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What Is a Broker of Record?
In insurance, a broker of record
is an agent designated by the policyholder to represent and manage a
policyholder's insurance policy. A broker of record may receive copies of all
communications to the policyholder and may receive all quotes, policies, and
notices on behalf of the policyholder.
How a Broker of Record Works
A broker of record can help an individual or company with,
for example, handling the health insurance policies of its employees. In
return, the broker of record may earn a monthly commission from the health
insurance company.
Broker of Record Letter
A broker of record letter is used
to legally establish the relationship between broker, policyholder, and
insurance company. A broker of record letter can be used to designate a broker
of record for the first time or to replace an existing broker of record with a
new one. If someone changes their broker of record, for example, a letter will
be sent to identify the new broker of record.
Insurance companies require broker of record letters to
identify whom the policyholder has selected to act on their behalf to
communicate with the insurance carrier for negotiating rates, plan options,
claim assistance, etc. In return, the broker of record generally receives
commissions from the insurance company.
A broker of record letter should include specific
information, including the name of the group plan and the selected broker, the
effective date of the broker designation, and terms in which the broker of
record designation can be terminated. Policyholders can also include specific
directives regarding communication with the plan and other agencies/brokers.
Broker of Record Letter vs. Letter of Authorization
A letter of authorization is
neither as comprehensive nor as powerful as a broker of record letter. It gives
the broker the authority to obtain information on insurance contracts, rates,
rating schedules surveys, reserves, retentions, policies, certificates, and
other financial data. Such a letter may be written to be very specific, such as
naming the insurance company from which the broker may obtain information.
However, a letter of authorization usually won't include the authority to
negotiate on behalf of a policyholder.
What will a Broker of Record do for your business?
Your Broker of Record will manage insurance policies on your
behalf and should understand the priorities most important to you — whether
it’s watching your budget, keeping premiums low, limiting deductibles, or
procuring broad coverage. As you enter into a relationship with a BOR, ensure
these priorities are clear and communicated so that the broker can find the
most appropriate plan options for you and your business.
Independent brokers have access
to a variety of insurance companies and policies. Based on your needs, they’ll
present a few insurance quotes for plans that may be the best fit. Basically,
they represent you in the insurance marketplace and work to secure the best
deal for what you’re looking for. A BOR also serves as your point of contact to
answer any questions you may have about the plan — adjusting it if necessary —
and can assist with filing claims.
Insurance brokers vs. insurance agents: what’s the
difference?
So, what exactly is the difference between a Broker of
Record and an insurance agent? Both serve as intermediaries between the
insurance company and policyholders. In addition, both brokers and agents must
have appropriate licenses and certifications to distribute the insurance they
are selling, and both also make commissions based on the plan and your
premiums.
However, brokers represent the buyer, whereas insurance
agents represent specific insurance companies. This is an important distinction
to understand.
In addition, a broker typically
offers a wider variety of plan options because they have access to policies
from multiple companies, and these options are generally more personalized to
your needs. Because brokers represent the buyer rather than the insurance
company, their recommendations tend to be less biased and in your favor.
How does the process work?
In the simplest terms, insurance companies depend on brokers
to provide applications and clients for evaluation and quoting. Only one broker
is assigned to each policy and insurance companies pair brokers with clients on
a first-come, -first-served basis. In other words, whichever insurance broker
is the first to submit a complete application to the underwriter on behalf of
their client becomes the broker of record and will ultimately manage the
account going forward.
Generally, the BOR is the client’s first choice, but there
could be some exceptions. It’s common practice for clients to talk to a few
different brokers to get the widest variety of plan options. But because many
insurance brokers have access to the same insurance companies, they could
possibly receive multiple applications on behalf of the same client. However,
the insurance company will only provide a quote to the first broker who
submitted a complete application.
Although it’s not that common,
it’s possible that the client’s first choice broker didn’t get the application
to the insurance company quickly enough. So, what can you do if this happens to
you and you’re not completely satisfied with the services provided to you? Sign
a broker of record.
What’s a Broker of Record letter?
A broker of record letter is a document to establish the
relationship between the broker, you as the policyholder, and an insurance
company. These letters are typically used to initiate a relationship with a
broker or to replace your existing broker with a new one.
If you’re unsatisfied with the services of your current
agent or have been offered a better plan from another broker, a broker of
record letter can be used to transfer the rights to manage your policy from one
broker to another. Usually, your new insurance broker is responsible for
drafting the letter — you sign and return it — and then the new broker will
present it to the insurance company. At that point, the previous broker has no
more access to information or changes that can be made.
Before signing a broker of record letter and undertaking
such a transfer, it’s important to be sure your new broker has the experience
and necessary licenses to provide you with the plan you need.
A broker of record letter can be used to accomplish the
following:
Suspends the rights of the current broker to communicate
adjustments with the insurance company on your behalf
Gives rights solely to the new broker to manage your account
going forward, including the ability to manage plans with insurance companies
Provides the new broker access to any policy details or
other information related to your insurance policy only. For example, they may
receive future communications, including a renewal quote.
When you sign a broker of record letter, your current broker
is notified by the insurance company.
Also, if you sign a BOR letter and have second thoughts, you
do have some time to rethink the decision, but it’s not an infinite period of
time: usually, you’ll have ten days or less to rescind the letter or to issue a
reversing BOR letter, which needs to be sent to the carrier.
Ultimately, if you decide to go in another direction, you
may hear from the broker trying to offer you a better policy, or asking you why
you are considering a broker change; it’s not uncommon for brokers to reach out
in a last-ditch effort to earn back your business.
A quick explanation to your current broker detailing the
main reasons you have decided to switch usually allows for a more seamless
change.
What does a Broker of Record letter include?
Usually, the contents of a broker of record include specific
information about the group plan, including the name of the group plan, the
selected broker, the effective date of the broker designation, and any
specifics under which the broker designation can be terminated. Sometimes there
might be an agent ID — to switch all lines of coverage this month or next
— most are pretty generic but it depends
on the carrier.
Broker of record letters usually
appear on your company’s stationary or letterhead, and do not need to be
flashy. Here’s an example of a broker of record letter: