Broker Fee

[InsAgentSF]

Have you heard that CA DOI wants to prohibit brokers to charge BF?

[Big Dog]

In the past, there were agents (mostly ones like Survival Insurance, Auto Insurance Specialists) that would charge a broker fee on the policy. They were double-dipping because they also got commission. The code strictly prohibits getting both commission and a broker fee.

If you're agency is providing additional service (loss control, claims review, etc) that isn't contemplated in the commission you receive, you can charge a separate fee as long as you have a written agreement with the client (i.e. cover your ASSets and make sure the client is aware that the fee is in addition to any commissions received).

[Rob]

The above is correct for agency contracts, however it does not apply to a broker acting in the capacity of a broker for commercial lines, although the DOI may be trying to change that as well with their recent response to a recent issue (see below Superior Access and American Reliable). It boils down to the contractual capacity in which you are acting.

The whole broker fee issue with the DOI originally stemmed from personal lines non-standard auto brokers charging a fee. Some would charge exhorbatant fees for simply writing an auto policy. Some, if they had an agency appointment, were charging fees as well. The code does allow a broker fee to be charged if there is a broker contract, it is disclosed, and also allows the fee to be collected in addition to commission. The DOI came out with regulations and a disclosure form that applied to personal lines insurance back in 1997.

I believe the matter was brought up again due to Superior Access charging fees on American Reliable policies, and it is alleged that they were acting in the capacity of an agent for American Reliable. And so the matter has now been brought up again. the IBA website has information on how they recently responded.

[rodgwag]

The code strictly prohibits getting both commission and a broker fee.

This is not a true statement.

Survival offices still average $250-$350 broker fee per policy and sometimes more. Eastwood charges $200 maximum per policy with the same due on endorsements. AIS charges a standard $100 for the first car and $50 for each additional car for the first six months. It is 100% legal in the state of California to get commission and broker fee if you are a broker representing the client and the agreement between your brokerage and the insurance company is a broker agreement . If you have an agency agreement you can not charge a broker fee. As long as California insurance laws stay as loose as they are, broker fee will always be legal. Charge backs for personal lines are too common to out law the fees.

[Rob]

Survival offices still average $250-$350 broker fee per policy and sometimes more. Eastwood charges $200 maximum per policy with the same due on endorsements. AIS charges a standard $100 for the first car and $50 for each additional car for the first six months. It is 100% legal in the state of California to get commission and Broker fee if you are a broker representing the client. As long as California insurance laws stay as loose as they are, broker fee will always be legal. Charge backs for personal lines are too common to out law the fees.

That sounds about right except I can't believe they are charging for endorsements!

The issue came up again in the case of Krumme v Mercury whereby the plaintiffs alleged that the insurer wrongfully permitted its agents to charge fees by mischaracterizing them as brokers. The line of reasoning being that the "brokers" are actually de facto agents, in part because they have binding authority.

In response to this case, Progressive worked around this issue by offering its agents/brokers a choice to be appointed as an agent and giving binding authority but disallowing broker fees or by appointing you as a broker, but not giving binding authority and allowing fees.

[rodgwag]

Progressive is the front runner in a trend that larger companies will probably follow in the near future. As for me, I would like to see the fees go away after we get tougher insurance laws. Until then, charge your little hearts out.

[Rob]

Progressive is the front runner in a trend that larger companies will probably follow in the near future. As for me, I would like to see the fees go away after we get tougher insurance laws. Until then, charge your little hearts out.

Well, speaking for myself, I don't charge fees on personal lines, auto, home or otherwise. I also selected the agents contract with Progressive and don't charge fees on commercial auto.

However, I don't agree with the call for ending fees on a true broker. On commercial business where a true broker consults with the customer, discuss exposures, prepare a submission which goes out to multiple carriers (not directly, but through intermediaries.....i.e. a true broker), discusses quotes and reviews policy forms with customer, etc, I feel that warrants the charging of a reasonable broker fee.

[InsAgentSF]

Well, I have always charged fees on any policy, unless it's a direct appointment (like Hartford) and the company prohibits charging those fees. And ethically and morally i see nothing wrong in charging those fees. My time is expensive, and it takes a lot of time to service these accounts.

[Rob]

Ethically and morally I see nothing wrong with charging fees on personal lines either as long as a) it is not an agency appointment and b) the DOI rules are followed. I can't believe with Garemendi gone that the DOI is still going after this. I always thought it was a Garemendi thing.

[analie]

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[houstonagent]

time is money and fees are ok in my book.Just not over the head fees. Hope it never get to that point here in Texas

[SDbroker]

Calif. Office of Administrative Law Repeals DOI Agent/Broker "Precedential Decision"
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The California Department of Insurance (CDI) has been handed a procedural setback in its effort to crack down on agents charging broker fees. This week, the California Office of Administrative Law (OAL) determined that former Insurance Commissioner John Garamendi acted illegally last year when he deemed a settlement with an insurer accused of allowing its agents to improperly charge broker fees to insureds a precedential decision, giving the settlement the force of law.

CDI has been examining the practice of agents charging broker fees for several years, adopting regulations in 2000 that limit their use only to brokers who are not appointed agents of the insurer with which coverage is placed and who disclose the fee to prospective insureds when coverage is quoted.

In a settlement accepted by American Reliable Insurance Co. last June, Garamendi ruled that Superior Access Insurance Services acted as American Reliable's agent and thus improperly collected broker fees from American Reliable policyholders. Garamendi also deemed the broker fees excessive premium in violation of Proposition 103.

"Because Superior Access charged fees while other American Reliable agents did not, for policies subject to the same rate, rating plan or rating system, American Reliable insureds were subjected to unfair rate discrimination, in violation of section 1861.05(a). American Reliable willfully or negligently permitted the rate discrimination to occur," CDI charged in the settlement.

The settlement with American Reliable delineated 11 situations in which a producer is deemed to be acting as an agent of an insurer under Insurance Code section 1731 and thus barred from charging insureds broker fees, including when "the relationship between the producer and the insurer is functionally indistinguishable from the relationship between the insurer and its appointed agents."

The settlement also incorporated common law, stating producers deemed to be acting as agents rather than brokers pursuant to judicial rulings are not permitted to charge broker fees. In 2002, a San Francisco Superior Court ruled in Krumme v. Mercury Insurance Co. that brokers for Mercury Insurance Co. acted as de facto agents of Mercury and thus could not charge broker fees. The court rejected Mercury's contention that the Legislature had consolidated the broker-agent license and eliminated the distinction between brokers and agents. The California Court of Appeal upheld the ruling.

The Insurance Brokers and Agents of the West challenged the adoption of the American Reliable settlement as a precedential decision in a petition to OAL, alleging Garamendi was attempting to adopt an "underground" regulation, circumventing the requirements of the Administrative Procedures Act (APA). The APA requires formal protocols for the adoption of a regulation, including a notice period and public hearings. Another producer group, the Alliance of Insurance Agents and Brokers filed a letter in support of the petition.

IBA West argued that while litigated decisions by the insurance commissioner may be adopted as a precedential decision, mere settlements cannot. IBA West warned that allowing CDI to adopt precedential decisions arising out of settlements is prone to agency abuse, because a regulated entity is not on an equal negotiating footing with regulators who possess the power to put regulated entities out of business.

"He [Garamendi] was effectively holding a gun to a licensee's head behind closed doors, forcing it to agree to a lengthy 'manifesto' written by his lawyers, and then attempted to use a relatively obscure and limited provision in the Government Code to give these opinions the force of law," said IBA West General Counsel Steve Young.

Young warned if CDI's use of the procedure was not overruled, it could be used against licensees "on any subject in which the Department of Insurance desired to make new law "" without having to persuade the Legislature and governor of the merit of its proposals, or having to comply with the minimum due process requirements of the California Administrative Procedures Act in promulgating regulations."

The OAL agreed, citing a 1999 report by the California Law Revision Commission. "As the Law Revision Commission comments make clear, there are two ways for agencies to make new law or policy: 1) APA rulemaking or 2) administrative adjudication which has been designed a precedential decision. The Department did not employ either method."

OAL concluded that if it sanctioned CDI's view that a non-adjudicated settlement reached by compromise with a licensee could be transformed into a precedential decision, "the result would not only create a third rulemaking method not sanctioned by the Legislature, but would also effectively eviscerate the rulemaking portion of the APA."

Young said if CDI's action had been upheld by OAL, "the APA would in practical effect have been completely nullified "" and the commissioner could have exercised near dictatorial powers to create and enforce new regulatory requirements."

Bryon Tucker, CDI deputy commissioner for communications, said CDI is reviewing OAL's determination to determine whether to appeal it to the courts or pursue formal rulemaking.

The Alliance of Insurance Agents and Brokers' Executive Director David Nielson called OAL's ruling, "a major victory for all California insurance producers," but predicted "that the battle to protect the broker-carrier relationship is not over."

[jackweho]

Thinking of expanding P&C business to Arizona, Texas, Florida and South Carolina.
Have called two State Insurance Departments (AZ & TX) and get conflicting answers.
Is anyone aware of permission to charge broker fees' regulations and/or restrictions in those states? Have always used disclosure form prior to binding any coverage, so that is not an issue.
If there is any website that would have the particulars, would appreciate that as well.