Subagents – What Are They and What Can They Do?

The subject of subagents has come up recently in a couple of conversations that I have had with participants in the Free Legal Service Program that I operate on behalf of the Independent Insurance Agents of Georgia.  One conversation was about ways that an agency could reward another business owner for making referrals to the agency and the other concerned whether a certain type of employee needed to have a license from the Insurance Commissioner’s Office.  This latter conversation involved the same type of issues as I discussed in my blog post in November about the licensing of CSR’s.

In both conversations, the use of a subagent’s license was discussed as a way to allow the sharing of commissions with the other business owner and avoiding any problems with the Insurance Commissioner’s Office over the work being done by the employees in question.  There appears to be a common perception that the requirements to obtain a subagent’s license are less rigorous than for a regular agent’s license.  A review of the applicable statutes and regulations issued by the Insurance Commissioner’s Office reveal that to be the case with respect to only one type of insurance.

The Georgia Insurance Code defines a subagent as “any licensed agent, except as provided in Code Section 33-23-12, who acts for or on behalf of another licensed agent” in connection with the sale of insurance products.  From this definition, it is clear that a subagent must be a regularly licensed agent, except as may be allowed in the code section referred to in the definition.  That code section provides for the licensing of credit insurance sales and the sale of insurance by rental car companies, sellers of portable electronic devices or services, the owners of self-service storage facilities, and travel agents.  It also authorizes the Insurance Commissioner to “provide by rule or regulation for licenses which are limited in scope to specific lines or sublines of insurance.”

The Insurance Commissioner has issued such a regulation, but it authorizes the issuance of a limited subagent’s license for only personal lines property and casualty and life, accident, and sickness insurance products.  It is easier to obtain a limited subagent’s license for these lines of insurance because there is no requirement that the licensee pass an examination, only that they take an “approved limited subagent prelicensing course” within 12 months of the date the application for such a license is submitted.  There are also some other requirements imposed on the agent for whom the limited subagent will be acting, the most important of which is that the agent will be held responsible for all the actions of the limited subagent.  That is also the case with respect to a regular subagent.

Unless the insurance products for which a referral fee is to be paid or that are being dealt with by an agency employee are personal lines products, the obtaining of a required insurance license will not be any easier for a subagent than obtaining a regular agent’s license.

For What Services Can An Insured Be Charged A Fee?

Judging by the telephone calls and e-mails that I have received from my clients and others since the beginning of this year, a New Year’s resolution made by many insurance agents has been to explore ways in which fees can be charged to their customers.  I have had requests to review fee agreements for customers that are related to both personal and commercial lines of insurance.  There is a specific statutory scheme that regulates the type of fees that can be charged to a commercial lines customer in connection with the placement of a line or subline of insurance, if the agent also wants to receive a commission from the insurance company for that placement.  For the reason explained below, this statutory scheme leads to the conclusion that personal lines customers can not be charged fees for services related to the placement of their insurance policies if the agent also wants to receive a commission from the insurance company for that placement.  But what about fees for services that are not related to the placement of those policies?

With respect to this question, there is only informal guidance from the Insurance Commissioner’s Office that the Unfair Practices section of the Georgia Insurance Code that prohibits charging anything more or less than the stated premium “for insurance” covers any activity that is considered to be an integral part of the placing and servicing of an insurance policy.  As noted in an earlier post on this blog, the Insurance Commissioner considers the issuance of a certificate of insurance to be an integral part of the placing and servicing of an insurance policy.  Thus, a fee can not be charged by an insurance agent for the time it takes to issue such a certificate.  However, my earlier blog post makes the argument that an agent who also has a counselor’s license can charge a fee for performing that service, if he or she follows the requirements imposed by the Insurance Code on the charging of a fee and the receipt of a commission for the placement of commercial lines policies.

In general, an agent who also has a counselor’s license can receive a fee from the insured for providing “additional ancillary services for commercial risks in excess of acquisition services” if those services “are disclosed in writing to the insured and approved in advance by the insured.”  In 2005, the Georgia legislature imposed additional disclosure requirements that apply to the initial purchase of an insurance coverage in connection with which the agent will also be charging a fee.  (Click here to read an article I wrote that explains those requirements.)

Agents who handle personal lines of insurance cannot receive a commission and charge fees for “additional ancillary services” on the same line or subline of insurance even if they also had a counselor’s license, because the statute only permits such fees for “commercial risks.”  Personal lines agents are left with trying to determine what services they provide may not be considered an integral part of the placing and servicing of an insurance policy.  Any such services could be the subject of a fee charged by the agent.  One example I have used in the past is the charging of a fee for accepting and processing installment premium payments after the first such payment where the customer could make those subsequent payments directly to the insurance company.  It is also possible for a personal lines agent, as well as a commercial lines agent, who has a counselor’s license to be paid only a fee by the customer for the placement of insurance. (Click here to read an article I wrote on that subject.)

To protect themselves, in all situations in which an agent charges a fee of any kind to the customer, the agent should disclose the fee and obtain the customer’s consent to its payment in writing.