Research shows that the overwhelming majority of all collection agencies are not sufficiently licensed and bonded to pursue your debtor insureds in every state. Lack of sufficient licensure not only severely impedes recovery but more importantly may expose insurers to potential nuisance litigation and financial liability. Licensure does not protect insurers from the collection agency’s internal operational defects or from the actions of the agency personnel who contact your insureds.
Insurers are cautioned to know that the actions and manner in which debtor collectors represent themselves on your behalf when contacting insureds is of equal importance as the actions of any appointed insurance producer. If proper licensing is required when appointing your producers (or even hiring a plumber); vendors who are entrusted with insurers financial interests and public reputation should be held to the highest licensing standards. As Ronald Reagan said, “Trust but verify”.
Even if debtors are located in states not requiring collection agencies to be licensed or bonded, debtors are notoriously transient and frequently relocate to avoid financial obligations. According to the American Collectors Association, there are 24 States that require intra-state license. It is a FELONY in some states for non-compliant collection agencies to contact your insureds for payment in any manner. It is almost a certainty that if a debtor or their attorney discovers that the collection vendor you hired is not licensed, a grievance complaint could be lodged with the insurance carrier, trade associations, Better Business Bureau, collection agency regulators, NCCI, Insurance Commissioners and other state or federal governing bodies.
Debtors who are represented by an attorney often simultaneously file a lawsuit. In addition to the collection agency being named as defendant, the insurer who hired them is typically name as co-defendant. Attorneys especially are going to pursue the perceived “deepest pockets”. An insurance company is regrettably always perceived as such. The dollar value of costly, time consuming nuisance litigation, embarrassment of being subpoenaed and retaining defense counsel pales in comparison to the potential for enormous financial loss if courts award in favor of insureds. The litigation arena is an insurance creditor unfriendly environment. Collection agency violations are normally adjudicated in the debtor’s venue.
An added concern is that lesser qualified vendors are at much greater risk to data breaches, which could expose your confidential policy and claims information to being hijacked. Collection agencies cannot earn SSAE 16 and PCI Compliance certifications without certain data security measures in place. You will find that we go far beyond due diligence in our extensive system security measures by reviewing our I.T. Cyber Security, Physical Security and Penetration Testing protocols.
If this isn’t alarming enough, you are likely unaware of the many stratagems that improperly licensed firms use to avoid disclosing their non-compliance or revealing when licensure grievances/complaints are filed. Since such grievances are not public record, it is incumbent upon insurers to ask their collection vendors if any unresolved grievances exist.
So why aren’t all collection agencies fully nationally licensed you might ask? Answer…it is too costly. Conservatively, proper licensing costs well over $100,000.00 annually. For the majority of collection agencies, national compliance is cost prohibitive. Regardless of a collection agencies certifications, insurance references and trade association memberships, confirming their national licensure is the first and foremost consideration.
What can you do?? At minimum, fully licensed vendors should voluntarily validate their national licensure and bonding, disclose any applicable statutory violations via affidavit, along with providing proof of their SSAE Certification and PCI Compliance.
Those clients surveyed who discovered the inadequacies of their other vendors, decisively adopted similar vetting protocols to ensure they never gamble their company’s reputation and financial interests. They now receive optimal qualified services and have gained peace of mind.
To assist in confirming if collection vendors are qualified to best protect your interests, we are happy to provide you with this chart of collection agency licensure requirements by state published by the American Collectors Association. You will also find our section “Agency Benchmarking” an especially resourceful checklist to use when reviewing any new vendors or performing annual evaluations of your present collection vendors.