Retail insurance agents in Texas are allowed to charge certain fees in addition to a commission in relation to selling an insurance policy, but those fees must be disclosed to the customer.
“Texas is one of the few states that allow the agent to collect a commission and charge a fee,” according to Lee Loftis, governmental affairs director for the Independent Insurance Agents of Texas.
The fees can be in lieu of or in addition to commissions, but the Texas Department of Insurance requires that fees be disclosed to the customer — and the earlier the disclosure in the sales process, the better.
“If you’re going to charge a fee, discuss that fee with your customer upfront before you do so,” said IIAT President David VanDelinder during a session that he and Loftis held at the IIAT’s annual convention in San Antonio in June. “That’s the safest way of doing that.”
There are four common fees that agents are allowed to charge their customers and they “would and should require disclosure to your customer,” VanDelinder said.
The four commonly allowed fees for retail agents are:
- Inspection fee — compensation for the examination or inspection of a risk as part of the underwriting process.
- Membership dues fee — reimbursement for a membership in order to purchase a policy from a carrier. The Farm Bureau, for instance, charges a membership fee within the premium fee, VanDelinder said.
- Service fees — reimbursement for actual expenses, such as the production of photographs or other documents.
- Agent fee — a charge that relates to the sale of the policy, such as taking it to a market or an application fee.
A policy fee, which is normally related to a managing general agent relationship, is generally disclosed by the carrier, VanDelinder said. Disclosure for that fee is not usually the responsibility of the agent.
TDI does not have a particular form to use for fee disclosure, nor does it require that disclosure be in writing, but the wise agent would do so.
Loftis and VanDelinder said the IIAT has designed a disclosure form for agents to use that shows fees and/or commission on the account.
“It allows for the date and more importantly the signature of your insureds that you had that discussion,” Loftis said.
The agent fee is the most common fee that agents charge their customers.
“Anything that relates to the sale or marketing of that policy is within that broad category of agent fee,” VanDelinder said.
Agents may charge a fee for taking a policy to a surplus lines market and some agents may charge an application fee, he said. But there are abuses and agents should be careful.
“TDI is looking at this closely,” he said. “They’re not in favor of gouging consumers for this cost, but if it’s a legitimate additional expense you incurred to market or place this coverage or complete the application process I think that’s a legitimate reason for charging a fee.”
Fees also don’t have to be charged to every customer or in connection with every carrier, VanDelinder said.
“Some people are so difficult you want to charge them a fee. … There’s nothing in the law to keep you from doing that as long as you disclose it,” he said.
Agents do not have to pay taxes on a fee as long as it falls within the definition of an agent fee under Chapter 4005.001 of the state Insurance Code and only when working with admitted insurers.
“For an agency, that income is not subject to sales tax,” VanDelinder said. “We have a comptroller’s decision that’s some 30 years old now about this. The comptroller says as long as what you’re charging relates to your work as an agent then it’s not subject to sales tax because it is a service.”