WHO REPRESENTS YOU??

INSURANCE AGENT, INSURANCE BROKER,
SUB-BROKER, GENERAL AGENT, UNDERWRITER

By Alan Plafker, PRESIDENT & CEO
Member Brokerage Service LLC
A Melrose Credit Union Service Organization

Many people think of me, or my staff, as an agent or salesperson when usually we are neither. There are different names and legal obligations that our New York State licenses require.

An Insurance Agent represents the insurance company. The agent can bind insurance and collect monies on behalf of the insurance company. Legally, the agent does NOT represent the insured or consumer. In almost all cases, the agent receives wages or a prescribed commission based upon sales. Court cases have indicated that the agent has no obligation to recommend coverages or how to save premium dollars.

Companies called “Direct Writers,” like GEICO and State Farm, employ agents only. Companies like Prudential and Metropolitan, who also employ agents, do some business with Insurance Brokers as well. You can call the NY State Insurance Department to see whether an insurance company is represented by agents or by brokers.

An Insurance Broker represents the insured/consumer. There is a moral and sometimes a legal obligation to protect the insured/consumer. The Broker must get legal acceptance from the insurance company to “bind” insurance. Most Brokers do have direct access to the underwriter of the insurance company or their “general agent” and can “bind” within moments.

The Broker also has the capability of doing business with many insurance companies, and is not obligated to just one company (as the Agent must be). The Broker can “shop” or “negotiate” pricing with one or more companies and, very often, to the advantage of the insured/consumer. Another advantage of using a Broker is that if you are cancelled or non-renewed for any reason the Broker can secure the insurance from another company or plan that offers the same policy. The Agent is not usually in a position to do this.

A Sub-Broker is licensed as an insurance Broker, but unable to deal directly with an insurance company or General Agent for a number of reasons. The major problem with the insured/consumer dealing with a Sub-Broker in the representation of the policy is that the Sub-Broker has absolutely no legal relationship with the insurance company and is obtaining the policy from another broker. The Sub-Broker:

  • will not get any direct information from the insurance company,

  • will not get copies of a cancellation notice,

  • cannot get first hand confirmation of binders, and

  • must file claims with the Broker and not the insurance company or General Agent.

The Sub-Broker cannot negotiate claims settlement with the company. Because the Sub-Broker will get only a portion of the Broker’s commission (in most cases). The Sub-Broker will usually charge the insured/consumer a fee.

The best way to find out if your insurance representative is a Sub-Broker is to ask him or her. They have a legal obligation to inform you upon request. Unless the insured/consumer relies upon the personal attention of the Sub-Broker or feels there is no alternative it is not recommended that a Sub-Broker be used.

The General Agent, sometimes called a Wholesaler, is an agent of the insurance company who does not deal with the public, but rather with Brokers. Sometimes the Wholesaler is a General Agent for several insurance companies giving Brokers doing business with them access to many companies at one time.

The Underwriter is an employee of the insurance company usually at the insurance company office. He or she is the company. Whatever the Underwriter decides is what the insurance company decides. The Underwriter has the power to insure or cancel.

The Underwriter requires much information and detail to make the decision to insure, and if the insured’s “package” to the Underwriter is not complete the Underwriter will usually not make a decision and will not “bind.”

It is important that you understand that commissions are paid to the Agent, Broker and General Agent (Wholesaler) by the insurance companies and are already built into the premiums which are approved by the State of New York Insurance Department.

It is against the Insurance Law for an agent or broker to charge extra commissions or fees in New York State unless the insured/consumer agrees to this in writing before accepting the insurance. It is against the law for an agent or broker to charge fees for other services unless agreed to by the insured/consumer, again, in writing. If you, the insured/consumer, did not agree to any fees or charges in writing the law is very clear that you do not have to pay, and the agent or broker is in violation of insurance law.

The public should be aware of one more important item. Because the Agent is a representative of the insurance company paying a premium to the Agent is the same as paying to the insurance company.

New York State Insurance Laws allow the Broker to be the Agent in this instance, and paying a premium to the Broker is considered paying the premium to the insurance company. That is the only time the Broker can represent the insurance company. It is important to note that a Sub-Broker has NO legal representation.

I’ve explained the players in the retail and wholesale insurance business and this article covers all insurance policies under the jurisdiction of the New York State Insurance Department.

I hope I have cleared up some items for our readers that will save you money now or in the future. If you have any questions you can contact me at Member Brokerage Service.

Alan Plafker is President of Member Brokerage Service LLC, a Melrose Credit Union Service Organization. He is a licensed Insurance Broker and serves on the Board of Directors the PIANY (Professional Insurance Agents Association of NY) and on the Board of CIBGNY (Council of Insurance Brokers of Greater NY). His Agency insures thousands of polices for TLC Insurance as well as many policies for all types of insurance. You can reach him in his Briarwood, Queens office at (718) 523-1300 ext. 1082

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