. In the
United States, insurance brokers are regulated by individual states. Most states require anyone who sells, solicits, or negotiates insurance in that state to obtain an insurance broker license, with certain limited exceptions. This includes a business entity, the business entity's officers or directors (the "sub licensees" through whom the business entity operates), and individual employees. In order to obtain a broker's license, a person typically must take pre-licensing courses and pass an examination. An insurance broker also must submit an application (with an application fee) to the state insurance regulator in the state in which the applicant wishes to do business, who will determine whether the insurance broker has met all the state requirements and will typically do a
background check to determine whether the applicant is considered trustworthy and competent. A criminal conviction, for example, may result in a state determining that the applicant is untrustworthy or incompetent. Some states also require applicants to submit fingerprints. Once licensed, an insurance broker generally must take
continuing education courses when their licenses reach a renewal date. For example, the state of
California requires license renewals every 2 years, which is accomplished by completing continuing education courses. Most states have reciprocity agreements whereby brokers from one state can become easily licensed in another state. As a result of the federal
Gramm-Leach-Bliley Act, most states have adopted uniform licensing laws, with 47 states being deemed reciprocal by the
National Association of Insurance Commissioners. A state may revoke, suspend, or refuse to renew an insurance broker's license if at any time the state determines (typically after notice and a hearing) that the broker has engaged in any activity that makes him untrustworthy or incompetent. Because of industry regulation, smaller brokerage firms can easily compete with larger ones, and in most states, all insurance brokers generally are forbidden by law from providing their customers with rebates or inducements. Insurance brokers play a significant role in helping companies and individuals procure property and
casualty (liability) insurance,
life insurance and
annuities, and accident and
health insurance. For example, research shows that brokers play a significant role in helping small employers find health insurance, particularly in more competitive markets. Average small group commissions range from two percent to eight percent of premiums. Brokers provide services beyond procuring insurance, such as providing risk assessments, insurance consulting services, insurance-related regulatory and legislative updates, claims assistance services, assisting with employee enrollment, and helping to resolve benefit issues. However, some states consider the provision of services that are unrelated to the insurance procured through the broker to be an impermissible rebate or inducement.
Negligence on the part of insurance brokers can have severe effects upon clients when they discover their insurance coverage is worthless. In one case, Near North Entertainment Insurance Services provided
alternative rock band
Third Eye Blind with a
commercial general liability (CGL) insurance policy that excluded coverage for the "entertainment business". After insurance coverage for a lawsuit was denied because Third Eye Blind was and is, after all, in the entertainment business, the
California Court of Appeal ruled in a published opinion that a subsequent court ruling establishing that the insurer had wrongfully denied coverage—that the insurer had a duty to defend the band and had breached that duty—did not absolve the broker of its duty to advise the band it needed something more than a basic CGL policy (namely,
errors and omissions insurance).
Spitzer investigations In 2004,
New York Attorney General Eliot Spitzer found apparent cases of
bid-rigging by the major brokers, where the brokers arranged with insurers to provide "fake" quotes in exchange for providing favorable risks amidst contingent commission arrangements. In 2008,
AIG paid $125 million to settle with 9 states.
Commission and fees In most states there is no requirement to disclose the commission of the broker to the customer, but in
New York, a regulation ("Regulation 194") was adopted in 2011 which required disclosure. Brokers or agents may decide to reveal their commission upon request. In most states, agents cannot charge a fee in addition to their commission, although
Texas is one of the exceptions.
Broker vs. agent Though not an absolute separation, an
insurance agent is an insurance company's representative by way of
agent-principal legal custom. The agent's primary alliance is with the insurance carrier, not the insurance buyer. In contrast, an insurance broker represents the insured, generally has no contractual agreements with insurance carriers, and relies on common or direct methods of perfecting business transactions with insurance carriers. This can have a significant beneficial impact on insurance negotiations obtained through a broker (vs. those obtained from an agent). Any person acting as an insurance agent or broker must be licensed to do so by the state or jurisdiction that the person is operating in. Whereas states previously would issue separate licenses for agents and brokers, most states now issue a single producer license regardless if the person is acting on behalf of the insured or insurer. The term
insurance producers is used to reference both insurance agents and brokers. == Disintermediation ==