies to be licensed, debtors are notoriously transient and frequently relocate in attempts to avoid financial obligations.  According to the American Collectors Association, there are 24 states that require intrastate licensure.  Some states consider it a felony for non-compliant collection agencies to contact your insured’s for payment in any manner.  If an insured or their attorney discovers that a collection agency is not licensed, a grievance complaint with the carrier, broker, trade associations, Better Business Bureau, Rating Bureau, Department of Insurance and other state or federal governing bodies could be lodged.  Debtors who are represented by counsel may simultaneously file a lawsuit.  In addition to the collection agency being named as defendant, the company who hired them is typically named as co-defendant.  Attorneys especially are going to pursue the perceived “deepest pockets.”  Insurers are regrettably always perceived as having the deepest pockets.
 
Not only is being subpoenaed an embarrassing and time-consuming nuisance, but there is the potential for enormous financial loss.  The litigation arena is an insurance-claimant unfriendly environment.  Collection agency violations are normally adjudicated under the prevailing laws where the debtor is located.  Improperly licensed collection agencies are being sued every day in every state.
 
Regardless of a collection agency’s certifications, insurance references and trade association memberships, confirming their licensure is paramount.  If proper licensing is required when appointing producers or even hiring a plumber, vendors who are entrusted with insurers' financial interests and reputation should be held to the highest licensing standards.  As Ronald Reagan said, “Trust but verify!”
 
So why aren’t all collection agencies fully licensed?  Answer: I is too costly.  At minimum, proper licensing costs more than 100,000.00.  For the overwhelming majority of the collection agency community, national licensure compliance is cost prohibitive. 

David Trout is senior vice president of insurance programs for Brown & Joseph, a commercial credit collection agency based in Rolling Meadows, Ill.