The insurance industry is a heavily regulated one due to its complex nature. In the United States, the Insurance Brokers are under the regulation of the individual states. Thus, most of these states require anyone who wants to sell, solicits, or negotiates insurance business to apply and to obtain an insurance broker license. This license is a pre requisite to the conduct or establishment of insurance broker related business in the United States of America. Therefore, this license will have to b obtained in any state the broker intends to operate. This includes a business entity, the business entity’s officers or directors commonly referred as sub-licensees and through whom the business entity and individual employees operate.
Insurance Brokers Pre-Licensing Course in the United States
A pre-licensing course in the United States is a prerequisite to obtaining an insurance broker’s license. Thus, a person must take an insurance broker’s pre-licensing courses and must pass the examination. And as earlier said, the insurance broker must submit his/her application together with an application fee to the state insurance regulator in the state in which the applicant wishes to do business. It is this state’s Regulator that will determine whether the insurance broker satisfies all the state requirements for registration as a broker.
Similarly, the Regulator will equally carry out an assessment to determine whether the applicant is competent and trustworthy. This is because, a criminal convict, for example, cannot be said to be trustworthy. And a check that reveals that an applicant is a convict will result in a state determining that such applicant is untrustworthy or incompetent. In some states, one of the application processes requires the submission of finger prints. The essence of this is to ensure that all necessary checks are done to determine the character of the person the state is about to license as a broker to avoid frauds n the industry.
Once the license gets approval, an insurance broker is generally must update knowledge by taking continuing education courses. This is especially when their licenses reach a renewal date. For example, the State of California requires license renewal every 2 years, which is completing continuing education Courses is mandatory and a ground for a grant of renewal.
Interstate Insurance Brokers in the United States
Most States in the US have reciprocity agreements whereby brokers from one state can become easily licensed in another state. Also, most states have adopted uniform licensing laws, with 47 states being considered reciprocal by the NAIC (national association of insurance commissioners). Consequently, a state may suspend, revoke, suspend or refuse to renew an insurance broker’s license if at any time the state determines that the broker has engaged in any activity that makes him untrustworthy or incompetent. The process of determining this, is by serving a notice to the broker in question. And subsequently a hearing so as to give him/her affair hearing before reaching decisions.
Also, in the United States, most states, forbid insurance brokers from providing their customers with rebates or inducements through the instrumentality of their laws. And as a result of this regulation in the industry, smaller brokerage firms can easily compete with larger ones.
Benefits of Insurance Brokers in the United States
Insurance brokers play a significant role in helping companies and individuals procure property and liability insurance, life insurance and annuities, accident and health insurance and indeed other classes of insurance policies.
2. Brokers equally play a significant role in helping small employers find health insurance, particularly in more competitive markets. Average small group commissions range from two percent to eight percent of premiums.
3. Brokers provide services beyond procuring insurance, such as providing risk assessments, insurance consulting services, insurance-related regulatory and legislative updates, claims assistance services, assisting with employee enrolment, and helping to resolve benefit issues.
Liabilities for Brokers in the United States
Negligence on the part of insurance brokers can have severe effects upon clients when they discover their insurance coverage is worthless.
Also, a broker can be liable to a client if he misrepresents the nature, scope and the extend of coverage. For instance, if a client specifically requests a certain type or extent of insurance or risk coverage and the broker fails to procure the exact want of the policyholder.
Thirdly, as a result of the fact that the broker expressly holds himself out as an expert before the client, he is legally liable for all acts of omission or negligence while discharging his duties in that capacity.
Commission and fees
In most states, there is no requirement to disclose the commission of the broker to the customer. But in New York however, regulation (“Regulation 194”) of 2011 permits disclosure. Therefore, Brokers or agents may decide to reveal their commission upon request. Similarly, and in most states, brokers cannot charge a fee in addition to their commission. But in Texas, brokers can charge commissions and fees at same time.
Broker vs. agent
An insurance broker is one who represents and acts for the insurance consumer. They do this to help them find the best insurance policy that suits their needs. And as well as getting the best price for them. He represents the policyholders and not the insurers.
On the other hand, an insurance agent is an insurance company’s representative with an agent-principal legal relationship. The agent’s primary alliance is with the insurance carrier, not the insurance buyer.
A person who wants to do the business of an insurance agent or broker must first get a license to do so. The granting of the license is by the state or jurisdiction that he desires to operate in. It is worthy of note that some states who previously would issue separate licenses for agents and brokers, now issue a combine license not minding if the person is acting on behalf of the insured or insurer.
