CLAIRE-IFICATION

I am placing a piece of business through a broker. Why do they keep referring to themselves as the agent and to me as the broker?

ANSWER:

Your “broker” is probably right and likely is the “agent.” The adoption of the Producer Licensing statute around 2002-2003 has generated a lot of confusion around what is very basic terminology in our industry. That confusion lingers because of the way we use these terms and can occasionally cause some issues as explained below.

First, the law now grants the licensing authority through a single “producer” license. However, the law also recognizes that as a producer, you are acting either as a “representative of the consumer” or as a “representative of the insurer,” which is the new terminology used in the statute. In fact, for each transaction, you are operating under one status or the other.

WITH CARRIER CONTRACT When you have a carrier contract and appointment, that appointment formalizes the fact that you are representing the insurer. You are, therefore, an agent of that insurer (to use the old terminology). WITHOUT CARRIER CONTRACT When you do not have a carrier appointment and are accessing the insurer through another intermediary, you are acting as the representative of the consumer, and are therefore a broker under the old terminology. This can also happen when: • you use a Surplus Lines broker, a wholesaler, an MGA, or just another producer who happens to have a market you need, or • you are placing business with a carrier that does not appoint agents at all, such as the State

Workers’ Insurance Fund (SWIF) in

Pennsylvania. You then maintain your status as a representative of the consumer, since SWIF does not authorize you to represent them.

WHY DOES IT MATTER? This is not just semantics. If you do business in Pennsylvania, for every piece of business you write for which you are acting as a representative of the consumer (not appointed), you are required to have an agreement signed by the customer that spells out the services you will provide and discloses if a fee will be charged and what that fee will be. Whether you charge a fee or not, the agreement must be executed. Failure to do so can cost the agency $5,000 in penalties for each missing agreement in your book. Eighteen years after enactment of this mandate, we still run into agents who are not aware of the requirement or improperly consider themselves to be agents in the transaction and fail to secure the “broker agreement” with their customer.

If this is news to you, visit IA&B’s compliance resources and access our sample broker agreement to use with your Pennsylvania business when you’re acting as a “broker.” Then, set a clear process for your staff so that they know when the agreement must be secured.

This document is not a legal opinion and should not be relied upon as such. The intent of this document is to provide a general background regarding the topic or topics discussed, not to provide legal advice. Producers and agencies should consult an attorney regarding specific situations and specific questions with respect to the topic or topics covered in this document. Neither the Insurance Agents & Brokers nor any of its employees shall be responsible for any errors or omissions regarding any statements made in this document, nor any errors or omissions regarding any statutes, regulations, court rules, and/or any other government documents cited in this document.