A bill that would help to clarify when an insurance professional is acting in the capacity of a broker versus an agent in California is scheduled come before the state Assembly Insurance Committee no later than April 16. Given the deadline, California insurance producer groups are urging industry professionals to contact their legislators to show support for AB 2956.
According to Assembly Bill text, existing law provides that an insurance agent is a person authorized by and on behalf of an insurer to transact all classes of insurance, except life insurance. Existing law provides that an insurance broker is a person who, for compensation and on behalf of another person, transacts insurance other than life insurance with, but not on behalf of, an insurer.
AB 2956 “would establish a rebuttable presumption, subject to exception, that a person is acting as an insurance broker if the application shows that the person is acting as an insurance broker and is licensed to act as an insurance broker in the state in which the application is submitted. The bill would specify the grounds for rebutting the presumption,” the bill text states.
Furthermore, the bill would permit notice specifying the scope of an agency appointment. Existing law provides that life agents, travel agents, and fire and casualty agents shall not act as an agent of an insurer unless the insurer has filed with the commissioner a notice of appointment, executed by the insurer, appointing the licensee as the insurer’s agent.
Existing law provides that a person licensed as a broker-agent shall be deemed to be acting as an insurance agent in the transaction of insurance placed with those insurers for whom a notice of appointment has been filed.
“It is the intent of the Legislature that this act foster a competitive marketplace for all insurance products and services,” the bill text states. “The Legislature finds and declares that it is in the best interest of consumers of insurance products to encourage and maintain a variety of different insurance delivery systems that will compete for consumers on price and service. In order to achieve this goal, it is important to remove any ambiguity in the law defining insurance brokers, provide circumstances wherein a licensee can be presumed to be acting in the capacity of a broker, and set forth circumstances where the presumption may be rebutted.
“An insurance broker is a person who, for compensation and on behalf of another person, transacts insurance other than life insurance with, but not on behalf of, an admitted insurer. Every application for insurance submitted by an insurance broker to an admitted insurer shall show that the person is acting as an insurance broker. … In the event that any transaction involves both a retail broker and a wholesale intermediary broker, the wholesale intermediary broker shall satisfy its disclosure obligation under this section if it provides written disclosure to the retail broker of the nature and amount of its fees, and the fact of any insurer compensation it receives,” the bill states.
According to Steve Young, senior vice president and general counsel for Insurance Brokers and Agents of the West, the bill deals with the issue of protecting brokers in California. “We are dealing with a [California] Department [of Insurance] that has set forth radical criteria purporting to distinguish brokers from agents, but which have the practical effect of subjecting every broker in the state to potential ruinous allegations of de facto agency liability,” he said. The DOI has proposed standards that subject virtually every broker doing business in California as agents-in-fact of the companies with whom they have been lawfully transacting as brokers, he explained.
Young said the bill aims to 1) “restore the determination of whether an insurance professional is operating as an agent or broker should be based on an evaluation of the ‘totality of circumstances,’ rather than any one act,” 2) “repudiate ill-defined criteria” that would retroactively reclassify most brokers as agents; and 3) “clarify the original intention of Insurance Code Section 1732,” that says brokers may handle premium payments and deliver insurance policies without losing broker status.
“The difference between an ‘agent’ relationship and a ‘broker’ relationship has an enormous impact on [producers’] livelihoods. It determines whether a broker is permitted to charge a fully disclosed, legal fee for their value-added services,” The Alliance of Insurance Agents and Brokers stated in its March 31 newsletter.
Should the bill fail to pass this year’s Legislature, Young said he does not see the issue going away. “We are not trying to affect the outcome of any lawsuit that’s now pending,” he said. “The issue is how to protect brokers going forward.”
“An insurance producer needs clear guidelines to determine which activities constitute agency and which brokerage. … The entire insurance market benefits from clear standards on agency and brokerage,” IBA West said in a statement.
“If [the bill] does not pass, we will come back until it does,” Young added.
For more information, visit www.leginfo.ca.gov.
Topics California Carriers Agencies
Was this article valuable?
Here are more articles you may enjoy.
Coverage Needed: Hundreds of Thousands in SE Now in Flood Zones With New Maps 
‘Extremely Dangerous’ Hurricane Beryl Takes Aim at Caribbean 
Big ‘I’ Report: Independent Agency Channel Placed 62% of Premiums in 2023 
‘Great Resignation’ Enters Third Year as Workers Embrace AI, Upskilling, PwC Says From This Issue
