Agent Responsibilities

Over the next couple pages we will look at the agent's responsibilities, with special attention on the agent acting within a fiduciary capacity a well as the agent's commissions, rebates, and use of designations. Please be sure to pay extra attention to the information regarding fiduciary capacity and rebates.

Fiduciary capacity *****

A fiduciary is a person in a position of special trust and confidence, and this is nearly always in the context of money. All premiums, return premiums, or other funds belonging to insurers or others received by an agent or insurance agency are trust funds received by the licensee in a fiduciary capacity. What does that mean??? It means that any money that exchanges hands and goes through the agent is only being held by the agent and doesn't belong to the agent. This is common sense, but it important to explain the concepts using the type of language you might see later in the licensing process.

We have also previously discussed rare situations in which an insurance agent that is not appointed by a particular insurer may still sell policies on occasion for that insurer. In these cases, the agent or agency must keep those premium funds in a separate account so as to allow the Department or OIR to properly audit such funds. Obviously, the agent must still give those premiums to the insurer, the insured, or to whomever is entitled to the premium.

The agent or agency must keep and make available to the Department or OIR books, accounts, and records, as they will enable the Department or OIR to determine whether the agent or agency is complying with the provisions of the insurance code. Every agent or agency shall also keep books, accounts, and records pertaining to a premium payment for at least three years after payment. The three-year requirement does not apply to insurance binders when no policy is ultimately issued and no premium collected. Any agent or insurance agency that diverts or misappropriates fiduciary funds (which is, basically, pocketing premiums) commits the offense with penalties specified in the following:

• $300 or less is a misdemeanor of the first degree
• more than $300, but less than $20,000, is a felony of the third degree
• $20,000 or more, but less than $100,000, is a felony of the second degree
• $100,000 or more is a felony of the first degree

Commissions and compensation/charges for extra services

Generally speaking, agents are compensated by the payment of commissions that are a certain percentage of the initial (first year) and subsequent (renewal) premiums of policies sold. However, it is very important to keep in mind that the only people who are legally allowed to receive any type of commission in the state of Florida are licensed and appointed agents. We've said this before, but in different words. Remember, being licensed isn't good enough - an agent must also be appointed by an insurance company in order to act on behalf of that company and receive commissions for sales made. (i.e., No policy of life or health insurance may be issued for delivery in this state unless the application is taken by, and the policy delivered through, a licensed agent.)

Commission for examining any group health insurance

Insurance companies file their commission schedules with the OIR, but Florida law was amended in 2004 to allow a licensed health agent to receive commissions at rates other than that which an insurer filed with the OIR. This alternative form of compensation only applies when the agent is providing advice, counsel, or recommendations regarding any group health insurance plans. The compensation must be based upon a written contract between the agent and the party being charged the separately negotiated fee. The written contract must clearly define the amount of compensation to be paid to the agent and must inform the person being charged that any commission received by the agent from the insurer will be rebated to that party within 30 days of receipt by the agent from the insurer. A copy of the contract must be kept by the licensed agent for three years after services have been performed.

Commission rebates *****

I'm sure you already know that a rebate happens when you get money back after you've bought something. In the insurance world, this can create problems. When are commissions paid to the agent? After the sale is made. Therefore, a rebate for having purchased an insurance product might look like the agent or agency was sharing commissions with the applicant (since they both happen after the sale), and we just got done saying that the only person who is legally allowed to receive commissions in the state of Florida is a licensed and appointed insurance agent. So a rebate might look like someone who is not a licensed and appointed agent (your applicant) is receiving commissions or a piece of commissions, which is illegal.

However, if the agent or agency follows certain rules, there are times when rebating is technically allowed if certain rules are followed:

• The rebate must be available to all insureds in the same actuarial class.
• The rebate must follow the rebating schedule filed by the agent with the insurer issuing the policy.
• The rebating must be uniformly applied to all insureds who purchase the same policy.
• All insureds who bought the same policy for the same amount of insurance receive the same percentage rebate.
• Obviously, if the insurer prohibits its agents from rebating, then the agent may not offer a rebate.
• The rebate schedule must be prominently displayed in public view in the agent's place of doing business.
• No discrimination with regard to age, sex, place of residence, race, nationality, ethnic origin, marital status, or occupation of the insured or location of the risk can be utilized in determining the percentage of the rebate.
• The agency must maintain a copy of all rebate schedules for the most recent five years and their effective dates.

Let's further break this down into three main bullets that you definitely need to remember:

1. No discriminating.
2. Current rebate schedule must be posted in prominent public view at the producer's place of business.
3. The most recent five years' rebate schedules must be kept on hand somewhere at the agency.

Commissions contingent on loss settlements prohibited

Insurance companies are not allowed to pay a higher commission to agents and/or adjusters or otherwise offer any type of financial incentive in exchange for the agent/adjuster assessing a loss or settling a claim that will result in savings to the insurer. That just makes sense.