Insurance Producers

Express Authority

The contract between the producer and insurer sets forth certain acts and duties the producer is specifically authorized to perform. This authority is express authority. For example, a producer's express authority would include the solicitation and sale of business for the insurer and the ability to accept contracts of insurance on the insurer's behalf. A producer who does what he or she is given express authority to do binds the insurance company by those actions.

The purpose for the Policy Summary, which must be given to every insurance applicant, is to Explain the step-by-step process involved in purchasing the recommended product. Provide buyers with policy details of the insurance contract they are considering for purchase. Disclose all the hidden costs associated with the policy being applied for. Explain the general features, benefits, and conditions of the type of insurance being considered.

Provide buyers with policy details of the insurance contract they are considering for purchase.

Apparent Authority

Apparent authority is the third type of authority that an agent can assume. It is authority that the contract does not provide; the insurer does not intend; yet reasonably appears to the customer to be granted to the agent based on the agent's statements and the actions (or inactions) of the insurer. While not welcomed by insurers, apparent authority may make the insurance company liable for the agent's acts, even though the insurer does not actually authorize them either expressly or by implication. It is a producer's actions under apparent authority that are most likely to create problems for insurers and their customers.

Agent Errors and Omissions Insurance

Despite one's best efforts, mistakes can be made. Like other professionals, insurance producers can obtain insurance coverage that protects them from disputes and liability that may arise in the conduct of their business. This type of coverage is known as errors and omissions, or E&O, insurance. It covers injuries and damages that occur due to professional services a producer rendered or failed to render. Under an E&O policy, the insured producer is covered for the cost of damages, real or alleged. He or she will also be defended by the insurer in any suit that may be brought against the producer. E&O coverage does not protect against willful misconduct. It will protect the producer who is sued because a mistake was made; it will not protect the producer who willfully engages in an unfair trade practice.

Cost indexes

During the buying process it is common for applicants to ask producers to compare the cost of two or more life insurance policies. The most effective way to do this is through the use of cost indexes, which use the factors of premiums, cash value, and policy dividends (in the case of participating policies) to compare the relative costs of similar policies. Two common indexes in use are the -life insurance surrender cost index, which compares costs at a future date when the policy might be surrendered for cash value, and -life insurance net payment cost index, which compares costs at a future date if premiums are continually paid and no cash value is withdrawn

The purpose for the Buyer's Guide, which must be given to every insurance prospect, is to Provide buyers with details of the insurance policy they are considering for purchase. Explain the step-by-step process involved in purchasing the recommended product. Explain the general features, benefits, and conditions of the type of insurance being considered. Advise the buyer to consider an alternative to the insurance product being considered.

Explain the general features, benefits, and conditions of the type of insurance being considered.

Producer's Responsibilities to Applicants and Insureds

In addition to the duties an agent owes to the insurer, the agent also has important duties he or she owes to an insured or to an applicant for insurance. Chief among these duties is the requirement that the producer act in the best interests of the applicant or insured. In addition to the fiduciary responsibility they have with all customer premiums and assets, producers are expected to -not engage in any form of rebating (i.e., refunding or offering to refund a portion of the premium or anything of value, in return for the applicant's purchase of a policy); make sure all product recommendations are suitable for the customer; -avoid replacing any policy unless the replacement will clearly improve the customer's situation; -disclose all pertinent information concerning a proposed policy; and -avoid misrepresenting the terms or conditions of a proposed policy

Producers Authority

In an agency relationship, such as the relationship between an insurer and producer, legal authority is given to the agent to act on the principal's behalf. When the agent acts within his or her authority, those actions bind the principal. For insurance producers, the document creating the agency relationship is the producer's contract with the insurance company. Practically speaking, though, the law of agency greatly expands the producer's authority from that granted in the contract. Nonetheless, it is only the agent's authorized acts that bind the principal. There are three levels of producer authority (traditionally called agents' authority): -express authority -implied authority -apparent authority

Insurance Producers

Insurance companies generally use one or both of two types of sales representatives to sell their insurance products, including -agents employed by an insurance company to sell only that company's products; and independent insurance brokers who sell insurance products for a number of different companies. -Agents are legally considered representatives of the insurer that employs them. Brokers have traditionally and legally been viewed as representing the applicant rather than the insurer. Despite these differences, most states now refer to agents and brokers by the collective term producer. Hereafter, this course will use the term producer to refer to agents and brokers.

The Rules of Agency: The Insurer as Principal

Insurers and their producers are bound by common law rules of agency. Under the rules of agency, an agency relationship must involve two parties: -a principal -an agent (producer) -A principal is the party on whose behalf the agent acts. An agent is the party who acts for another, that "other" being the principal. Legally, the term agent refers to the relationship any person has with a principal. With insurance, the insurer is the principal and the aptly-named agent is just that. Brokers legally establish an agent relationship with every insurance company with which they write business.

Implied Authority

Not all of the activities that an agent normally performs are expressly stated in the agent's contract. For the sake of effective business, insurers allow their producers to engage in many sales-related activities not expressly listed in any agreement. This is implied authority. An agent's authority is implied when it is intended to be given by the insurer; usually relates to the general customs of the business; and is not contractually provided or specifically explained. For example, the producer's contract with the insurer gives the producer express authority to seek applications for insurance. To seek applications for insurance, the producer is given the implied authority to telephone prospects on the insurer's behalf to arrange sales appointments, even though the authority to call prospects to arrange sales meetings is not expressly stated in the producer's contract.

The Producer's Fiduciary Duty

The agency agreement between an insurer and a producer creates a fiduciary relationship between the two parties. A fiduciary relationship exists when one party handles money or other property on behalf of another. Out of this relationship comes the producer's fiduciary duty to act in the best interests of the insurer. In its fiduciary responsibility to its principal, a producer is required to -solicit business that is acceptable to the insurer (this duty places a burden of care on agents not to present unsuitable applicants to insurers); -carry out authorized activities with reasonable care (for this reason, an agent must not engage in professional activities in which he or she cannot perform at a skill level possessed by others who are similarly engaged); -fully disclose to the insurer all pertinent information that affects the placement of an insurance policy, including the proposed insured's current health and health history; -make full disclosure in the completion of claim forms; avoid conflicts of interest; -follow through on business transactions within a reasonable time; and -fully account for premiums and submit them to the insurer on a timely basis (an agent must not mix (commingle) premiums with personal funds or use them for personal expenses). -A producer also owes duties of loyalty and obedience to the represented insurer. Note, too, that all producers have a fiduciary duty to their customers. In other words, producers must act in good faith and with integrity in their dealings with both their customers and their principals.

Buyer's Guide and Policy Summary

To guide prospective buyers in choosing the most appropriate type of coverage for their needs, most states require producers to provide a Buyer's Guide to all prospects. The Buyer's Guide explains the general features, benefits, and conditions of the type of insurance being considered. Most states require that the guide be provided to a prospective buyer when he or she is first solicited. To help make sure customers understand what they are buying, most states require that applicants be given a policy summary before the application is completed. The policy summary provides detailed information about the specific policy that is being purchased.

The Producer/Insurer Relationship (Captive vs. Independent)

Under the career (or captive) agency system, the agent is employed by one insurance company. Insurers that support the career agency system are sometimes called captive agency companies. The agent works at a branch of the company, under the supervision of a general agent or agency manager. The agent is generally compensated through a commission that is based on the size of the sale. By contrast, independent insurance brokers represent multiple insurers. They can pick insurance products from any of these companies to best meet their clients' needs. Independent agents work for themselves or for other producers, in their own work space. They, too, receive a commission for each sale they make. Whether career or independent, all producers operate under a contractual agreement with the insurer/principal while selling its products. This means they are responsible for meeting standard guidelines set by the insurer.

An agent for ABC Insurance Company met with a client to talk about long-term care policies. The agent showed the client ABC's sample policies, referred to the ABC rate book, gave him an ABC business card, and told the client that ABC has given him unlimited binding authority, which, in fact, the company did not do. If the client assumes the agent has binding authority, which of the following describes the type of agent's authority illustrated in this case? apparent authority imputed authority express authority implied authority

apparent authority The contract between the agent and insurer gives express authority to an agent. The contract specifies the activities the agent can perform and outlines the agent's duties.

Which of the following is NOT one of an agent's responsibilities to an applicant? helping write an applicant's insurance policy disclosing all important information about a proposed policy recommending insurance products that are suitable for the customer's needs avoiding replacing an insurance policy unless doing so will clearly benefit the applicant

helping write an applicant's insurance policy Agents must act in the applicant's or insured's best interests at all times. This means that agents must disclose all important information about a proposed policy. They cannot misrepresent the terms or conditions of a policy, and must avoid replacing policies unless it is in the applicant's best interests. Agents do not help write the actual insurance policy.