Insurance Community University Broker’s Fees 1 The webinar will begin shortly. There is no audio at this time. This presentation is being recorded

Insurance Community University

Broker’s Fees

1

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Welcome to your Insurance Community University

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Polling

Throughout the class we will be conducting periodic polls

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participation but also to create discussion topics throughout the presentation

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Forms To Complete for CE

After class ends Return attendance form Proctors – return your form to email

address Email address is in chat window or in

email sent to you today

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DOI Requirements

We will file your hours with the DOI after the completion of this webinar and we have received the attendance form.

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This class is being recorded

Available in the University This course is approved for CE in several

states. State approval numbers will be provided at the end of class.

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DisclaimerInsurance forms and endorsements vary based on

insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. This instructional materials provided by Insight is intended

as a general guideline and any interpretations provided by the instructor or the creator(s) of this material do

not modify or revise insurance policy language. In providing these materials, the authors assume neither

liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional

materials provided. Copyright 2010 – 2014 All Rights Reserved

www.insurancecommunitycenter.com 11

http://www.insurancecommunitycenter.com/


Your Instructor Today

Marjorie L. Segale, AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISRInsurance Community Center, LLC

Director of EducationPresident: Segale Consulting

[email protected]

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mailto:[email protected]

Insurance Community University 13

Objectives

1. Agent / Broker / Producer – difference?2. Background on Brokers Fees3. Can Agents Charge Fees?4. Can Brokers Charge Fees?


Polling Question #1

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Licensing – Washington State Changed effective 7-1-2009 from defined agent,

broker, solicitor, service representatives to producer RCW 48.17.010 (6) “Insurance producer” means a person required to

be licensed under the laws of this state to sell, solicit or negotiate insurance. “Insurance producer” does not include title insurance agents as defined in subsection (16) of this section or surplus lines brokers licensed under chapter 48.15 RCW.

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Licensing – Washington State RCW 48.17.060 (1) A person shall not sell, solicit, or negotiate

insurance in this state for any line or lines of insurance unless the person is licensed for the line of authority in accordance with this chapter.

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California State

(b) If a transaction involves both a retail broker and a wholesale intermediary broker, the wholesale intermediary broker shall be deemed to have satisfied its disclosure obligations under this section if it provides written disclosure to the retail broker of the criteria set forth in paragraphs (2), (3) and (4) of subdivision (a).

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California State

(c) The presumption of broker status is rebutted as to any transaction in the admitted market in which any of the following is present: (1) The licensee is appointed, pursuant to

Section 1704.

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California State

(2) The licensee has a written agreement with an insurer containing express terms that authorize the licensee to obligate the insurer without first obtaining notification from the insurer that the insurer has accepted, conditionally or unconditionally, the submitted risk.

(3) The licensee is authorized, pursuant to a written agreement with an insurer, to pay claims on behalf of the insurer.

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California State

(d) In all other cases, the presumption of broker status is rebutted based on the totality of the circumstances indicating that the broker-agent is acting on behalf of the insurer.

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California State

(e) For purposes of this section, “totality of the circumstances” means evidence indicating whether a broker-agent was acting on behalf of the insurer or was acting on behalf of a third person. In determining the totality of circumstances, all relevant facts and circumstances shall be reviewed and the review is not limited to any particular fact or factors and this section does not require that any particular circumstance receive greater or lesser weight.

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California State

Section 1732. A person acting as an insurance broker may, on behalf of an insurance company, collect and transmit premium or return premium and deliver policies and other documents evidencing insurance. Performance of those functions shall not be construed for any purpose to mean that the person is an insurance agent.

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Krumme v. Mercury Insurance Company, et al The foregoing language that is now part of the

California Insurance Code is a result of this case from 2004

Previously – the terms broker and agent were one line definitions in the CIC

In 1990 the statute added the term broker-agent, which defined “fire and casualty licensee”

The case involved brokers who “are operating as de facto agents” but were being advertised by Mercury as independent.

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And Then Came Eliot Spitzer

Also in 2004, Eliot Spitzer, then the New York State Attorney General who went after the “big three” brokers – Marsh, AON and Willis for receiving “contingent commission”

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This was a an action taken by him after receiving a letter from the Washington Legal Foundation stating that the insurance industry practice of insurers paying certain fees to insurance brokers constituted a conflict of interest and a potential violation of a broker’s fiduciary duty to their client.

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On 10-14-2004, Spitzer filed a lawsuit against Marsh alleging statutory claims of fraud, securities fraud, state anti-trust violations and common law claims for fraud and unjust enrichment. He also included AIG, ACE and Hartford as defendants.

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Spitzer was alleging that the broker was “steering” business to insurance companies that were willing to pay for large volume of business. This led to “bid rigging” and market manipulation.

Many states started piling on, including California

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The Result

Required disclosures to the insurance buyer

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Polling Question #2

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Background on Broker’s Fees

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Background

Broker’s Fees have been historically charged to a client for several reasons: Placing business with an insurance company

without an appointment Commission is too low and the workload too high The account has been bid net of commission Additional duties beyond the normal transacting of

insurance

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California State

California Must have a signed disclosure statement

when placing personal auto insurance All fees must be disclosed If commissions will be earned (the fact, not

the amount)

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California Agent Fees

No fees for transaction of insurance Can charge fees for work that requires

significant time over and above transaction of insurance Claims analysis Loss control consultation Comprehensive Risk Analysis of operations,

property, or activities Photos of personal property / business personal

property


California Broker’s Fee Disclosures Can be for transaction of insurance Can be any amount Personal auto – disclose in writing and signed

by client


Washington State

Not required if the only compensation the producer receives is the commission from the insurance company Used when receiving commission and

charging a fee Provides optional disclosures Producer signs Insured signs

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Washington State

Part 1 – only charging a fee Part 2 – receiving commission and

charging a fee Part 3 – receiving additional (contingent)

commissions

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Advising the Client

Most states have statutes in place that require notification to the client in the event additional compensation is charged to the client Varies significantly state to state

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Advising the Client

Majority of brokers use a disclosure of fees and commissions that is included with every proposal and/or renewal document for every client, whether or not additional fees are charged

The disclosure needs to be broad enough to encompass all of the different statutory requirements in all states where business is being written

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What is Prudent Disclosure?

Any and all fees Contingent commissions Additional compensation from

wholesaler and/or company Additional compensation from premium

finance companies

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How Much?

There are very few statutes anywhere on this A prudent person would place it as a

reasonable amount So what is reasonable?

$250.00 fee on an $800 policy is NOT reasonable Often dictated by the amount a client will pay 10-15% is a typical amount of either fee,

commission or combination

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Polling Question #3

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Fee / Commission / Disclosure Best Practices Full disclosure prominently displayed on

every client proposal If no proposal provided to client,

incorporate into your policy transmittal cover letter

Displayed on agency/brokerage website


Fee / Commission / Disclosure Best Practices If acting as an agent, only charge fees

for non-transaction related services Disclose AND perform those services If acting as a broker, charge a reasonable

fee and disclose it In CA, must disclose in writing a fee added

to an auto policy and client must sign Cannot charge a fee for Assigned Risk or FAIR

Plan


Summary

Follow the state statute where you place business

Use a well-drafted disclosure of commissions, fees and contingent commissions with every client

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Upcoming Classes3/25 Business Income – 5 Key Issues You

Must Understand4/3 Business Income – Considerations in

Limit Setting4/8 Flood Insurance

4/10 5 Key Issues You Must Know About Workers Compensation Insurance

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Documents

Insurance Community University Broker’s Fees 1 The webinar will begin shortly. There is no audio at this time. This presentation is being recorded