A situation arose this last month regarding “Broker Fees”. I’m going to simply define “Broker Fees” as charges passed onto an insured by a producer which are in excess of the Carrier’s premium. Producers like to charge these fees because of the extra added income from each policy sold. Consumers don’t like these fees because they wind up paying money that is not reflected in the premium itself.
Since all of our affiliates are Independent Contractors they are free to set their charges for issuing a policy as the market, the carrier and the law permit. Unfortunately it seems that the later two of these three conditions is being ignored at times.
A Carrier in appointing a Producer can set conditions on fees the Producer may charge in addition to a policy premium. If the Producer disregards these conditions, the Carrier will quickly pull the Producer’s appointment. Thus a Producer should pay close attention to their appointment paperwork before endeavoring to charge an insured monies in addition to the actual premium. In many cases, the only page Producers read in their appointment is the amount of commissions. In today’s legal environment, this won’t work.
If you look at the insurance code in just about any State, they address whether a Producer can charge Broker Fees or not. Realistically Pacific Crest cannot advise a Producer on whether their state permits charging Broker Fees because it is a question either for their State’s insurance commissioner or their own attorney.
As an example, California has recently revised it’s approach to Broker Fees and a brief summary of the legislation provides the following requirements:
- The consumer must agree to the fee in advance, after full disclosure;
- The fee cannot be charged on a CAARP, FAIR or “Low Cost Auto” policy;
- The broker must provide the insured with a specific disclosure form;
- The broker cannot be appointed with the Carrier under whom the coverage is being written;
- The broker and consumer must sign a fee agreement containing defined information;
- The broker must have a broker bond in force with the Department of Insurance;
- The broker must disclose the broker fee at the time the of the quotation.
On the other hand, Oregon requires that a producer be licensed as a producer and also as an “insurance consultant”. The producer must have 5-years experience to become licensed as a consultant. Arizona in addition to other requirements dictates that the producer may charge a fee “for services not customarily provided in the transaction of insurance if the fee is filed with the director”.
If you are considering charging a “broker fee”, review your appointment; check with your insurance commissioner; and it wouldn’t hurt to get an opinion from your attorney as to the legality of charging such a fee. A violation could result in consequences that none of us want to even consider.