Final answer:
An insurance producer must be licensed, appointed by an insurance company, and may need to complete continuing education. They must also adhere to laws and regulations, especially in markets where consumers are required to purchase insurance to prevent adverse selection challenges.
Step-by-step explanation:
Before an insurance producer can act on behalf of an insurer, several prerequisites must be satisfied. Firstly, the producer must obtain a license by passing a state-administered exam that showcases their knowledge of insurance concepts, laws, and regulations. Following licensure, an insurance producer must be appointed by an insurance company, which includes completing an application and receiving a formal agreement from the insurer acknowledging the producer's authority to sell its products.
Additionally, continuing education is often mandated to ensure producers stay up-to-date on industry changes. In the context of avoiding adverse selection and ensuring the viability of insurance markets, producers must align with government laws and regulations that may, for example, require consumers to purchase certain insurance products. Thereby, not all insurance seekers, especially those posing high risks, might be eligible for coverage, as companies might still exercise discretion to maintain sustainability.