Insurance Noodle

Rob · Post by **Rob** » Mon Dec 13, 2004 1:32 am

For the record, cynsationalinswoman, the initial insults came from you with your sarcasm and comments questioning my charging of broker fees. In my last post I responded only with facts after you continued to hurl insults with your "terminal stupids" comment. Show me where in my last post I hurled an insult. You can't because it doesn't exist. As I stated in my previous post, I will not stoop to that level. Even though you opened with the sarcastic statement "are you charging for the extra keystrokes as well?" in your initial response, I have continued to stick to the facts which is what is needed for an intelligent exchange and I will continue to do so and am willing to now put those insults behind us.

Second, we are discussing facts, not opinion. When facts are incorrectly stated that clearly affect those in our industry, it is my obligation to correct those erroneous statements. The facts are clear. The Dept of Insurance states that 1) The regulations apply only to personal lines. This is straight from their website AND the actual regulations. 2) A broker (not an agent) is entitled to charge a broker fee if he chooses. It even states this in Part II on the disclosure form the Dept supplies. 3) The Dept does not dictate what has to occur during the transcation in order for the broker to be entitled to charge a fee. Now what facts above (even though they come from the Dept of Ins) do you dispute?

That said, I am for full disclosure of the fee in the transaction. I agree that you were right in telling your boss he can't charge a fee if the contract that exists between the agency and the carrier is an "agent" contract as opposed to a "broker" contract. The markets were correct in advising this if it is in fact an "agent" contract. If its a "broker" contract, then the markets are both incorrect and out of line.

What I am stating here comes from the real world of placing business as well. When analyzing a commercial risk's exposures, advising coverage, procuring quotes on a broker basis, then examing the policy wording and endorsements, and finally placing the business (again as a broker), charging a disclosed broker fee is legal, ethical, and deserved.

Now what specifically do you disagree with?

cynsationalinswoman · Mon Dec 13, 2004 11:01 pm

Please note that the material referenced below is not intended as any type of legal advice, nor is it being reprinted or quoted for any type of material gain or mass distribution.

Rob, you obviously have a lot to learn about manners and conduct in the insurance marketplace. I have no argument against charging broker fees. When they are justified. However, there are rules, even for commercial lines, and even more stringent ones pending. Your commission percentage and/or lack thereof is not a justified reason. As I believe I stated, the guidelines are grey and hazy, but I prefer to err on the side of caution.

If you happen to peruse the entirety of this article you will possibly notice the the statement that says "personal lines brokers also"......... probably just a wild leap of intuition on my part that regulations actually apply on the commercial side.

Since my experience and background allows me to provide claims handling and loss control consultation unrelated to the transaction of insurance, any broker fee I charge is related to services provided in addition to procuring coverage.

I don't guarantee that I am right, but I follow guidelines that make sense. If you can't find markets that pay you any decent commission percentage then I guess you better keep looking. The info below is the guideline that I follow. So take your little ego game elsewhere, play by whatever rules you want, it just means more clients for those of us who don't charge fees based on "my commission has gone down".

Good luck and good bye.

WHEN MAY BROKER-AGENTS CHARGE FEES?

Insurance producers licensed as California fire and casualty broker-agents may charge fees.
But knowing when such fees may""and may not""be charged is not enough. It is also important to know what guidelines should be followed to ensure that full disclosure has been provided to, and informed consent obtained from, customers paying fees.
The ground rules themselves are not overly complicated, but identifying them can be, because they come from a variety of different sources, including a legal opinion issued by the California Department of Insurance in 1997, broker fee regulations applicable to fees charged by brokers in personal lines of insurance,
miscellaneous provisions of the California Insurance Code, and a handful of judicial decisions construing "agency" authority and distinctions between "brokers" and "agents."?

The purpose of this paper is NOT to provide legal advice, but instead to offer a brief summary of the "rules" and to provide sources of additional information.

This is the "bottom line"?:(A) If a producer is appointed, and lawfully acting as an agent of an insurance company, he may charge fees in addition to commission ONLY if:

1) the fee is for a service that is unrelated to the agent's "transaction" of insurance (as that term is defined in CIC Section 35); OR

2) the service in question does relate to the transaction, but is something that the insurer does not ask or expect its agents to perform; in other words, a service above and beyond what the insurer expects of its agents.

(B) On the other hand, if a producer is lawfully acting as a broker, she may charge fees in addition to commission for any service whatsoever.

Any broker or agent charging a lawful fee is required to obtain the consumer's consent in advance after disclosure of all material facts related to the service and the fee--including the fact, if true, that the producer receives a commission from the insurer.

Q: My license from the State of California says I am a "broker-agent." In practical terms, how do I know whether I'm acting as an "agent" or a "broker" in a particular case?
A: The title of the license is largely irrelevant. Producers continue to act in specific CONTRACTUAL capacities, such as "agent," "broker," or "solicitor."?
Acting as an agent requires at least one insurance company to have contractually appointed the producer to be its agent. This appointment can be evidenced in several ways. In almost every case, a written agency agreement will outline the agent's authority duties. In addition, pursuant to California Insurance Code
Section 1704, the insurer must file a notice of agency appointment (sometimes called an "action notice"?) with the CDI.
Acting as a broker effectively requires at least one insurance consumer to seek the producer's services. In addition, a broker must obtain a "broker's bond" and file proof thereof with the CDI.
Acting as a solicitor requires licensure as a broker-agent, employment by an agency or brokerage (either as an "employee" or independent contractor), and inclusion of the licensee on the organization's list of authorized transactors.

By definition, if an insurance company has filed an "action notice" on a given producer, that producer cannot legally be considered a "broker" in dealings with that insurer.
Q: What is a so-called "defacto agent" and why is that term significant?
A: The Latin word, "defacto," means "in fact, though not in name." CDI and others have alleged that some insurers have been circumventing premium taxes and permitting illegal fees by using "defacto agents"?; i.e., producers who are called "brokers" in name, but whose contractual relationship with the insurer is virtually
indistinguishable, in fact and at law, from an agency relationship.The Mercury Insurance group is now defending a case in San Francisco Superior Court (Krumme v. Mercury) in which private plaintiffs have alleged that the insurer has wrongly permitted its agents to charge fees by mischaracterizing them as "brokers." The plaintiffs allege that the "brokers" are defacto agents because
(among other reasons) they have binding authority, receive commissions, and are subject to virtually all of the limitations requirements placed on Mercury agents.

Every situation is factually unique, and the law in this area is not well-defined""at least yet""so it is difficult to identify the specific combination of facts or circumstances that could subject a broker or insurer to liability for "defacto agency."?
However, the presence of binding authority is one key factor. There is no law at present suggesting that the mere presence of binding authority, with nothing more, is sufficient to transform a legitimate brokerage relationship into one of defacto agency.
But the greater the functional similarity between an insurer's broker and its agents, the greater the threat of defacto agency.
Q: What penalties or liabilities do a "defacto agency" face?
A: It depends on who brings the allegation, and what damages (if any) they seek.
For example, an insurer might terminate a brokerage contract and claim it had not authorized the broker to charge fees. The insurer might seek restitution if it was held liable for nonpayment of premium tax (on the amount of the improper fee, which would be treated as part of the premium) or unfair rate discrimination (since the "premium" might vary dramatically, depending on whether fees were added and if so, in what amount).
If CDI brought an allegation, it might seek license suspension or revocation in addition to restitution and/or fines.
If private plaintiffs filed suit, they theoretically could assert "bad faith" causes of action, which if proven could justify non-economic or punitive damages, in addition to reimbursement of fees paid, attorneys' fees, court costs, etc"¦.
Q: How do I protect myself against "defacto agency" allegations?
A: First, evaluate your brokerage contracts carefully, and seek outside counsel if necessary. Work with your insurers to replace binding authority or other agency-like contractual clauses, with substituted provisions. Ask your insurers to indemnify and hold you harmless for any and all "defacto agency" allegations or claims.
Second, evaluate your fee-charging practices. "Agents" may charge fees only in limited circumstances.
"Brokers" are not similarly constrained. If a producer charged fees only in cases where he could lawfully charge the fee as an agent, then it wouldn't matter whether he was later found to be a "broker," an "agent" or a "defacto agent." The fee would be permissible in each event.
Q: How is "transaction of insurance"? defined and why should I care?
A: The definition of "transact" as applied to the business of insurance is very important for at least two reasons: 1) it defines the activities that (with only limited exceptions) require licensure by CDI; and 2) in the case of insurance agents, it defines the activities that they are expected to perform as agents""which means they can not add a fee to the commission paid by the insurer. (The only exception to that prohibition would be in cases where the insurer also consented to the fee being charged. However, any insurer giving its consent would probably face liability for unfair rate discrimination and nonpayment of premium taxes).
"Transact"? includes any of the following: (a) solicitation; (B) negotiations preliminary to execution of the insurance contract; © execution of a contract of insurance; or (d) transaction of matters arising out of the contract after its execution.

That means, for example, that an "agent" could not charge a fee for searching the market, comparing policies, or recommending insurers, for placing a policy, or for processing endorsements, issuing certs, or submitting notices of claims. A "broker" could charge fees for any or all of those activities (provided that full disclosure was made and informed consent was obtained in advance), but an "agent" could not.
Q: What are examples of services unrelated to the transaction of insurance?A: Examples may include, but are not limited to, the following.
(1) A person licensed as a broker-agent also works as a certified financial planner. The broker-agent sells an auto policy to a consumer and places it with an insurer that has appointed the broker-agent as its agent. The agent also offers to provide fee-based financial advice. The latter is unrelated to the former. A fee could be
charged for financial planning, but not for placement of the auto policy. (2) A person licensed as a broker-agent offers to search the market, compare policies, and/or recommend insurers for a particular customer, but does not attempt to sell a policy to that person.
A fee could be charged for the consultation. Note, however, that if the broker-agent then turned around and sold a policy discussed during the consultation to that consumer, it is possible that the Department would view both transactions as related; if so, a fee could be charged only if the broker-agent was acting as a broker during the subsequent
transaction, and if all the other disclosure and consent requirements were satisfied.
Q: What are examples of services that relate to the transaction of insurance, but involve something "above and beyond" what the insurer asks or expects of its agents?A: Examples may include, but are not limited to, the following.
(1) A broker-agent sells a policy as an "agent" of a particular company. The "agent" then offers to do a comprehensive risk management evaluation of all or part of the policyholders' operations or properties or activities. Assuming the evaluation is not required by the insurer, the "agent" could charge a fee for that service, even though it may relate to or have an effect on the policy sold.
(2) A broker-agent sells a policy as an "agent" of a particular company. As the policy comes up for renewal, the broker-agent offers to conduct a comprehensive search of the marketplace to determine whether better coverage or price terms can be obtained from a different insurer; the policy is in fact moved to another insurer
with whom the producer is also appointed as an agent. Assuming that a comprehensive search and comparative analysis is actually undertaken, it might be possible to justify a fee for that service""after all, the original insurer in most cases would not ask its agent to search the market or move the policy to a competing insurer.

The safer approach, however, would be to refrain from charging the fee unless the producer had a true broker relationship with the new insurer. Note also that if the agent's "search of the market" involved nothing more than use of a computerized rating software program, which typically does not require the expenditure of significant time or effort, or if the agent places substantially all accounts with one insurer, the CDI might question whether material professional services were actually provided

Q: If I wish to charge fees, either as a broker or as an agent, what must I disclose?
A: At a minimum, producers charging fees must disclose""in advance""the amount of the fee, the services to be provided for the fee, the limitations (if any) on refundability of the fee (such as a provision that fees are considered fully earned at the inception of the policy and are non-refundable), and all other material facts,
including the fact, if true, that the producer is (or may be) receiving a commission from the insurer; it is not the amount, but rather the fact, of commission or other compensation from the insurer that must be disclosed in advance.

In personal lines of insurance, brokers charging fees are also required: 1) to distribute, and obtain initials of
the applicant or policyholder on, a mandatory one-page disclosure sheet on broker fees; 2) to distribute a CDI consumer pamphlet on automobile and/or dwelling insurance; and 3) to use a broker fee agreement that is not inconsistent with a sample agreement drafted by the Department.
Q: How do I obtain the consent of applicants or policyholders to charge fees?
A: In personal lines of insurance, as explained in the answer to the preceding question, brokers are required by law to use a written fee agreement and to obtain the initials of the applicant or policyholder on a CDI disclosure sheet.
However, even in commercial lines, producers would be well-advised to always use free-standing written fee agreements.

While it is technically true in commercial lines that consent may be given orally, or inferred from payment of an invoice on which a fee is itemized, neither of those methods provides the broker with conclusive proof that the consumer had been informed of all the material terms related to the fee, and had provided advance consent thereto. A well-drafted fee agreement ensures not only full disclosure to consumers, but also protection for the producer from false accusations that a fees were not disclosed or understood or agreed upon.

Q: Is there any limit on the amount of fees I may otherwise lawfully charge?
A: No. However, prudence dictates restraint. Unreasonably high fees raise at least an inference that consumer consent, if obtained at all, may not have been fully informed. The overwhelming majority of
brokers and agents find unreasonably high fees and sharp fee practices, by a small minority of their competitors, to be morally repugnant. The majority knows well that if producers do not effectively police themselves in this regard, regulators or legislators may go overboard doing it for them.
Q: Am I required to adopt a mandatory, uniform fee schedule?
A: No. However, a fee schedule consistently applied might help insulate producers from potential claims alleging unfair discrimination.
Q: Am I legally prohibited from charging fees on particular insurance products?
A: Yes. The California Insurance Code prohibits brokers or agents from charging fees for placing minimum-limits policies with the California Automobile Assigned Risk Plan (CAARP), and the California
Fair Access to Insurance Requirements (FAIR) Plan. Fees may be charged by brokers (but not agents) for securing supplemental limits or coverages.

Rob · Post by **Rob** » Tue Dec 14, 2004 12:12 pm

cynsationalinswoman, I believe anyone reading our posts would see that you are the one who has a lot to learn about manners as my prior post remained above the fray while you continue to fan the flames. I have no ego agenda here, my only agenda here is stomping out ignorant and sarcastic statements like "so are you charging for the extra keystrokes too?". As for hate, anger, and sarcasm...yes you should take that somewhere else. So once again I'll take each of your points one by one.

The beginning of the article has a statement which says "The ground rules themselves are not overly complicated, but identifying them can be, because they come from a variety of different sources, including a legal opinion issued by the California Department of Insurance in 1997, broker fee regulations applicable to fees charged by brokers in personal lines of insurance,.....) which confirms that the regulations are applicable only to personal lines. I'll repeat once again, however, that with that said, I still believe in full disclosure in commercial lines as its the right thing to do.

Your statement about my conduct in the marketplace is ingnorant. How anyone can make a statement like that about another without knowing in detail what they do on a day by day basis and while transacting business is beyond me. First of all, I've read the same article that you just posted and agree 100% with the opinion and is consistent with what I've been saying all along. Have you even read my responses? In an attempt at effective dialogue I asked specifically what you disagreed with and instead of responding directly you post an article which I don't think anybody would disagree with. This entire time I've been talking about acting in the capacity of a broker. Further, if you read my last post you would see that my justification for charging a fee as a broker was not solely based on commission percentage but also risk analysis, review of policy forms and endorsements, etc. As an example, it is extremely important when comparing two or three different quotes for professional liability to compare policy wording and the endorsements attached as they can change on a risk by risk basis. Finally, I represent myself as a broker to my customers, they know they are paying a fee for services, it is fully disclosed on a disclosure form etc. Finally, since you posted an article confirming everything I've been saying It appears that you no longer disagree with me.

cynsationalinswoman · Tue Dec 14, 2004 10:48 pm

I respond only to dispel any thought that silence implies consent to agreement with you and your philosophy. My comment on "extra keystrokes" was seemingly unforgettable to you, I see where others called you a "lapdog" but that doesn't seem to offend you.

If you can't handle any type of give & take in the world of forum criticism (in fun, between buddies, or just the usual back and forth static) without taking a meaningless comment to the grave, my most sincere apologies for the unforgivable blow to your psyche. I don't know you personally and had no malicious intent when I made the comment. In looking at the posts everyone appeared comfortable with poking fun & casual insults at each other while exchanging information.

My mistake. I will look for another site to interact with in the future.

Rob · Post by **Rob** » Wed Dec 15, 2004 12:15 pm

I take what I do very seriously and view it as a valuable service to other business people who need insurance to operate their business, gain customers, and protect themselves. Like many other brokers possibly reading this forum, I charge a reasonable fee when appropriate. I'm all for poking fun at each other, however I don't feel its right when attacking someones character. I feel I have a right to defend myself when attacked. I looked through the forum and didn't see anything like what you said, but if I had known that we were just here to throw sarcasm back and forth, you left me
plenty of opportunity to let it rip but I held back and tried to stick to the facts. In all of my posts I've simply stated the facts (not philosophy) and if misinformed people want to paste a label on me, so be it. In the end, the facts speak for themselves.

I also continued to discuss this because it has been and continues to be a very important issue. We fought for our right to charge a fee and not have caps placed on us by a regulatory authority. I'm sure the it will come up again in the future.

In all fairness to the person who started this topic, it would only be right to conclude this discussion. To the original poster, I'm sorry your topic got hijacked.

Now back to your regularly scheduled programming :rolleyes:

cynsationalinswoman · Fri Dec 17, 2004 11:01 pm

Ok, Rob, stomp away at the sarcasm in the "copy & paste" listed below. It didn't come from me, it was posted by someone else in the thread. I am moving on to other topics, hope you can do the same.

*********************************************************

Rob, I see that you are still actively atvertising for Ins. Noodel. It is amazing to me that anyone would read your posts and believe that you are not somehow either on their payroll or without enough business of your own, allowing you the time to publish lapdog, thinly veiled marketing for someone you don't know. You must think we are all stupid. I recognize a PR weenie when I read/hear one.

Rob · Post by **Rob** » Sat Dec 18, 2004 2:59 am

Actually see the latter part of my post from Nov 8 at 6:00 pm in which I addressed the "cut and pasted" comments

I'm ready to move on as well.

yoyowordup · Post by **yoyowordup** » Wed Jan 05, 2005 1:53 pm

cynsationalinswoman, Rob and CompPro:

Arguing on the Internet is like being in the Special Olympics. You may get a ribbon, but at the end of the day you're still retarded.

Rob - If you stop wasting so much time arguing on the internet, you may have enough time to write some business and impress some companies enough to get direct contracts.

cynsationalinswoman - In one of your posts, you mention "My Boss". Assuming that you're not self-employed, shouldn't you spend more time working and not working on massive posts?

CompPro - I agree with most of what you have said. I have a very hard time placing business with carriers that compete directly against me. However, it's hard not to as most of them do compete directly. This includes Zurich, Hartford, Progressive and Unitrin. The carriers that work with us instead of against us get my primary support (Auto-Owners, Cincinnati).

Now all of you go back to work!!

cynsationalinswoman · Post by **cynsationalinswoman** » Wed Jan 05, 2005 3:49 pm

Well, yoyo, you appear to have chosen a very appropriate name. My posting is done on my own time, as well as plenty of work & research off the clock, unpaid.

Yeah, Rob & I had our first meeting in this topic and we did a little verbal sparring, as fees are a very hot topic in CA right now. As far as your comment that we are "retards", each to his own opinion, however misguided. Rob & I have learned to get along, and speaking for myself I have gained respect for him even if we don't always agree.

And direct contracts with companies require specific volume commitments, they don't appoint agencies based on a song & dance.

holagy1 · Post by **holagy1** » Thu Jan 06, 2005 3:28 pm

Enjoyed the exchanges.
We(our agency) has tried or investigated all of them. I am not 100%
sure but it appears to depend much on the State you conduct business
in. I nearly signed on with SIAA but could not get past some of the
ownership issues and signing over the right for entry into my agency
without notice. Also the upfront money and ongoing requirements. I
was impressed with their growth and support.
I continue to pay dues to AgentSecure. Had trouble with Target Lines
and assistance after the sale. They have improved somewhat.
I have been satisfied with SmartChoice AND they were approved
by our State Association.
I have eaten my words so many times over the past 20 years I try to
temper what I will and will not do. I swore HMO's would not be written
by our agency.(ate those words) Would not represent a company if
another agency in my town also had a contract.(ate those words) Would
not contract with a company that also offered their product through
direct channels.(age those words)
Survival required change. I wish I could inforce what I said I wouldn't
do, but the industry has changed so much we had to shift with it. LOYALTY,
what is that? Carriers are as loyal as their latest options.
Thanks/Tennessee