Insurance Community University Broker’s Fees 1  The webinar will begin shortly.  There is no audio at this time.  This presentation is being recorded for your viewing pleasure at a future date.  The attendance and proctor forms are available under ‘Materials’ in the Webinar’s Console to the right.  The PowerPoint presentation is also available under ‘Materials’.  You will receive the course number for your state near the end of class.  Use the ‘chat’ window for questions on the content.  100% Participation in Polling Questions is required to receive credit for this class. Even if you do not intend to receive credit, please participate in the polls. 1

Insurance Community University Welcome to your Insurance Community University  All of you are currently on mute  Un-mute your own system  Telephone Option  Select Telephone on your screen  Dial in the PIN number so that your number becomes active  Microphone and/or Speaker Option  You can use this option if you have a headset that you use with your computer 2 Audio 2

Insurance Community University Participation & Chat Window  You will receive information from the monitor via the ‘Chat’ window.  Please locate window in the control panel  Q & A is welcomed during the presentation and at the end of the presentation  You will find the question box on your control panel  Write your question in that box and send it to the presenter/organizer  The presenter will take those  questions in the order submitted 33

Insurance Community University DOI Requirements  When you see a slide with the hand up symbol, touch the “hand” icon on your control panel  Click ONCE only  If you do not raise your hand, the monitor will be in contact with you in the chat box  If you are in a group, the designated proctor is responsible to make certain you are all in attendance at all times 4 = Hand is down 4

Insurance Community University Polling  Throughout the class we will be conducting periodic polls  We need 100% participation on the polls  The polls are intended to check participation but also to create discussion topics throughout the presentation 55

Insurance Community University Forms To Complete for CE  After class ends  Return attendance form  Proctors – return your form to address  address is in chat window or in sent to you today 66

Insurance Community University DOI Requirements  We will file your hours with the DOI after the completion of this webinar and we have received the attendance form.  You have 48 hours to return the form  You will be sent a Certificate of Attendance/Completion by . Please retain this for your records for five years. 77

Insurance Community University Internet Disruption  If the presenter looses internet connection STAY ON THE LINE  The administrators will communicate with you 8

Insurance Community University Internet Failure  If the internet fails and all participants are kicked off line by Go To Training or other source then the seminar will be terminated  You will receive instructions by as to how we will proceed  This is a precautionary notice, only 9

Insurance Community University This class is being recorded  Available in the University  This course is approved for CE in several states. State approval numbers will be provided at the end of class. 10

Insurance Community University Disclaimer Insurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. This instructional materials provided by Insight is intended as a general guideline and any interpretations provided by the instructor or the creator(s) of this material do not modify or revise insurance policy language. In providing these materials, the authors assume neither liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided. Copyright 2010 – 2014 All Rights Reserved 11

Insurance Community University Your Instructor Today Marjorie L. Segale, AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISR Insurance Community Center, LLC Director of Education President: Segale Consulting

Insurance Community University Objectives 1.Agent / Broker / Producer – difference? 2.Background on Brokers Fees 3.Can Agents Charge Fees? 4.Can Brokers Charge Fees? 13

Insurance Community University Polling Question #1 14

Insurance Community University Licensing – Washington State  Changed effective from defined agent, broker, solicitor, service representatives to producer  RCW  (6) “Insurance producer” means a person required to be licensed under the laws of this state to sell, solicit or negotiate insurance. “Insurance producer” does not include title insurance agents as defined in subsection (16) of this section or surplus lines brokers licensed under chapter RCW. 15

Insurance Community University Licensing – Washington State  RCW  (1) A person shall not sell, solicit, or negotiate insurance in this state for any line or lines of insurance unless the person is licensed for the line of authority in accordance with this chapter. 16

Insurance Community University California State  (b) If a transaction involves both a retail broker and a wholesale intermediary broker, the wholesale intermediary broker shall be deemed to have satisfied its disclosure obligations under this section if it provides written disclosure to the retail broker of the criteria set forth in paragraphs (2), (3) and (4) of subdivision (a). 17

Insurance Community University California State  (c) The presumption of broker status is rebutted as to any transaction in the admitted market in which any of the following is present:  (1) The licensee is appointed, pursuant to Section

Insurance Community University California State  (2) The licensee has a written agreement with an insurer containing express terms that authorize the licensee to obligate the insurer without first obtaining notification from the insurer that the insurer has accepted, conditionally or unconditionally, the submitted risk.  (3) The licensee is authorized, pursuant to a written agreement with an insurer, to pay claims on behalf of the insurer. 19

Insurance Community University California State  (d) In all other cases, the presumption of broker status is rebutted based on the totality of the circumstances indicating that the broker-agent is acting on behalf of the insurer. 20

Insurance Community University California State  (e) For purposes of this section, “totality of the circumstances” means evidence indicating whether a broker-agent was acting on behalf of the insurer or was acting on behalf of a third person. In determining the totality of circumstances, all relevant facts and circumstances shall be reviewed and the review is not limited to any particular fact or factors and this section does not require that any particular circumstance receive greater or lesser weight. 21

Insurance Community University California State  Section A person acting as an insurance broker may, on behalf of an insurance company, collect and transmit premium or return premium and deliver policies and other documents evidencing insurance. Performance of those functions shall not be construed for any purpose to mean that the person is an insurance agent. 22

Insurance Community University Krumme v. Mercury Insurance Company, et al  The foregoing language that is now part of the California Insurance Code is a result of this case from 2004  Previously – the terms broker and agent were one line definitions in the CIC  In 1990 the statute added the term broker-agent, which defined “fire and casualty licensee”  The case involved brokers who “are operating as de facto agents” but were being advertised by Mercury as independent. 23

Insurance Community University And Then Came Eliot Spitzer  Also in 2004, Eliot Spitzer, then the New York State Attorney General who went after the “big three” brokers – Marsh, AON and Willis for receiving “contingent commission” 24

Insurance Community University And Then Came Eliot Spitzer  This was a an action taken by him after receiving a letter from the Washington Legal Foundation stating that the insurance industry practice of insurers paying certain fees to insurance brokers constituted a conflict of interest and a potential violation of a broker’s fiduciary duty to their client. 25

Insurance Community University And Then Came Eliot Spitzer  On , Spitzer filed a lawsuit against Marsh alleging statutory claims of fraud, securities fraud, state anti-trust violations and common law claims for fraud and unjust enrichment. He also included AIG, ACE and Hartford as defendants. 26

Insurance Community University And Then Came Eliot Spitzer  Spitzer was alleging that the broker was “steering” business to insurance companies that were willing to pay for large volume of business. This led to “bid rigging” and market manipulation.  Many states started piling on, including California 27

Insurance Community University The Result  Required disclosures to the insurance buyer 28

Insurance Community University Polling Question #2 29

Insurance Community University Background on Broker’s Fees 30

Insurance Community University Background  Broker’s Fees have been historically charged to a client for several reasons:  Placing business with an insurance company without an appointment  Commission is too low and the workload too high  The account has been bid net of commission  Additional duties beyond the normal transacting of insurance 31

Insurance Community University California State  California  Must have a signed disclosure statement when placing personal auto insurance  All fees must be disclosed  If commissions will be earned (the fact, not the amount) 32

Insurance Community University 33 California Agent Fees  No fees for transaction of insurance  Can charge fees for work that requires significant time over and above transaction of insurance  Claims analysis  Loss control consultation  Comprehensive Risk Analysis of operations, property, or activities  Photos of personal property / business personal property

Insurance Community University 34 California Broker’s Fee Disclosures  Can be for transaction of insurance  Can be any amount  Personal auto – disclose in writing and signed by client

Insurance Community University Washington State  Not required if the only compensation the producer receives is the commission from the insurance company  Used when receiving commission and charging a fee  Provides optional disclosures  Producer signs  Insured signs 35

Insurance Community University Washington State  Part 1 – only charging a fee  Part 2 – receiving commission and charging a fee  Part 3 – receiving additional (contingent) commissions 36

Insurance Community University Advising the Client  Most states have statutes in place that require notification to the client in the event additional compensation is charged to the client  Varies significantly state to state 37

Insurance Community University Advising the Client  Majority of brokers use a disclosure of fees and commissions that is included with every proposal and/or renewal document for every client, whether or not additional fees are charged  The disclosure needs to be broad enough to encompass all of the different statutory requirements in all states where business is being written 38

Insurance Community University What is Prudent Disclosure?  Any and all fees  Contingent commissions  Additional compensation from wholesaler and/or company  Additional compensation from premium finance companies 39

Insurance Community University How Much?  There are very few statutes anywhere on this  A prudent person would place it as a reasonable amount  So what is reasonable?  $ fee on an $800 policy is NOT reasonable  Often dictated by the amount a client will pay  10-15% is a typical amount of either fee, commission or combination 40

Insurance Community University Polling Question #3 41

Insurance Community University 42 Fee / Commission / Disclosure Best Practices  Full disclosure prominently displayed on every client proposal  If no proposal provided to client, incorporate into your policy transmittal cover letter  Displayed on agency/brokerage website

Insurance Community University Fee / Commission / Disclosure Best Practices  If acting as an agent, only charge fees for non-transaction related services  Disclose AND perform those services  If acting as a broker, charge a reasonable fee and disclose it  In CA, must disclose in writing a fee added to an auto policy and client must sign  Cannot charge a fee for Assigned Risk or FAIR Plan 43

Insurance Community University Summary  Follow the state statute where you place business  Use a well-drafted disclosure of commissions, fees and contingent commissions with every client 44

Insurance Community University Upcoming Classes 3/25Business Income – 5 Key Issues You Must Understand 4/3Business Income – Considerations in Limit Setting 4/8Flood Insurance 4/105 Key Issues You Must Know About Workers Compensation Insurance 45