An Agent s Guide to Charging Fees for Services

Transcription

1 An Agent s Guide to Charging Fees for Services 600 Cross Pointe Road Gahanna, OH phone (614) fax (614) toll-free (800)

2 TABLE OF CONTENTS Background and summary of Ohio s law regarding charging fees 3 The guidelines set out in the Ohio Revised Code and examples of fee based services Personal Lines Exemptions 5 Explanation of situations when an agent may not charge fees Disclosure 5 Explanation of why an agent must disclose fees for services Sample Agreement Fees in Connection with Insurances Services You Provide as an Agent 7 Informational form that can be adapted for use by an agent Legal Limitations on Service Fees 8 Shows how Ohio law applies to charging fees For More Information 9 OIA legal hotline service 2

3 BACKGROUND AND SUMMARY OF OHIO S LAW REGARDING CHARGING FEES PIA often receives calls from agents regarding the permissibility of charging fees for services. The previous Ohio law was not clear about this issue and it was difficult to give guidance. However, PIA of Ohio assisted in rewriting this statute in Senate Bill 154 and this situation was greatly clarified. The Ohio Revised Code sets out very specific guidelines in section An agent may charge a fee on all property/casualty policies sold on a commission or no-commission basis if all of the following conditions are met (see personal lines exception on page 5): 1. The fee is disclosed to the customer in a way that separately identifies the fee and the premium. 2. The fee is not based on a percentage of the premium. 3. The fee is not refunded, forgiven, waived, offset, or reduced by the commission earned on the policy. 4. The fee and the customer s obligation to pay it are not based on a future event such as the purchase, cancellation, lapse, declination or non-renewal of insurance. 5. The agent discloses that the agent, and not the insurance company, is charging the fee, and that neither state law nor the company requires the fee. The agent must also advise that the fee is not refundable. 6. The customer must consent to the fee. 7. The agent cannot discriminate on the basis of age, sex, national origin, religion, disability, health status, age, marital status, or geographic location. In addition, the agent must not unfairly discriminate between members of the essentially same class or those presenting the same exposure or expectation of life. 3

4 Examples of fee-based services might include: 1. Ordering motor vehicle reports 10. Disaster plan assistance 2. Review of coverages 11. Contract review 3. Review of competing quote 12. Claims management/analysis 4. Loss control 13. Financial review of insurance companies 5. Safety programs 14. Issuing binders 6. Consulting 15. Issuing certificates of insurance 7. Risk analysis 16. Assistance with bid specifications 8. Risk financing 17. Policy reinstatement 9. Inspections/photos All of the above examples must meet all of the conditions outlined in the statute. 4

5 PERSONAL LINES EXCEPTION However, there are situations in which an agent may not charge a fee in connection with personal lines policies sold on a commission basis. These deal with submitting an initial application, making a policy change, canceling a policy, processing a claim, or renewing a policy. Revised Code section includes as personal lines policies: automobile, homeowners, fire or dwelling coverage, personal umbrella, or other related personal lines coverage sold as a separate policy or as an endorsement. Also included as personal lines policies are: individual life insurance, sickness or accident insurance, disability income insurance, or credit insurance. The agent may charge a fee in connection with a) a personal lines policy sold on a nocommission basis as long as the agent discloses the fee and the services to be provided. DISCLOSURE If there is a dispute as to whether the agent disclosed the fee, the burden of proof will be on the agent. Because of this, the agency should have a procedure requiring the customer s signature on a disclosure form prior to charging a fee for services. A sample disclosure form is included as Exhibit A on page 7. 5

6 If an agent does not comply with all requirements of the statute, he or she will be deemed to have engaged in an unfair or deceptive act or practice in the business of insurance in accordance with sections and of the revised code. To avoid problems with the Ohio Department of Insurance, an agency should comply with all parts of the statute. Although the statute is fairly clear, any question whether a fee can be charged for a given service should be addressed to the Office of Legal Services at the Department at (614) For additional information about this topic, including how to determine the costs to provide fee-based services and ideas about how to implement such a program, The Academy of Producer Insurance Studies has published a book titled Fee-Based Services Using Fees to Increase Revenues and Retain Accounts. It is available through our Resource Library or you may purchase a copy by contacting The National Alliance Research Academy at (800) (cost is approximately $30). Contributors: Craig D. Leister, Means, Bichimer, Burkholder & Baker Co., LPA Ric Mazon, CAE Linda Hughes, CIC, CPCU, CPIW 6

7 Exhibit A Page 1 SAMPLE AGREEMENT FEES IN CONNECTION WITH INSURANCE SERVICES YOU PROVIDE AS AN AGENT [Note: This sample agreement is not intended to be legal advice nor is it intended to be taken verbatim. This sample is provided for information purposes only.] AGREEMENT TO PAYMENT OF INSURANCE SERVICE FEE This agreement is for payment of a service fee to your licensed insurance agent in connection with your insurance policy for insurance. (Specify type of insurance placed/to be placed) The party agreeing to the charge,, (name of party agreeing to the charge) will pay to the agent,, a fee in the (name of agent) amount of $. This fee is separate and apart from the premium of $ which is imposed by the insurance carrier for the insurance coverage. This fee is being charged in consideration of the following service(s) rendered:. [INCLUDE IF APPLICABLE] In addition to the service fee specified above, the party agreeing to the charge will reimburse the agent for actual expenditures by the agent for the following item(s) necessary for the placement of the risk: Inspection report(s): Bureau of Motor Vehicle report(s): Police report(s): Telephone call(s): $ $ $ $ I agree to pay the fee in the amount of $, and I understand that the fee is neither a premium charge nor a commission. I have read the Legal Limitations on Service Fees on the reverse side. Signed: Date: (Signature of party agreeing to the charge) Signed: Date: (Agent) 7

8 Exhibit A Page 2 LEGAL LIMITATIONS ON SERVICE FEES In accordance with of the Ohio Revised Code: 1) the fee is not calculated as a percentage of the premium; 2) the fee is not refunded, forgiven, waived, offset or reduced by any commission earned or received for any policy or coverage sold; 3) the amount of the fee, and your obligation to pay the fee, are not conditioned upon the occurrence of a future event or condition, such as the purchase, cancellation, lapse, declination, or nonrenewal of insurance; 4) the fee is being charged by the agent and not by the insurance company; 5) neither Ohio law nor the insurance company requires the agent to charge the fee; and 6) the fee is not refundable. The agent, in charging the fee, does not discriminate on the basis of race, sex, national origin, religion, disability, health status, age, marital status, or geographic location, and does not unfairly discriminate between persons of essentially the same class and of essentially the same hazard or expectation of life. You should please note that under Ohio law a fee may not be charged for taking or submitting an initial application for coverage with any one insurer or different programs with the same insurer, or processing a change to an existing policy, a cancellation, a claim, or a renewal, in connection with any of the following personal lines policies: 1. Private passenger automobile. 2. Homeowners, including coverage for tenants or condominium owners, owner-occupied fire or dwelling property coverage, personal umbrella liability, or any other personal lines-related coverage whether sold as a separate policy or as an endorsement to another personal lines policy. 3. Individual life insurance. 4. Individual sickness or accident insurance. 5. Disability income policies. 6. Credit insurance products. Ohio law does, however, permit an agent to charge a fee for agent services in connection with any policy issued on a non-commission basis if the agent provides you with prior disclosure of the fee and of the services to be provided. 8

9 FOR MORE INFORMATION This material is intended to provide you with general background and insight. This material does not constitute, and should not be regarded as, legal advice regarding any particular facts, circumstances, or issues. This material is not intended to serve as a substitute for legal counsel, and we advise you to contact legal counsel for specific analysis, drafting and advice. You can also try one of OIA's most valuable member services the OIA LEGAL HOTLINE. This service is available free of charge to OIA members and will put you in contact with expert legal advice to avoid the pitfalls created by the many laws and regulations facing your agency. Call (800) to learn how to use this free member benefit All rights reserved. 9