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INSURERS: Broker Fee Regulations Summary

SUMMARY OF THE NEW
DEPARTMENT OF INSURANCE
BROKER FEE REGULATIONS

The new Department of Insurance broker fee regulations include eight major sections. Those sections, and the most important provisions of each section, are described below.

Warning: The below descriptions oversimplify the actual requirements of the regulations. Brokers are responsible for complying with the actual regulations, not merely this summary. Brokers must therefor read and understand the actual regulations.

1. APPLICABILITY
  • The regulations apply only to personal lines.
  • The regulations apply to retailers and wholesalers, though wholesalers are exempt from several requirements.
2. DEFINITIONS
  • The regulations define the term "broker fee."
3. REQUIREMENTS
In order to charge a broker fee, a broker must meet the following requirements:
  • The consumer agrees to the fee in advance, after full disclosure.
  • The fee is not being charged on a CAARP, FAIR Plan, or "Low Cost Auto" policy.
  • The broker is not an appointed agent of the insurer with which the coverage is or will be placed.
  • The broker provides the consumer with a specific disclosure form.
  • The consumer and broker sign a broker fee agreement containing certain standard information.
  • The broker has an in-force broker bond on file with the Department.
  • The broker discloses the existence of the broker fee at the time of the initial premium quotation.
4. DISCLOSURE AND AGREEMENT
  • The standard disclosure and agreement (Appendices A and B of the regulations) must be printed in English and in any other language principally used by the broker to advertise, solicit or negotiate the sale and purchase of insurance.
  • The disclosure and agreement, signed or initialed by the consumer, must be kept for eighteen months after policy expiration.
5. UNFAIR AND DECEPTIVE ACTS AND PRACTICES
The regulations deem the following acts and practices to be unfair and/or deceptive:
  • Failing to provide the consumer with the standard disclosure form.
  • Failing to complete all relevant portions of the broker fee agreement before giving the agreement to the consumer for review.
  • Failing to provide the consumer with a completed copy of the broker fee agreement, signed by the consumer and the broker, as soon as practicable.
  • Failing to place a consumer with an insurer with which the broker is appointed as an agent, solely to charge a broker fee.
  • Charging or attempting to charge a broker fee for a renewal, endorsement, or other service, without having disclosed those fees in the broker fee agreement.
  • Failing promptly to refund an entire broker fee if the broker acted incompetently or dishonestly resulting in financial loss to the consumer, or if the broker did any of the following regardless of financial loss:
(1) Negligently or intentionally misquoted the premium to the consumer, resulting in an uprate
(2) Permitted an unlicensed employee to transact insurance for, or on behalf of, the consumer paying the fee, where the Insurance Code required that employee to be licensed.
(3) Failed to refund unearned premium as required by Insurance Code section 393(a), except where permitted by Insurance Code sections 393(b) or 1735.5.
(4) Negligently or intentionally failed to place the consumer's coverage within the time period indicated to the consumer or within a timely manner.
(5) Negligently or intentionally failed to remit a consumer's premium payment to an insurer or general agent, resulting in policy cancellation.
(6) Failed to disclose the existence of the insurer's periodic payment plan, if one was available.
(7) Failed to refund unearned commission in the broker's possession to the person to whom it is owed within 30 days of the unearned commission being generated due to amendment or cessation of coverage.
(8) Failed to remit or apply to another policy a premium finance company credit owed to the consumer/borrower within 15 days or receiving the credit from the premium finance company.
6. DISCIPLINE
  • Violation of the regulations is grounds to suspend or revoke a license.
  • The Commissioner may impose discipline for conduct or nonfeasance not specifically addressed in the regulations.
7. THE STANDARD BROKER FEE DISCLOSURE
The standard broker fee disclosure (Appendix A of the regulations) must always be given to a consumer. The disclosure contains the following advice, and more.
  • This fee is not set by law, and may be negotiable between the consumer and the broker.
  • It is illegal or improper for an insurance broker to charge a fee for placing coverage solely with CAARP or the FAIR Plan.
  • Consumers may be entitled to a full refund of a broker fee if the broker acted incompetently or dishonestly. Unresolved disputes over non-refunded broker fees can be forwarded to the Department of Insurance for review.
  • Consumers are entitled to obtain and keep a completed copy of the disclosure and any broker fee agreement they sign.
  • The broker may receive commission from insurance companies for placing the consumer's insurance. The commission is in addition to any broker fee.
  • Consumers must receive a copy of a premium finance disclosure and agreement. Consumers should obtain and read those documents before signing a premium finance agreement.
  • Consumers should ask the broker if the insurer offers its own installment payment plan. Insurer installment plans are often cheaper than premium financing through a separate premium finance company.
  • If the broker is placing automobile coverage, the broker must provide the consumer with a copy of the current Department of Insurance pamphlet Automobile Insurance. If the broker is placing residential coverage, the broker must provide the consumer with a copy of the current Department of Insurance pamphlet Residential Insurance. By signing the disclosure, the consumer acknowledges receipt of the appropriate pamphlet(s).   

Note:  The Department has placed a PDF version of the pamphlets on its website. Producers can download the pamphlets off of the website and print or photocopy their own supply for distribution to consumers. The Department will not be able to provide producers with a supply of the pamphlets.

8. THE STANDARD BROKER FEE AGREEMENT
The standard agreement (Appendix B of the regulations) does not need to be used verbatim. It can be modified, as long as the modified agreement contains all the provisions of the standard agreement, and no conflicting provision.
  • The consumer appoints the broker as the consumer's insurance broker of record.
  • The broker fee agreement continues until terminated by either party.
  • The broker agrees to represent the consumer honestly and competently.
  • Indicates the amount of the broker fee, and whether it is refundable.
  • Broker may in the future charge consumer, and consumer agrees to pay, additional specified fees for services specifically listed on the agreement.
  • Lists the nature and amount of all fees known to the broker that will be charged by persons other than the broker or the insurance company.
  • Provides the Department of Insurance consumer assistance phone number.
  • Requires the broker and consumer to sign and date the agreement.

Last Revised - November 16, 2000
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