Obligations of Your Agent or Broker

106 38


Who regulates insurance agents and brokers? Who needs an insurance license and how is one obtained? What obligations does your insurance agent or broker have to you, the insurance buyer? What are some signs that he or he might be dishonest? This article will answer these questions.

Subject to State Regulation

Like insurance companies, insurance agents and brokers are regulated by the states. They are subject to the laws enacted by state legislatures and enforced by state insurance departments.

Insurance regulatory departments often refer to insurance agents and brokers as producers. This term reflects the fact that agents and brokers produce (generate) income for insurance companies. In the insurance industry, the word producer may be applied to an individual whose job is primarily sales rather than servicing clients. For the purposes of this article, producer simply means an agent or a broker.

Producer Licensing

All states require insurance agents and brokers to obtain a license in order to sell insurance. A state may offer a dozen or more types of licenses. For example, a state may offer a Property and Casualty license, and a Life, Accident and Health license. The type of license a producer needs depends on the insurance he and she intends to sell. For example, a producer that wants to sell life insurance only may obtain a Life Only license. If the producer wants to sell accident and health insurance as well as life insurance, he or she will likely need a Life, Accident and Health license.

The titles and types of licenses that are available vary from state to state.

To obtain a license, a producer is usually required to complete a certain number of hours of prelicensing education. This typically consists of a prelicensing course that has been approved by the state insurance department. Once the producer has completed the appropriate course, he or she takes a licensing exam.  If the applicant passes the exam, he or she is awarded the relevant license. A producer that wants to sell multiple types of insurance, such as life and property/casualty, he or she may need more than one type of license.

Once a producer has obtained a license, he or she must maintain it. An insurance license is typically valid for two years. Generally, an insurance license can be renewed only if the producer fulfills the continuing education requirements specified by the insurance department. For instance, an agent may be required to complete say, 40 hours of continuing education during the two-year period that the license is in effect in. The producer may have several options for fulfilling these requirements. For instance, he or she may take classes, attend seminars, or complete online courses.

It is important to ensure that the person handling your insurance is a licensed producer. To verify the producer's status, contact your state insurance department. Many insurance department websites contain a "producer look up" tool that allows you to check the status of the producer's license yourself.

Duties and Responsibilities

Technically, an agent works on behalf of one or more insurers, while a broker works on behalf of the insurance buyer. Nevertheless, agents and brokers perform very similar duties.

A producer has a professional obligation to help you (the customer) obtain appropriate insurance coverage. He or she should explain what coverages are available and make recommendations. Once you decide what coverages you want and communicate your wishes to the producer, he or she has an obligation to obtain the insurance coverages you elected. If the coverages you actually receive differ from those you requested, the producer must explain the discrepancies.

Your producer may be liable for negligence if he or she fails to inform you that the coverage you received is not what you requested. For example, suppose that you purchase a commercial property policy through your insurance agent, Jack Jones. You tell Jack that you want to include buildingordinance coverage in your policy. You emphasize that this coverage is very important and must be included.

When Jack delivers the policy, he assures you that the policy includes the coverage you requested. Six months later, a building you own is burned in a fire. You file a property claim with your insurer but the recovery you receive is substantially less than you expected. It seems that your policy does not include building ordinance coverage. If you sue Jack for negligence, he may be liable to you for the amount you would have collected under building ordinance coverage had the coverage been included.

Your producer is not obligated to anticipate all risks that might arise from your business and to advise you how to cover them. Agents and brokers are not risk managers. They rely on the information you provide about your business to make coverage recommendations. 

The producer has a duty to exercise reasonable care to place your insurance with an insurer that is financially sound. If the producer learns that your insurer has become financially impaired, he or she has a duty to warn you. Likewise, if the producer learns that your policy is about to be cancelled, he or she has an obligation to notify you.

Broker and Agent Fraud

A majority of insurance agents and brokers are honest, hard-working professionals. However, there are always a few "bad apples". If you think your producer is acting dishonestly, you should report him or her to your insurance department. Here are some signs that the producer may have committed insurance fraud:
  • The producer has collected a premium but no policy has appeared, or the producer claims that he or she is retaining your policy for "safekeeping."
  • Your policy has been cancelled mid-term but you have not received a return premium, even though the insurer confirms it has issued a check.
  • The producer encourages you to submit fake or inaccurate information in the insurance application.
  • The producer sells you a policy and you cannot find any information about the insurer that supposedly issued it.
  • The agent adds coverage to your policy you didn't request and don't need to drive up the premium and generate more commission.
  • The producer has pushed you to put money into an "investment" that the producer insists is too good to pass up.
Subscribe to our newsletter
Sign up here to get the latest news, updates and special offers delivered directly to your inbox.
You can unsubscribe at any time

Leave A Reply

Your email address will not be published.