Surplus Broker Theft

[Steveinsure]

A surplus lines broker took our premium, but didn't pay the carrier. DOI is after him. How do you protect yourselves from surplus lines premium theft when you have no direct contact with the carrier? We've decided to only deal with largest firms, but smaller firms often have specialty niches that are hard to match. Your opinions??

[PropCasBroker]

In order to make sure that your broker placed the business , and paid the carrier, you can request that they supply you with the following two evidences.
1. the binder produced by the carrier. Not the binder the wholesaler produces for you on thier letterhead.
2. You can request evidence directly from the carrier to ensure that payment was made.

A reputable wholesaler will have no problem providing both of the above for you. Dealing with the National Wholesalers is great, but when you do have to deal with smaller , mor niche markets, you can request the above.

[dddugdale]

It's not just "surplus lines" where you can have this problem, and please don't paint all "surplus lines brokers" with the same tar brush. I've worked for over 20 years for a retail agency that handles a LOT of "surplus lines" and "niche" business, and it's not the "surplus lines" you have a problem with, it's your agent. He/she could also have failed to pay the company for your "standard" policy, and the same thing would have happened.

The reply from PropCasBroker is correct, you can request, and should receive, these items. Explain why you're asking for them. Any reputable agent will be happy to provide you with documentation. You had the misfortune to deal with someone who gives all of us a very bad name, and I'm sorry for your experience. Please don't give up, there are plenty of good guys, large and small, out there.

[kevinraz]

I'm not sure on this but would bonding make any difference?

I never handled any contracts with our E&S brokers back in my agency days...but would having them bonded for a certain amount make sense? If they fail to pay your premium to the carrier for whatever reason (theft, go out of business, whatever) you are indemnified.

You mentioned the broker person but not the firm - are they stepping up & paying the premium? I would hope so. They should have crime coverage. Previous response about binder from the carrier is good but I seem to remember that all our binders came from were from the brokerage.

BTW, best E&S brokerage I ever worked with was First Western in Des Moines. Great staff!

[FFA]

YIKES!!! Did he just take the money and run?

I had a problem with the one Underwriter not actually adding Ai endorsements but cashing the checks. Relation ship ended very badly.

[St.CaptiveGuy]

Surplus Lines Brokers are required to post a $50,000 bond in California...

[SFOInsuranceLady]

Steve,
So sorry to hear about this.....we always hear about agents but never the Surplus Lines Brokers! All I can think of would be for you to deal with Brokers that have been established and have a good track record (I am sure your State's DOI can help you with this information). Check with fellow agents in your area and get referrals. No need to sour on all the SLB's just because of this one. I do know that SLB's have to be bonded in their State. You may want to check on this first. The only other alternative would be to make sure your E & O is current and that you carry minimum limits of $1M. Good Luck!

[LadyBroker]

Requesting a Binder that is from the Company and not the wholesaler is no evidence that the premium was paid, the binders are produced immediately, and the carrier typically is not expecting payment for 30 days.

I am a wholesale broker, and probably 90% of my policies are financed, so that sort of fiduciary event never really occurred to me, but I can see a wholesale broker going out of trust, just like retail brokers have done. I am sorry for you, it's really not indicative of our niche as a whole.

[Steveinsure]

Thanks for the responses. I KNOW most Surplus Lines and Retail brokers are honest, and it's the few who give us all a bad name. The $50k bond won't cover missing funds from all brokers, (we're out $35k). The DOI has closed him down and will prosecute, but that doesn't get us restitution. Since most E&S carriers are paid on the broker statement, retail agents typically don't have access to the carrier accounting department. Do any of you call and confirm payment received?

It seems most E&O policies do NOT cover misappropriation of funds, neither ours nor the E&S broker. In this case a 4 person brokerage with the principal responsible leaves little recourse. Dealing with larger firms may provide more resources to chase if an indvidual goes bad on you. On the other hand, small firm sometimes have unique capabilities and better service. Maybe just accept the risk as the cost of doing business?

[brokerdave]

Steve
Sorry to hear about your problem but I hope that you establish better criteria for vetting potential Wholesalers than "size". Should your prospects choose to work only with Agencies larger than your firm, you'll understand.

Dave