Insurance Agency Sub Producer Agreement
Three main objectives of the agency agreement or brokerage contract are the definition of the effective authority of the manufacturer, the description of the terms of negotiation and the creation of the concept of “undeserved commission or mediation”. Under the latter approach, the manufacturer must return unpaid commissions or brokerage services and the unearned premium reimbursed by the insurer if the policy is terminated before the expiry date and if a gross refund is due to the policyholder. What is the contractual creation is quite important, since most state laws stipulate that a broker deserves full mediation at the investment when his duties essentially end. While a representative`s obligations to the insurer and policyholder persist throughout the insurance period, indicating that compensation is earned over time. Program administrators. Even more robust powers are granted to program managers who submit a fully trained and functional insurance program to the insurer for a given business class (some contractors, some truckers, different types of professional liability, etc.). This program administrator could propose a “turnkey program” in which only one insurer would be required to assume the risk and agree on the terms of trade and compensation. These programs can be an ideal way for an insurer to rapidly expand its premiums to desirable class of policyholders on desirable business lines, provided the insurer exercises appropriate oversight and takes all necessary corrective measures, including price adjustments, revision of risk selection criteria or limitation of the delegated insurance or adjustment authority. It is the “top-up protection,” that is, the protection against the protection of the insurer, that goes against the objection of the MGU to sub-producers or policyholders. But there is no protection for the MGU “from below.” This means that any policyholder can choose any agent, sub-producer, MGU or insurer they want. It may transfer its activities to any intermediary of an insurer by executing a letter with the “Broker of Record” which appoints the new manufacturer as the policyholder`s representative in its dealings with an insurer.
In addition, the sub-producer may keep his trade and producer relations book with any other MGU or insurer he chooses without the agreement with the MGU resulting in contractual restrictions on those rights. The placement generally requires the SLB to execute an “affidavit of unavailability” attesting that it has conducted a thorough search for coverage with licensed insurers – generally proven by receiving letters of decline from three licensed insurers. Normally, the government has a “surplus line score” as a doorman for these investments. The SLB places the insurance with an excess line insurer, collects and pays the premium, also collects from the policyholder the tax on excess premiums collected by the state (about 4%, which generally corresponds to the premium rate imposed by the state on the premiums of licensed insurers) and presents the insurance under oath of unavailability and the premium tax to the crowning agency over surpluses. These savings suggest that no program administrator would voluntarily assume contractual responsibility for adverse outcomes – even if it can be converted to such liability. A MGU or program administrator would probably need professional liability insurance to cover the risk of being an unprofitable insurer. Producers. An agent generally represented the insurer, had a formal agency agreement, obtained limited power to rate classification, offer coverage and commitment (contract formation) and won his commission over the duration of the policy.