Insurance agency and insurtech acquisitions have increased substantially as private equity, fintechs, SaaS providers, and strategic buyers pursue opportunities in the insurance distribution market. But insurance entities are subject to regulatory requirements that demand careful due diligence — and DRLP compliance is among the most commonly overlooked.
A Goodwin analysis published on JD Supra examining key regulatory issues in insurance transactions identifies DRLP licensing as a critical diligence item. Here's what buyers and investors need to understand before closing on an insurance agency or insurtech.
Why DRLP Is a Transaction Risk
Every state requires that a licensed insurance business entity designate a Designated Responsible Licensed Producer — the individual personally responsible for the entity's compliance with state insurance laws. The DRLP's name is registered with each state where the entity holds a license.
In a transaction, three DRLP-related risks arise:
- Pre-closing gaps: The target may not have a properly designated DRLP in every state where it holds a license, or the DRLP may not hold the required lines of authority.
- Closing disruption: The DRLP may not be continuing post-close, triggering an immediate replacement obligation — often within 30 days.
- Post-closing liability: Undiscovered DRLP gaps can surface after closing as regulatory liability, with fines and potential license cancellation.
Key DRLP Due Diligence Issues
1. Verify the DRLP Is Properly Designated in All Active States
The first step is confirming that the target has a valid DRLP designation on file in every state where it holds an agency or producer license — and that the designated individual's own license is current and in good standing in each of those states.
This sounds simple but frequently reveals gaps: licenses that were allowed to lapse, states where no DRLP affiliation was ever filed, or individuals who departed without a replacement being named.
2. Confirm the DRLP Holds the Right Lines of Authority
The DRLP generally must hold a producer license in the same lines of authority as the agency. If the agency sells life, health, and P&C, the DRLP must be licensed in those same lines in each applicable state. Where multiple DRLPs are allowed, the lines can be split — but the coverage must be complete.
3. Check Whether the State Requires the DRLP to Be an Officer or Director
Some states require the DRLP to be an officer or director of the agency. If the target has used an external person or a non-officer in a state with this requirement, the designation may be invalid — and any outsourced post-close DRLP arrangement will need to account for this structure requirement.
4. Assess DRLP Continuity Through and After Closing
Is the current DRLP staying post-close? If not, the clock starts at closing — or earlier, if they give notice before closing. Most states allow only 30 days to designate a replacement before the agency license faces cancellation. Some states require notification before the transaction closes (Texas, notably, requires pre-closing notification and exercises approval authority).
DRLP continuity should be addressed in the transaction documents — either as a closing condition, a covenant, or through an outsourced DRLP arrangement that is in place on day one post-close.
5. Review the Target's DRLP History
Has the target ever operated without a properly designated DRLP? Have any states issued notices of deficiency or taken enforcement action? These issues may appear in representations and warranties diligence — but they should be specifically checked, as DRLP gaps are often not disclosed proactively.
DRLP Due Diligence Checklist
- Confirm DRLP is designated in every state where the target holds a license
- Verify the DRLP's individual license is active and in good standing in each state
- Confirm the DRLP holds the correct lines of authority for each state
- Check whether any states require the DRLP to be an officer or director
- Determine whether the DRLP is continuing post-close — and plan accordingly
- Review Texas licensing for pre-closing notification requirements
- Check the target's DRLP history for gaps, lapses, or enforcement actions
- Establish a DRLP succession plan as a closing condition or day-one post-close obligation
How DRL Advisory Supports Insurance Transactions
DRL Advisory provides DRLP transition and continuity services for insurance transactions — ensuring that DRLP coverage is in place from day one post-close, that all state notifications and affiliation updates are filed promptly, and that there is no gap in designation that could put the acquired license at risk.
For buyers and investors in insurance agencies and insurtechs, we also provide DRLP diligence support — helping identify gaps in the target's DRLP designations before closing so they can be addressed in transaction terms rather than discovered afterward.
This article draws in part on analysis from Transactions in the Insurance Space: 4 Key Regulatory Issues by Goodwin, published via JD Supra. DRL Advisory commentary is original.