Relationships With Business Groups & Other Potential Sources of Customers – What Can Be Done?

I recently received a call on the IIAG Free Legal Service Program that I operate from an agent who was considering establishing a relationship with a business association, for whose members the agent was interested in writing insurance.  The agent had developed a special expertise regarding the insurance needs of the business association’s members and wanted to gain access to them through their association.

The business association on the other hand was interested in receiving compensation beyond a mere referral fee for assisting the agent in gaining access to its members.   In exchange for that compensation, the association was willing to provide assistance to the agent beyond just giving the agent contact information for its members.  Establishing such a relationship with a business group can be a very effective way for an agent or agency to significantly increase its customer base.

The creation of a relationship with a person or entity that is not licensed by the Georgia Insurance Commissioner’s Office raises two significant issues under the Georgia Insurance Code that must be successfully dealt with.  First, there is the prohibition on the sharing of commissions with a person or entity that does not have the proper license from the Insurance Commissioner’s Office.  Second, there is the prohibition on engaging in activities that constitute the sale, solicitation, or negotiation of an insurance product without the proper license from the Insurance Commissioner’s Office.

The first issue can be resolved by entering into a payment arrangement with the unlicensed business group that is not tied in any way to the amount of commissions received by the agent or agency on insurance business written for the group’s members or even to whether any insurance business is written at all.  The agreed on compensation for the performance of services by the business group should be paid regardless of those two factors.

Some people may think that having an employee of the business group get the proper insurance agent’s license and then paying an agreed on share of the commissions received directly to that employee will resolve the first issue.  That would work if the employee was going to keep all the commissions paid to him or her.  However, that is not likely to the case, and if the agent or agency was or should have been aware that the employee would turn over all or any part of such compensation to their employer, then they may well be in trouble with the Insurance Commissioner’s Office.

However, having an employee of the business group get such a license would resolve the other issue raised by the agent or agency’s relationship with that group.  What duties constitute the sale, solicitation, or negotiation of insurance is a gray area and has been the subject of a couple of my earlier blog posts.  Having a properly licensed insurance producer, who is employed by the business group, handle all the insurance related duties that the business group is to perform in exchange for its compensation would avoid any potential problem with the Insurance Commissioner’s Office over that issue.  In the absence of such a employee, the agent or agency would be exposed to potential liability if the Insurance Commissioner’s Office were to determine that one or more of the duties being performed by the business group could only be performed by a properly licensed insurance agent.

Hartford AARP Program Change – An Update

A month or so ago, I wrote a blog post about a proposed change in the agreement for those agencies that participated in the program that the Hartford Insurance Companies have for members of the American Association of Retired Persons (AARP”).  That change would have exposed those agencies to the possibility of being terminated from the program and losing all the policies placed through it without receiving any compensation for that lost business.

I have recently learned that, in response to inquiries by concerned agencies, the Hartford Insurance Companies have stated that the intent of the change in the agreement for the AARP program was not to take away existing business from agencies whose participation in that program was terminated.  Instead, such agencies would be allowed to continue servicing their existing business in the program, they just could not write any new business for it.  Of course, if the general agency agreement with the Hartford Companies was terminated, then the agency would have to move the program business, as well as all its other business with those Companies, to another insurance company or it would lose that business with no further compensation being paid.

The above approach is a reasonable one.  Unfortunately, it was not accompanied by any change in the language of the new agreement for the AARP program.  That language still reads, “Notwithstanding the preceding [agent is entitled to keep expirations if no breach of agency agreement], any [AARP] Member policies not placed with another carrier prior to the expiration of the contractual and/or applicable statutory renewal period of such Member policy shall be renewed with Hartford and immediately transferred to an internal Hartford code upon such renewal.”  There is no exception in that language for the situation where the agency remains appointed by the Hartford Companies.

Agencies should be reluctant to rely on a statement from the Hartford Companies about what they intend to do in the event their participation in the AARP program is terminated, which can happen at any time and for any or no reason, in the absence of any change to the actual language of the program agreement.  In addition, allowing agencies whose participation in the AARP program has been terminated to continue servicing their existing policies in that program raises interesting questions about the various ethical, training, and other requirements imposed on agencies by that program that do not exist under the general agency agreement.

Must the agency still abide by all the ethical, training, and other requirements contained in the AARP program agreement in order to be able to continue to service policies that are covered by it?  Also, how will the agency be able to continue servicing those policies if all its records concerning them must be either destroyed or returned to the Hartford Companies, as required by paragraph 14(b) of the new agreement?  These questions should be addressed up front to avoid any disputes in the future.

The Hartford Companies have made a good start on dealing with the issues raised by the new agreement for its AARP program, but there are still many unanswered questions that need to be addressed before agencies can feel comfortable with their obligations under it.

What’s Next After E-Delivery of Policies and Notices?

Now that the electronic delivery of insurance policies and notices about them has been clearly authorized by the Georgia General Assembly (click here for an earlier post on this subject), the next step for agents who want to continue to work toward a truly paper free office and realize the savings in time and money that result is the use of electronic signatures for documents that, in the past, had to be physically signed by the insured (e.g., an application for or waiver of coverage).  As with the electronic delivery of policies and other documents, there are both legal and practical issues associated with using electronic signatures on documents.  ACORD has published an analysis by a well known law firm of these issues, which was the subject of an article by Jeff Yates of the Agents Council on Technology.

For those of you who have followed my blog posts and articles in the Dec Page magazine on the electronic delivery of insurance policies and other documents, the legal requirements for the use of electronic signatures will be familiar.  They are essentially the same as for the electronic delivery of such documents.  The consent of the customer to the use of electronic signatures must be obtained and that consent is subject to the same disclosure requirements in consumer transactions as for the electronic delivery of documents.  However, the burden of proving the electronic signature of a customer involves much more than proving the electronic delivery of a document.

While it may be enough under Georgia law to prove that a document was delivered electronically by obtaining a receipt of delivery from the recipient’s internet service provider, proving the validity of an electronic signature requires much more.  You must be able to prove not only that an electronic signature was obtained, but also the identity of the person who gave that signature and that the document to which it relates has not been changed since the date of the signature.  The analysis published by ACORD contains guidelines for developing procedures to accomplish these requirements.

There are several technology providers who offer products that they claim will fulfill all the legal requirements.  One of those providers is DocuSign, which has been endorsed by the IIABA and offers a discount to IIABA members.  Another is Silanis, which has recently published a marketing brochure that explains how its product addresses the legal requirements discussed in the ACORD analysis.  That brochure provides a good summation of those requirements and is worth reading for that reason alone.

If any of my readers have begun using electronic signatures in their agencies, I would appreciate hearing about your experience.

Should the Insurer be Sent a Copy of an Insurance Certificate?

A recent edition of IA News & Views asked this question.  My first thought was why bother, since under Georgia law an insurance certificate is “not a policy of insurance and does not affirmatively or negatively amend, extend, or alter the coverage afforded by the policy to which the certificate of insurance makes reference” and does “not confer to a certificate holder new or additional rights beyond what the referenced policy of insurance expressly provides.”  However, a review of the materials on the IIABA website page that is devoted to issues involving insurance certificates convinced me otherwise.

It turns out that the language of some insurance policies may be interpreted to provide coverage based on the contents of an insurance certificate issued by an agent regarding the policy.  If that is the case, then the failure of the agent to give a copy of the insurance certificate to the insurance company could be a basis for the insurance company to escape responsibility for providing coverage, leaving the agent with that liability exposure.  To make sure an agent or agency does not fall into any such traps for the unwary, I agree with the conclusion expressed on IIABA’s website page that copies of all insurance certificates issued should be sent to the insurance company involved regardless of what that company has said about the subject, unless the company is willing to indemnify and hold harmless an agent or agency for any claims that may arise based on the issuance of an insurance certificate.

In addition to the above practical reason for providing a copy of all insurance certificates issued to the insurance company involved, a regulation adopted by the Georgia Insurance Commissioner’s Office could be interpreted to require that to be done.  That regulation, 120-2-103-.06, requires an insurance company to “provide to their producers written instructions clearly outlining the insurer’s procedures and each party’s responsibilities for issuing and servicing certificates”, which procedures are to include  a method to “monitor certificates to ensure they have been issued in compliance with the insurer’s procedures, applicable statute and this regulation.”  Another part of the regulation permits copies of certificates to be provided “electronically.”

How can an insurance company fulfill the above obligation without requiring the submission to it of copies of the insurance certificates issued by its “producers”, i.e., agencies and agents?  I would be interested to know what, if anything, insurance companies licensed in Georgia have done in response to the above regulation.  If any of my readers could send me a copy of any such written instructions they have received, I would appreciate it.

Must an Agent Report His or Her Own Wrongdoing to the Insurance Commissioner?

Several months ago, I wrote a blog post on the legal duty of an agent to report wrongdoing by others to the Insurance Commissioner’s office.  As explained in that post, under certain circumstances, such a legal duty does exist.  But what about the wrongdoing of the agent himself or herself?   Does an agent have the duty to report such wrongdoing to the Insurance Commissioner’s office, too?

It turns out that such a duty does exist for (i) any type of criminal prosecution involving the agent, (ii) the conviction or sentencing of the agent for certain types of crimes, (iii) any suspension, revocation, or annulment of a business or professional license of any kind held by the agent, and (iv) any suspension, revocation, or refusal of an insurance license held by the agent.  In addition, there is a duty to notify the Insurance Commissioner’s office in the event any “other disciplinary action” is taken by a “lawful authority” with respect to an insurance or other business or professional license.  The source of this duty is found in the section of Georgia’s Insurance Code that deals with the grounds for suspending, revoking, or refusing to issue a license of any kind under that Code.

That code section makes the failure to report to the Insurance Commissioner’s office (i) a criminal prosecution of any kind within 30 days after the date of arrest, (ii) the conviction or sentencing for a felony or any crime involving “moral turpitude” within 60 days after it occurs, or (iii) the taking of a disciplinary action against an insurance or other business or professional license within 60 days after the action is taken a ground for suspending, revoking, or refusing to issue an insurance license of any kind.  This reporting duty exists with respect to any of the above actions whether they occur within or outside of Georgia and even if they occur in a foreign country.

Thus, if there is “disciplinary action” taken with respect to an agent’s non-resident license anywhere in the United States, that action must be reported to the Georgia Insurance Commissioner’s office.  It is also likely that other states have laws similar to Georgia’s, so there may well be a duty to report any such “disciplinary action” to every other state in which the agent holds a resident or non-resident’s license.

There is no definition of what constitutes “other disciplinary action”, but it is likely the Insurance Commissioner’s office would interpret that phrase to include any type of sanction levied by a regulatory body, no matter how small the fine or other penalty imposed.  Another interesting question is whether the above reporting duty also applies to actions taken against agencies, instead of individual agents.  The opening language of the code section refers to the “applicant for or holder of” a license of any kind, other than a probationary license, but the language of the parts of that code section that deal with “other disciplinary action” refer to such action “taken against him or her.”  While this use of individual pronouns may provide a basis for arguing those parts of the code section don’t apply to agencies, it is also likely the Insurance Commissioner’s office would not agree with such an argument.

Change in Hartford AARP Program

I received a call last week on the free legal service program that I run for the Independent Insurance Agents of Georgia from an agent who had recently received a new addendum for the program that the Hartford Insurance Companies have for members of the American Association of Retired Persons (“AARP”).  This new addendum made some changes to the program, but the one that most concerned this agent had to do with what happens to the policies that are in force under the program in the event the addendum was terminated.

As my readers know, what happens to the policies that are in force with an insurance company upon the termination of the relationship between an agency and the company is a crucial question in all agency agreements.  That is especially true for Hartford’s AARP program because it offers guaranteed renewability for the insureds who participate in it.  Ordinarily, as long as the agency has not violated any provisions of the agreement with the insurance company, the agency is given the ability to move the policies to another company.  But that is not likely to happen with the policies that are in force under Hartford’s AARP program given their guaranteed renewability feature.  Most likely, the insureds under those policies will want to stay with Hartford’ s program.

Recognizing this fact, the previous addendum for Hartford’s AARP program required Hartford to notify the insureds under it of the termination of the agency’s participation in the program and to ask each insured to decide whether they wanted to stay in the program with another agent or obtain new coverage through their existing agent.  If the insured chose the stay in the program with another agent, Hartford was required to pay the existing agent 1.5 times the most recent annual commission for the insured’s policy.

Under the new addendum for the AARP program, Hartford is not required to give any notice to the insureds of the agency’s termination from the program and more importantly, is not required to pay the agency anything for the policies that it is not able to move to another company by the their next renewal date.  Instead, all such policies will be “renewed with Hartford and immediately transferred to an internal Hartford code upon such renewal” and “no commission or other compensation will be due to” the agency for any such policy.

Since under the new addendum Hartford can terminate an agency’s participation in the AARP program immediately for any or no reason, if an agency elects to continue to participate in the program under the new addendum, it runs the risk of losing its right to participate in the program at any time and will not receive any compensation for the policies it placed with the program that it cannot move to another company by their next renewal date.  If an agency elects not to continue to participate in the program under the new addendum, it will have the right to receive the compensation described above for the policies that it cannot move to another insurance company.   Of course, it will run the risk that Hartford will choose to terminate its general agency agreement in light of the agency’s unwillingness to accept the new addendum to the AARP program.

Agencies that participate in Hartford’s AARP program have a decision to make.  Continue under the program and lose the right to compensation for policies it cannot move to another company if its participation in the program is terminated or opt out of the program and obtain compensation for those policies, but run the risk that Hartford will terminate its general agency agreement.  What to do will require some serious cost benefit analysis by the affected agencies.



New Laws Take Effect

July 1 is the effective date for all laws passed by Georgia’s General Assembly in any year, which laws do not specify a different effective date.  For Georgia insurance agents tomorrow is the effective date for three laws, two of which are of importance to them in particular and the other of which is of importance to all business owners.  I have written both a blog post and an article for the Dec Page magazine about the first two laws.

All insurance policies that contain an audit provision and that are issued or renewed on or after July 1, 2014 can be canceled if the insured fails to submit to or allow an audit after having been contacted twice by the insurance company about the need for an audit.  This may be good news for many insurance agents, but the law contains a potential trap for the unwary.  It includes the agent for the insured in the list of persons that the insurance company must contact  about the need for an audit.  This may lead to E&O exposure if the agent does not attempt to contact the insured upon receiving such a notice from the insurance company, especially if the agent knew that the address being used for the insured by the insurance company was not correct or that the insured was unlikely to receive the notice for other reasons.   In order to protect themselves from this potential E&O exposure, Georgia agents should consider including in their paperwork for insureds with policies that permit an audit a statement that they will assume no responsibility for notifying the insured of any attempts by the insurance company to contact the insured about scheduling an audit.

The other law of special significance for insurance agents specifically authorizes the electronic delivery of insurance policies, as well as other documents, including, but not limited to, cancellation or nonrenewal notices, that were previously required to be mailed.  The bill imposes several conditions on the electronic delivery of such notices and other documents that do not apply to the electronic delivery of insurance policies. These conditions are discussed in my article in the Summer 2014 edition of the Dec Page Quarterly and are in addition to those imposed by the federal Electronic Signatures in Global and National Commerce Act.  This means that the requirements of that Act regarding the electronic delivery of notices and other documents in consumer transactions must also be followed.  Those requirements are extensive and are explained in an article found on my website.

The law that is of significance to all Georgia business owners is the Safe Carry Protection Act, which is commonly referred to as the “Guns Everywhere Act.”  As of July 1, the places where licensed gun owners are allowed to carry their weapons will be greatly expanded.  These places include businesses open to the public, unless the business has posted a notice prohibiting the bringing of firearms onto its premises.  If the business owner wants to prohibit its employees from doing so, it must a create policy to that effect and make sure its employees are aware of the policy.  However, there are restrictions on a business owner’s ability to regulate the bringing of firearms to work by its employees if those firearms are left in the employee’s motor vehicle.  For a complete explanation of those restrictions and other information about this law click here.

IIAG Annual Convention – What You Missed Too

In my last blog post, I talked about one of the educational presentations at this year’s IIAG annual convention that I found interesting and entertaining.  At the end of the convention, there was a speech by an insurance industry executive that I also found  interesting, which as I am sure anyone who has attended the convention can attest is not always the case.  This year’s industry speaker was the CEO of Progressive Insurance, Glenn Renwick. Besides having an interesting accent (he is from New Zealand) and an unusual background for an insurance executive (he has a masters degree in engineering), his speech focused on five trends that he thinks will influence the insurance industry in the future.

Some of those trends were nothing new (consumers will increasingly want to access services digitally and on mobile devices) and are being acted on by everyone in the industry who wants to stay competitive, but others were not so obvious and if acted on by insurance agencies, could give them an advantage going forward.  Two of those trends, in particular, offer insurance agencies an opportunity to “think outside the box” about how they can differentiate themselves from the competition.

Mr. Renwick spoke about how his company had partnered with another company to offer a service to its customers that it did not offer, but which would be needed by its customers.  The idea is to provide a way for a company’s customers to satisfy as many of their needs related to the products or services offered by it as possible in one place.  If your agency does not offer a type of insurance or a product or service that you know its customers need or would be interested in, look for someone in your community or nearby who does offer that product or service and work out an agreement to market it to your customers on your agency’s platforms and also to market your agency’s products and services to the partner’s customers on its platforms.  An easy example is life and health insurance for a property and casualty agency or mortgage or real estate agent services or maybe even car repair services for such an agency.

The last example was one used by Mr. Renwick to explain another trend that is happening.  He referred to it as “using time as a design criteria.”  What he meant was finding ways to make a customer’s experience with your company take as little time as possible and thus, leave the customer with a good feeling about the company.  For his company, that involved moving from a posture of just writing a check to the insured for the appraised cost of repairs to their car and leaving it up to the insured to find a competent person to make those repairs for that cost to one in which the company oversees the repairs to make sure they are done right and for the amount estimated.

In your agency, look for the services it provides that take the most time and/or create the most dissatisfaction for its customers and then try to figure out ways in which that service could be delivered more efficiently or in a way that is more pleasant for its customers.  If you are successful in this effort, you will have more satisfied customers who will think that your agency cares about them, which is, as Mr. Renwick pointed out, the key to keeping them for the long term.

IIAG Annual Convention – What You Missed

I just got back yesterday from the IIAG’s annual convention in Amelia Island.  The two and a half day event had two educational programs, one of which I missed, a panel discussion about the upcoming legislative elections in Georgia, and speeches by IIABA’s Vice Chair and the CEO of Progressive Insurance, all of which I attended.

The educational program I attended focused on ways to energize both yourself and others in your agency to increase its sales.  The speaker was Brian Cain, who got his start in the motivational business by assisting athletes in learning how to deal with the stresses of competition at the elite level of their respective sports.  He made the point that salespeople like athletes have to learn how to deal with failure if they are ever going to get better at what they do.  Salespeople also need to be able to focus in the moment when making a presentation, just as an athlete has to be able to focus on their performance and block out all distractions.

In an interesting twist on the old 80/20 rule, Mr. Cain made the statement that 80% of a salesperson’s results come from 20% of what that person does.  In other words, most of a salesperson’s success is based on only 20% of the activities engaged in by that person, which means there is a lot of wasted effort.  Of course, determining which is which is the trick, but Mr. Cain’s advice was to focus on those actions that are taken when success occurs and repeat those actions until they become a habit.  The opposite should occur when there is failure.  Analyze what went wrong and then do not repeat it.

The part of his presentation that I found most interesting was his advice on how to avoid bringing your work home with you, which leads to less time spent on your family and other things that are important to you.  He suggested that, at the end of every work day, you review what happened and then plan what you want to do the next day, writing it down if you need to.  Or if that is too much, the same thing could be done at the end of every work week.  On Friday, review what happened that week and plan what you want to do the next week.  By doing this, your mind is free to focus on the evening’s or weekend’s activities and will not be weighed down with thoughts about work.

On other thing that you missed by not attending the IIAG annual convention was the publication of the third edition of my Answers to Frequently Asked Questions booklet.  A copy of that booklet, which contain the answers to 35 questions that I have heard most often from agents about their business activities, was given to each person who attended the annual convention.  The questions range from what type of legal entity should be used to conduct an insurance agency business to the payment of fees or other compensation for the referral of business to the electronic delivery of insurance policies and an agent’s duty to report wrongdoing.  If you would like a copy of the booklet, please contact me.


Summer Interns – What Are the Risks?

About this time last year, I did a post on traps for the unwary to avoid in the hiring of summer interns.   Now that most schools in the Georgia are on summer break, I thought it would be a good idea to remind my readers of those traps and the associated risks in the hiring of summer interns.

The major risk arises if the intern is not paid anything or less than the current minimum wage for the time they spend working for a business.  In that situation, the burden is on the business to prove that the intern was in fact a “trainee”, who does not have to be paid anything for their services, and not an “employee”, who must be paid at least the minimum wage for their services.  That burden is higher for a profit-making business because the United States Department of Labor (the “USDOL”), which is responsible for enforcing the minimum wage law, will presume that such an intern is an “employee”.   The USDOL has issued a Fact Sheet in which it establishes six criteria that must be met to prove an intern is a “trainee.”  Last year’s blog post discusses some of those criteria, but the bottom line is that if the business owner derives any significant benefit from the services of an intern, that intern will most likely be considered an employee by the USDOL for purposes of the minimum wage law. (Click here for an article I have written that goes into greater detail about the USDOL’s position on unpaid interns.)

The fact that the intern willingly agreed to perform the services in question without being paid any compensation is irrelevant, as the United States Supreme Court has held that an individual can not waive their rights under the minimum wage law. Thus, an intern could decide, up to three years later, that maybe they should have been paid for all the services they performed for a business, if for whatever reason they now need the money or have a grievance of any kind against the business.

For a business that is considering hiring someone who is under 18 years of age, both the federal and state governments impose restrictions on the types of activities in which such a person can engage and for how long each day, regardless of whether they are a “trainee” or an “employee.”  The main difference between the two sets of restrictions is that Georgia law requires a person under 18 to obtain an employment certificate, or work permit, from the school they last attended or the local county school superintendent.  (Click here for a fact sheet from the USDOL on this subject and here for a summary of the restrictions imposed by federal and state law from the Georgia Department of Labor.)  As noted at the bottom of the Georgia Department of Labor’s summary sheet, if the child is working in a business owned by his or her parent or guardian, only the restrictions regarding prohibited occupations will apply.