Author: VU Faculty
Some independent contractors sell L&H insurance and split commissions with a bank-owned agency. The agency does not get a copy of any of the documentation, from application to policy. Servicing is done solely by the insurer. Because of the way business is done, there is nothing that is recorded on the agency management system (no upload, no download, no nothing). Does this present a problem?
"Some individuals at a bank are licensed to sell L&H policies and split commissions with our bank-owned insurance agency. The agency never gets a copy of the policy nor does it get other documentation, only the commission from the carrier. If calls come in, clients are directed to the insurer's customer service center, so there is no real servicing. Because of the way business is done, there is nothing that is recorded on the agency management system (no upload, no download, no nothing). Does this present a problem?"
The key to effective business practices and E&O loss prevention is documentation. Many an E&O case has been won or lost by documentation or the lack thereof. We ran this by our faculty and got the divergent responses below.
I sure wouldn't want to collect commissions on business I knew nothing about!
Makes no sense to me. Inform your E&O insurer to await the filing of a claim.
It certainly is NOT ok. The agent and the employing agency have a legal responsibility for that account and can be required to respond to allegations of missed coverage recommendations, bad placement, etc.
They DO have info on the account - they wrote it at certain limits, with certain provisions, and with beneficiaries, etc. Their management system should have record of those particulars (most agency management systems can have life/health and other lines set up in what are called "misc. or custom apps"). Plus, their conversations with and answers to the insured and any requested info, signed apps etc. should be documented as activities, just as coverage and info conversations would be documented for P&C. It is basically the same need for documentation in benefits as in P&C.
If I can help further, please let me know! I do a class that is certified by Westport/SwissRe and IIABA on practices that incorporates benefits. That might be of interest and gets policy credit for that carrier and others AND normally gets continuing ed credit, too! It addresses several very topical and disputed topics. Let me know if that is of interest!
There's no need for records. Unless you happen to need them to answer a client's question or, perhaps more importantly, to defend yourself in an E&O lawsuit. The mere fact that you don't document these transactions will weigh heavily against you. The three most important rules in agency management: document, document, document.
This is fairly typical for life products sold in a P&C agency as a side-line. The Commission Statements become the financial back-up for recording the basic (name/address/pol #/carrier) info and often have the specific policy info like coverage and policy form. More than for record-keeping, our agencies pursue more information to ascertain asset protection needs of the clients. Just because it is only a life policy does not mean that the same clients don't need a myriad of other agency products and services.
First, is the agency licensed to receive life and health commissions? Does the agency have contracts with the L&H carriers?
Second, who is the selling agent/agency?
Third, if the agency is the carrier's agent, then documentation absolutely is required because a record of the transaction is necessary. For example, where is the record of any initial payments? The client can claim they made a payment and where is the record? The carrier can claim they paid the agent/agency and without a record, how can you contest it? Where is the record of the application? Where is the reconciliation to make sure fraudulent policies are not being issued? I'm sure I'm leaving out a dozen other factors, but I can't understand how this system makes any sense.
It would be important to know who has the carrier contracts. From what I gathered, it sounds like it is the agency. Please verify as it will influence how I respond to the responsibilities.
Without any transactional documentation, you have NOTHING with which to defend yourself if there’s an E&O claim.