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.
- A broker of record is an agent who is responsible for managing and representing a policyholder's insurance policy.
- He or she often receives a monthly commission from an insurance company for working as a broker of record.
- Communication and acting as a liaison for the policyholder are two aspects of this job.
- A broker of record letter is a legal document used to set the relationship between then broker, policyholder, and the 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.
A broker of record may also obtain and evaluate insurance quotes, policies, and recommend changes to existing policies.
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.
The Bottom Line
In summary, a broker of record letter can accomplish the following:
- Terminates the relationship between policyholder and broker.
- Suspends the current broker’s ability to negotiate on the policyholder’s behalf with the insurance company.
- Makes official the appointment of a new broker, giving that broker the sole authority to negotiate with an insurance company.
- Grants access to underwriting information or proposals currently under consideration.
- Allows for a transition period from one broker to another, expressed in a number of days, to allow full disclosure of the letter to all relevant parties. This should allow the former broker a chance to review the implications of the letter with the employer and its desire to change brokers.