Can an Agent Receive Fees and Commissions?
BY BOBBY SLOTKIN
Over the years, specific questions consistently arise regarding how agents should navigate fees and commissions and whether an agent may charge both. The general rule in Georgia is that an insurance professional may not charge a fee in addition to receiving commissions from the insurance carrier(s) for the placement of insurance. Agents should choose one or the other. However, Georgia law allows an insurance professional holding a counselor’s license to charge additional fees in certain circumstances.
Generally, if a counselor “receives any compensation from or charges any other fee to the customer, neither that producer nor the affiliate shall accept or receive any compensation from an insurer or other third party for placement of insurance for that customer.” However, a counselor may charge a fee to the customer and receive compensation from the insurer if, before the customer purchases insurance, the counselor obtains “the customer’s documented acknowledgment that such compensation will be received” from the insurer and “discloses the amount of compensation from the insurer or other third party for that placement.” If a counselor cannot readily obtain written consent because the purchase is over the phone, he/she can document the consent in a file memorandum; if the amount is unknown at the time of disclosure, he/she must disclose the method for calculating the fee and if possible, a reasonable cost estimate.
Can An Agent Charge a Fee and Receive Commission Related to the Placement of Insurance Coverage?
A counselor, whether selling a commercial, personal, life, or heath line of insurance may charge a customer a fee for services related to the placement of their insurance policy but may not also accept a commission from the insurance company for that placement. In other words, a counselor can take a fee for placing business if there is no commission or can take a fee for something other than placing business if he/she gets a commission. But he/she cannot do both if the compensation is only related to the placement of insurance. This is based on the notion that a counselor represents the interests of the insured, while an agent represents those of the insurer. Other states draw a similar distinction. Double-dipping regarding compensation for insurance placement is prohibited.
Can An Agent Receive Commission and Charge a Fee for Services Unrelated to the Placement of Coverage?
A counselor, whether selling a commercial, personal, life, or health line of insurance, may charge a fee for services that are not integral to obtaining insurance coverage or are unrelated to the placement of an insurance policy while receiving commission from the carrier under the producer license. Services that are unrelated to the placement of insurance are those that are not necessary in order to obtain the policy in the first place. In order for the counselor to also receive any compensation from an insurer or other third party for placement of insurance, before the customer purchases insurance, the counselor must obtain “the customer’s documented acknowledgment that such compensation will be received” and “disclose the amount of compensation from the insurer or other third party for that placement.”
A counselor selling commercial risks policies may charge a fee for “additional ancillary services . . . in excess of acquisition services” if the “additional ancillary services are disclosed in writing to the insured” and approved in advance of the placement of an insurance policy. In order for the counselor to also receive any compensation from an insurer or other third party for placement of insurance, before the customer purchases insurance the counselor must obtain “the customer’s documented acknowledgment that such compensation will be received” and “disclose the amount of compensation from the insurer or other third party for that placement.”
Examples of Additional Ancillary Services
- Risk identification.
- Loss measurement.
- Gathering and analysis of loss information.
- Verification of workers’ compensation experience modifiers.
- Setting of risk retention levels.
- Development of retention financing plans.
- Development of insurance specifications.
- Negotiation with insurers regarding coverages, costs, and payment options.
- Implementation of retained and transferred risk programs.
- Monitoring of annual program.
- Insurance audit services.
Think of it this way. If the ancillary services for which you intend to charge require your specialized expertise in representing a customer and meeting the customer’s needs with their ongoing coverages, then an additional fee may be proper. If the ancillary services for which you intend to charge go beyond merely writing coverage for which you will receive a commission, then an additional fee may be proper.
It is worth noting the Georgia Insurance Code does not require that the amount of the fee be disclosed before the “additional ancillary services” are performed. You should disclose the fees in writing to avoid any later disputes over the amount of the fee. Can you call yourself a consultant or advisor? Terms such as financial planner, investment advisor, financial consultant or financial counseling cannot be used in such a way as to imply that the insurance agent is generally engaged in an advisory business in which compensation is unrelated to sales, unless such is actually the case.
Can an Agent Charge an Additional Fee for Shopping Coverages Among Carriers?
How much of a Fee Can an Agent Charge to a Client for Additional Services Unrelated to the Placement of Insurance?
Georgia law does not provide guidance on how to determine a fee structure for insurance agents or counselors. However, it would be wise when establishing your fee amount to consider various factors such as time, effort, and expertise that could be justifiable and determined as reasonable in the eyes of the Department of Insurance. In other words, if you are receiving a fee in addition to commission, the fee should not be disproportionate to the size of the account. For instance, it would likely not be viewed as reasonable if a $10,000 fee were to be charged on an account generating $10,000 in premium that you also received commission on.
In summary, a counselor may charge fees for services that are not integral to the obtaining of an insurance policy and for additional ancillary services. To protect yourself and minimize the risk of a dispute over the fee, in all situations in which a counselor charges a fee of any kind, the counselor should disclose the fee and obtain the customer’s agreement to pay in writing.
About The Author
Bobby Slotkin is the principal of Slotkin Law Firm, which is counsel to IIAG. The firm administers the “IIAG Free Legal Services” program under which each member agency is entitled to one free telephone consultation per calendar quarter. You may contact the Slotkin Law Firm at (404) 228-4099 or by email to email@example.com.