I recently received a call on the IIAG Free Legal Service Program that I operate from an agent who was considering establishing a relationship with a business association, for whose members the agent was interested in writing insurance. The agent had developed a special expertise regarding the insurance needs of the business association’s members and wanted to gain access to them through their association.
The business association on the other hand was interested in receiving compensation beyond a mere referral fee for assisting the agent in gaining access to its members. In exchange for that compensation, the association was willing to provide assistance to the agent beyond just giving the agent contact information for its members. Establishing such a relationship with a business group can be a very effective way for an agent or agency to significantly increase its customer base.
The creation of a relationship with a person or entity that is not licensed by the Georgia Insurance Commissioner’s Office raises two significant issues under the Georgia Insurance Code that must be successfully dealt with. First, there is the prohibition on the sharing of commissions with a person or entity that does not have the proper license from the Insurance Commissioner’s Office. Second, there is the prohibition on engaging in activities that constitute the sale, solicitation, or negotiation of an insurance product without the proper license from the Insurance Commissioner’s Office.
The first issue can be resolved by entering into a payment arrangement with the unlicensed business group that is not tied in any way to the amount of commissions received by the agent or agency on insurance business written for the group’s members or even to whether any insurance business is written at all. The agreed on compensation for the performance of services by the business group should be paid regardless of those two factors.
Some people may think that having an employee of the business group get the proper insurance agent’s license and then paying an agreed on share of the commissions received directly to that employee will resolve the first issue. That would work if the employee was going to keep all the commissions paid to him or her. However, that is not likely to the case, and if the agent or agency was or should have been aware that the employee would turn over all or any part of such compensation to their employer, then they may well be in trouble with the Insurance Commissioner’s Office.
However, having an employee of the business group get such a license would resolve the other issue raised by the agent or agency’s relationship with that group. What duties constitute the sale, solicitation, or negotiation of insurance is a gray area and has been the subject of a couple of my earlier blog posts. Having a properly licensed insurance producer, who is employed by the business group, handle all the insurance related duties that the business group is to perform in exchange for its compensation would avoid any potential problem with the Insurance Commissioner’s Office over that issue. In the absence of such a employee, the agent or agency would be exposed to potential liability if the Insurance Commissioner’s Office were to determine that one or more of the duties being performed by the business group could only be performed by a properly licensed insurance agent.