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Welcome to your association's Question of the Day. 

 

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Q.

This question was answered based upon current rules, regulations & statutes in effect on September 15, 2016

I have not used my Adviser's License much, but recall from way back that you can't bill fees if you're also collecting commission.  I know there are a lot of abuses on this subject, but I have a little different question about legalities on the topic.  Here is the scenario:

A broker arranges coverage with or without a surplus broker I don't know.  A surplus lines broker may be needed, even though the specialty market is available direct to the broker with an appointment.  The S&E broker routinely adds a fee since their commission may be nominal when split with the agent.  NOW, in a specific case, the premium and membership fee on the dec for the program is $1,300.  But a retail agency bill goes out to the insured ends up being $1,800 with no breakdown.  Where the extra $500 in fees come from, who knows?

At the very least the bill should be transparent with breakdowns, but the size of the fees I wonder whether the retail agent is assessing some or all of these fees.  What are your thoughts on this?

A.

Irene Morrill:  I don't know what the laws are as to what can be done so I'm sending this to Dan Foley, Esq., VP Government Affairs.  Dan, can you help him?

Dan Foley:  In 2013, former Insurance Commissioner Joseph Murphy issued BULLETIN 2013-09 entitled Fees charged by Insurance Producers Relative to the Sale of Insurance in the Commonwealth.  Basically, the Bulletin states that resident and non-resident insurance producers, including special insurance brokers, engaged in the solicitation, negotiation and sale of insurance in the Commonwealth may charge the purchaser of an insurance product a fee in addition to the policy premium established by the insurance company, provided that:

  • The purpose and amount of the fee shall be disclosed, in writing, to the purchaser prior to the time of sale;
  • The fee shall not be included in the policy premium, as established by the insurance company issuing the policy; and
  • The fee shall be separately itemized on the policy declarations page, billing statement, or other documentation provided to the purchaser setting forth the cost of the policy.

Based Upon the "DOI bulletin on fees, the S&E broker should be itemizing the fees separately stating the purpose of the fee.

Hope this is helpful.

Agent: I have since clarified what took place.  It appears that the program has not paid the retail broker any commission and instead the retail broker levied a fee to the insured.  The membership fee and premium were brokers out on the policy dec and totaled $1,300.  The producer then sent the insured an agency billed invoice for $1,800 without any breakdown.  It sounds to me as though they did not follow the law by failing to break out their fee on their invoice, but were otherwise within their rights - hefty fee notwhithstanding.

Thanks for your thoughtful response, as always.

This document is not a legal opinion and should not be relied upon as such. The intent of this document is to provide a general background regarding the topic or topics discussed, not to provide legal advice. Producers and agencies should consult an attorney regarding specific situations and specific questions with respect to the topic or topics covered in this document. Neither the Massachusetts Association of Insurance Agents, Number One Insurance Agency nor any of its employees shall be responsible for any errors or omissions regarding any statements made in this document, nor any errors or omissions regarding any statutes, regulations, court rules, and/or any other government documents cited in this document.

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