Who Do Insurance Agents Represent?

[J.R.]

What is an AOR?

 

[somarco]

Agent of Record

 

[Steve]

I agree with and understand everything you wrote Somarco, but from a legally defined perspective, there seems to be a difference between agents and brokers.

I'm in Wisconsin, but a quick Google and I pulled this differentiation from the State of Washington's Commissioner of Insurance:

Agents and Brokers: Many individuals and businesses buy their insurance coverage from agents, who represent either specific companies or a number of companies. However, other individuals and many businesses prefer to buy from a broker, who represents them directly in the marketplace. Many businesses prefer to use brokers because they want an independent source of information who can sample the broad range of coverage available and put together the best package for specific circumstances. Both agents and brokers should be responsive to their customerÂ’s needs. However, you should remember that the agent also represents the company or companies he or she is appointed by. The broker works for you.

Either way (and to sum it up,) following laws and regulations, I will work for the customers best interest, on behalf of the companies I represent.

 

[Crabcake Johnny]

The relationship between the agent (broker, rep, whatever term you choose to use) and the carrier is unique. You are not an employee but rather a contractor. The agreement between the agent & the carrier conveys certain responsibilities and liabilities that are unique to the arrangement.

You can be held personally liable for actions that harm either the carrier or your client. Either the carrier or your client, or both, can sue you if they feel the relationship has been breached.

The carrier pays you, but only after your client pays their premium. So in essence, you are paid by the client via the carrier.

Your carrier can terminate the relationship at any time, with or without cause and without regard to state or local "right to work" laws.

Your client can terminate your relationship at any time without recourse.

As for what you are paid, it is none of your clients business. The premium they pay is the same regardless of whether you are paid or not.

There are exceptions, usually in the area of ERISA plans where full disclosure is required or where securities based products are used. Beyond that there is no compelling reason for your client to know what you are being paid on any particular product.

Clients tend to get bent out of shape when they hear that an agent could be making 90 - 100% on a life case. They think it is excessive and have no clue what it takes to earn that commission.

Of course you may make 100% on a term sale and only 30% on a UL sale (as a percent of the total premium). So what?

Those who call for full disclosure of commissions are full of crap. Many individuals already think they get a better rate by going direct to the carrier, or dealing with a "direct writer" at some online quote mill when in fact they are paying the exact same premium as they would if they bought the identical product from me.

I pick up a couple of AOR letters each month on KP clients. They bought direct, have no idea what they have and can't understand why their rates went up at renewal. After taking a few minutes to explain their coverage and make suggestions for alternate plans, I ask for an AOR letter. I explain their rates will be exactly the same as if they continued with KP direct, the only difference is they have access to me as their agent. I explain that KP has built into their rates a service fee to pay agents like me. If they are not paying an agent that is extra profit for KP.

I usually have no problem taking over the case. It is one of the easiest ways I know to earn a 10 minute commission.

Disclosing commissions would just confuse clients. Take MD where commission are all over the place from $17.50 per month from Carefirst to 15% Aetna to 25% Assurant/Golden Rule. A client might come to false conclusion that they are getting a better deal by choosing the plan that pays the agent the least amount. Wrong.

I remember one of my sales managers when I sold cars handling people who came in with the invoice and wanted the car at or below invoice thereby erasing the salesman's commission.

Manager: "The lot's out back. Go pick a car then we'll give you the keys so you can test drive it by yourself. Here's all the paperwork you need to buy the car. Please don't fill it out wrong. After you find and secure financing then come back. But you can't take the car - no tags. Go to MVA and get your own tags, then come back here. Then you can get the keys and drive it to the wash bay. We'll give you soap and rags. After it's clean you can drive it home."

And yes - he actually said that. It was called spinning people off the lot. Basically we had no incentive to sell a car and not make a profit.

 

[somarco]

Some DOI's have e different definition for broker vs agent, but that has to do more with licensure than anything. The basic legal relationship between a carrier and a non-captive agent/broker remains the same.

The relationship changes, regardless of what you call yourself, in a captive situation. There you may have a defined territory, defined clients (a book of business to service), production requirements, etc.

Sometimes a captive can and is covered by the E&O of the carrier. This may, in some cases, minimize the personal liability of the agent, depending on how egregious the act is.

Captive or not, your relationship to the carrier is such that you are an "extension" of that carrier and representations you make to the client, while not binding, can generate a lot of legal fees if you screw up.

 

[Crabcake Johnny]

Commission would some into play if you were sued. Imagine there was a Right Start bonus of $200 per app on top of my 25% commission and that was the only product I recommended. Client ends up with a $40,000 outpatient procedure and hires an attorney.

The very savvy attorney finds out about the bonus and commission and now you have to explain in front of a jury why you recommended that instead of another product that paid less.

 

[James]

No way around it, if you want to sell for any Insurance Carrier you are legally bind to their interest once you pull out an app. if you are captive or independent. Some or most States do have a special license call Insurance Counselor, you work on a fee and basically give advice on Insurance Contracts. I suppose much like an IA or RIA, you don't sell securities but you basically Plan out strategies and implement them and sercurities goes thru your custodial company. I'm not sure if Insurance Counselors sells? Yet in some States such as California you need at least three years of expierence before you submit for such a license, now if any one has more knowledge on this please respond, I've never studied about this and going on vague information.

 

[Crabcake Johnny]

In MD you can be an insurance advisor with 3 years experience and securing a $1,000 bond.


Resident - Insurance Adviser
An applicant for an adviser's life and health license must have at least three (3) years experience in the life and health field of insurance.


An applicant must pass an examination.

Exception:
Examination is not required of a person who:
Has been conferred the CLU designation and is a member in good standing of the American Society of Chartered Life Underwriters and Chartered Financial Consultants; or

Has been conferred the Certified Employee Benefit Specialists designation and is a member in good standing of the International Society of Certified Employee Specialists; or

Has been conferred the Certified Financial Planners Board of Standards; or

Has been conferred the Certified Insurance Counselor designation by the Society of Certified Insurance Counselors (L&H) and is a member in good standing.



An applicant must pass an examination.

Exception:
Examination is not required of a person who:
Is a member in good standing of the Casualty Actuarial Society; or

Has been conferred the CPCU designation by the American Institute for Chartered Property and Casualty Underwriters and is a member in good standing; or

Has been conferred the Certified Insurance Counselor designation by the Society of Certified Insurance Counselors and is a member in good standing.

 

[James]

I'm curious if they sell? I would think the role of an "Advisor" would be neutral in this case?

 

[Crabcake Johnny]

Ethically it negates the clients benefit of having an advisor if that person is making a commish off the products they recommend. That's double-dipping. Heck - so I charge my client $250 for advice - then recommend they buy Assurant for health, Careington for dental and Banner for life? Wow - talk about a payday!!!