Massachusetts regulators this month announced that producers for all lines of insurance may charge their clients fees in connection with the sale of insurance products. A statewide independent agent association said the bulletin represents a big change for agents and brokers.
The Massachusetts Division of Insurance’s Bulletin 2013-09, published on Oct. 4, states that resident and non-resident insurance producers, including special insurance brokers, engaged in the solicitation, negotiation and sale of insurance in Massachusetts may charge the purchaser of an insurance product a fee in addition to the policy premium established by the insurance company, provided that:
- The purpose and amount of the fee shall be disclosed, in writing, to the purchaser prior to the time of sale;
- The fee shall not be included in the policy premium, as established by the insurance company issuing the policy; and
- The fee shall be separately itemized on the policy declarations page, billing statement, or other documentation provided to the purchaser setting forth the cost of the policy.
Massachusetts DOI spokesperson Jayda Leder-Luis told Insurance Journal that bulletin was meant clarify allowable fees to be charged by insurance producers in Massachusetts.
“Massachusetts statute is silent on the question of whether producer fees are allowed,” she said. “Bulletin 2013-09 clarifies that fees may be charged by producers so long as they are disclosed in advance, are separately listed, and are not subsumed into the premium being charged for the product. This requirement is consistent with the Division’s ongoing commitment to a transparent marketplace for insurance consumers.”
Daniel J. Foley, Jr., vice president of government affairs and general counsel for the Massachusetts Association of Insurance Agents, said the bulletin represents “a huge difference” from past administrations.
“In prior administrations, the Division of Insurance has always said that if agents or brokers sell a particular insurance product and receive compensation by means of a commission, that was the only way they were going to be compensated no matter how small a commission it might be. That’s what they get paid for,” Foley said.
“We were always told that agents could not charge a fee in addition to receiving a commission if in fact the commission was part of the compensation whether it was a homeowners’ policy, a business policy, or workers’ compensation,” he said. “The commission was how they were compensated and that was all they could receive and they could not charge any additional fees.”
In the past, Foley said, “we would get calls from member agents and brokers who put in a lot of work and finally get the policy in place for the benefit of the insureds. A lot of work goes into it, and sometimes they feel there’s not enough compensation — that is, the commission that they receive.
“And so, on occasion, we would get a call from an agent or a broker saying, ‘Gee, is it permissible to charge an additional fee in addition to the commission that we receive because of all the work we put into producing this policy for our insured?'” he said.
But the association said whenever it checked with the Division of Insurance in the past, the answer was always “no.”
When companies file their rates for whatever premiums they are going to charge, in that rate filing is a component for commissions, Foley said. “The Division always said, ‘That’s how brokers and agents should be compensated.’ When they are receiving the commission, they could not charge an additional fee.'”
So even though the Massachusetts insurance statutes are silent on whether producer fees are allowed, previous state regulators always held the position that a rate filing by companies on various products that are being sold contained compensation by way of commission, “and that’s how agents are to be compensated and they weren’t allowed to charge an additional fee. So that was an interpretation by the Division based on rate filings.”
But this bulletin would now allow fees to be charged — as long as producers comply with the perimeters set forth in the bulletin.
“This bulletin does represent a huge change that now allows all producers, including licensed property/casualty, health, excess and surplus lines brokers, to charge an additional fee on top of receiving the commission, provided they, prior to the sale of the policy, put down the purpose and the amount of the fee which has to be disclosed in writing,” Foley said. “We think it’s a big change for all producers if, in fact, they want to avail themselves to what this bulletin allows.”