A recent Bulletin from the Insurance Commissioner’s Office has caused me to reconsider a blog post from almost five years ago. In the Bulletin, the Insurance Commissioner reminded brokers who handle excess and surplus lines policies that they cannot collect sums for those policies in excess of the “premiums and charges for insurance specified by the insurer in the insurance policy.” This prohibition is found in the Unfair Trade Practices section of the Georgia Insurance Code. That section contains a specific reference to excess and surplus lines policies and states “the premiums and charges for insurance. . . shall not be in excess of or less than those specified in the policy.”
In my previous blog post, I concluded that a broker who had no contact with the insured and was acting purely as an intermediary between the insurance company and another insurance agency or agent could charge whatever they wanted for their services. That conclusion is now open to question if such a broker’s services are considered to be part of the process of obtaining insurance coverage, and thus, covered by the phrase “premiums and charges for insurance” found in the above code section.
That clearly appears to be the Insurance Commissioner’s conclusion with respect to the services performed by excess and surplus lines brokers. According to the above Bulletin, they can only receive whatever compensation is included within the “premium” or other “charge” specified in a surplus lines insurance policy. In another section of Georgia’s Insurance Code, “premium” is defined broadly to include “any assessment or any membership, policy, survey, inspection, service, or similar fee or charge in consideration for an insurance contract.” Such fees or charges for the broker’s services are routinely included in the amount charged by the insurer for a surplus lines policy.
However, in other types of policies such additional fees are not usually included as part of the “premium” that is to be paid for them. If the Insurance Commissioner believes that the services provided by a broker who has no contact with the insured are part of the process of obtaining any type of insurance coverage, not just excess and surplus lines coverage, then such a broker cannot charge a fee for their services, except to the extent such a charge is included in the “premium” specified for the insurance coverage in question. In the absence of anything about such a charge in the stated “premium”, the broker would be limited to sharing in the commissions payable for such coverage as compensation for their services.
Until there is clarification on this point from the Insurance Commissioner’s Office, to be safe, a person acting as a broker for any insurance coverage should not charge a separate fee for their services, unless provided for in the stated “premium” for the policy in question. They should just receive a share of the commission paid for that policy.