The sales role is the lifeblood of insurance, and with a complex pipeline of agencies, agents, brokers, etc., carriers and MGAs can understandably be confused by how to manage these varied relationships.
It’s easy to treat all brokers as agents, simply defaulting into one mode of operation for everyone at the producer level. After all, in most states, carriers and MGAs are required to validate licensing for anyone in the sales pipeline for each sale, period. Before you fall into this trap, though, please recognize that the broker relationship requires nuance, a nuance that varies based on what state you’re talking about, and what their role is.
Before we get started, let’s be clear: We’re tragic insurance nerds on the AgentSync content team, but we’re not lawyers, we’re not your in-house compliance, and we’re not responsible for you doing your due diligence. So consider yourself reminded that you’re on the hook for following the specific regulations of your region.
We’ve written before about some of the distinctions in industry jargon regarding broker, agent, and producer, so if you need a more in-depth refresher, catch up there. The quick and dirty definition: Brokers act on behalf of the client, agents are understood to act on behalf of the insurance carrier.
Yet, most states no longer specifically license brokers. They issue general producer licenses, and the role of broker gets a little complicated from there.
Most states have a license for surplus brokers, or motor vehicle brokers, or bail bond brokers, or viatical brokers, etc. It’s critical to understand that, typically, in these contexts, the term “broker” is synonymous with agent. These brokers are not necessarily working exclusively on behalf of the client, it’s just a happenstance of nomenclature.
Since there are several broker licenses that don’t fit what the industry commonly accepts as a broker role, it’s only fair that there are also licensed professionals who are not called brokers but who are acting as brokers.
Some states call brokers “producers acting as brokers,” such as Alabama, although Alabama producers acting as brokers are only required to hold a producer license. Additionally, a producer acting as a broker can’t be appointed in ‘Bama.
Other states, like Georgia and North Dakota, call brokers “counselors,” although their treatment and licensing these roles are not identical. And, while Kansas law includes definitions to distinguish between these roles, it includes language that explains its regulations use “broker” and “agent” interchangeably and are regulated the same:
“For the purposes of the uniform agents licensing act, whenever the terms ‘agent’ or ‘broker’ appear in chapter 40 of the Kansas Statutes Annotated, and amendments thereto, each term means insurance agent unless the context requires otherwise. ‘Insurance agent’ also includes the terms ‘insurance producer’ or ‘producer.’”
In most states, brokers are generally understood to be licensed producers who are not appointed by carriers or MGAs at all. Most states forbid anyone acting as a broker from holding an appointment.
This is, of course, complicated by states such as Florida and Kansas that require all licensed producers to hold an appointment to maintain valid licenses. Kansas, as covered above, just deems brokers and agents to be interchangeable and requires them to be appointed for any business they solicit, negotiate, etc.
Despite requiring appointments for all licensed producers, Florida takes a different approach than Kansas. While the Florida Department of Financial Services Bureau of Licensing said “Florida does not differentiate between brokers and producers,” the state allows agents to have an “unaffiliated” status if they are “self-appointed.” In this capacity, Florida recognizes that self-appointed agents are acting as independent insurance consultants – they can’t have an affiliation or appointment with any other agency or carrier. Further, they are forbidden from receiving any commissions or incentives from the carriers on products they negotiate during the period they are unaffiliated.
Georgia, for instance, requires “counselors” (read: brokers) to have five years of experience as agents before they can hang their shingle as a counselor, and they can’t hold any carrier appointments to be deemed brokers.
Alaska doesn’t require carriers to submit appointments, period, so broker regulation is a little less tricky there. However, Alaska requires brokers to maintain paperwork that, in essence, lists their clients as holding their “appointments.”
In summary: All of this variation in state regulation causes confusion among brokers and carriers (as well as MGAs that have taken on the duty to appoint as part of their carrier contract). Ethically, most brokers have a duty to keep space between themselves and the carriers they work with. And legally, most states require insurance producers who identify as brokers to not have carrier appointments. So the few states that require brokers to be appointed, regardless, can really muddy the waters.
Should a broker get paid a commission by the insurance carrier that underwrites the contract? Should their client pay them a service fee? How about both? The answer doesn’t have consensus for the industry – states take different approaches to this issue such that it was a hot topic at the 2021 Securities and Insurance Licensing Association’s conference. (If you’re interested, scroll in the link to “Confused? Can you collect a fee and a commission? Or a fee in lieu of a commission?”)
After asking the question of most states (not all responded), they found the only real point of agreement was that insurance producers should not ever get paid twice for the same thing. But even that had some nuance: Some states might allow, for instance, a broker to collect a commission from a carrier for selling a certain product, while also collecting a fee from the client for administrative services and consulting on their broader insurance setup. Other states, like Florida (mentioned above), are unequivocal that a self-appointed agent acting as an independent consultant can’t receive any compensation from agencies or carriers regarding the coverage they negotiate.
The inconsistency is the point when it comes to our cautions about broker relationship management. If you work with brokers, do some research and be sure you know where you stand as far as regulation in each applicable state for both appointment procedures and compensation models. And, as a pro-tip, be sure they understand, as well. Insurance brokers who understand how their state of residence operates may be confused if you appoint (or don’t appoint) them in a state that has different regulations. So being upfront beforehand is key in maintaining a successful and mutually beneficial relationship (not just with brokers but it applies here, too).
If you’re interested in simplifying the process of verifying licenses and keeping track of who is doing your business – whether they need an appointment or not – check out what AgentSync can do for you.