The above question continues to come up every so often in the Free Legal Service program that I run for the members of the Independent Insurance Agents of Georgia. There is no definitive answer to the question in either the Insurance Code of Georgia or the regulations or other pronouncements issued by the Georgia Insurance Commissioner’s Office. However, I have advised my clients for a long time that a very strong argument can be made that the payment of referral fees is permissible, as long as their payment is not conditioned on the purchase of an insurance product by the person or business who is the subject of the referral.
The basis for my argument is that the law most often cited in support of the position that the payment of referral fees is illegal is the prohibition on the sharing of commissions by an insurance agent with a person or entity that is not licensed by the Insurance Commissioner’s Office. I agree that this prohibition would most likely make illegal the payment of a referral fee only for referrals that resulted in the sale of an insurance policy or other product. In that situation, it is easy to see how the agent or agency could be said to be sharing the commissions earned for such a sale with the referral source.
However, if the referral fee is paid regardless of whether the person or business who is referred buys an insurance policy or other product from the agent or agency, to say that such an arrangement would be the sharing of commissions with an unlicensed person would mean that an agency could not pay its employees who are not licensed by the Insurance Commissioner’s Office for the services rendered to the agency. This because the source of the compensation paid to those employees was the commissions received by the agency for the insurance policies and other products it sold to its customers.
Obviously, such an interpretation of the law would make it cost prohibitive, if not impossible, for many agencies to conduct their business activities. The passage of an amendment to the anti-rebate law by this year’s General Assembly lends further support to my argument. In a change that took effect on July 1, 2016, that law was amended to allow an insurance company or producer to give a customer or potential customer certain kinds of gifts as part of an “advertising” or “promotional” program, as long as the giving of such gifts was not conditioned on the purchase or renewal of an insurance policy by the recipient of the gift. (Click here for more details on this new law).
If an agent and presumably an agency can give a customer or potential customer a gift as long as it is not conditioned on the purchase or renewal of an insurance policy, there is no difference in giving a fee or other gift to a third party for referring a potential customer regardless of whether that potential customer buys an insurance policy.
The short answer to the above questions is Yes. I have written a few blog posts in the past on how an agency or agent can unknowingly create a duty to their customers or potential customers that would not otherwise exist by what they say or do. The same principles discussed in those blog posts also apply to the contents of an agency’s website or social media communications. The dilemma faced by agencies and agents who are trying to do what the marketing consultants say (to attract customers you need to differentiate yourself from your competition) while limiting their exposure to E&O claims is perfectly illustrated by two articles in the most recent edition of IIAG’s Dec Page magazine.
As fate would have it, those two articles “Errors & Omissions: Is Your Agency Making Empty Promises on Its Website?” and “Creating a Lead Friendly Website” appear back to back in that magazine. The first article cautions agencies and agents against making statements on their website that indicate they will do things they are not prepared to do or can’t do, e.g., “our agents will help you choose the amount of coverage that best fits your needs”, “we work hard to ensure that you are fully covered for all those risks that apply to you”, “we are your business partner”, or “we will obtain coverage to fully protect the financial stability and assets of our customers.” According to the article’s author, the last two statements were important reasons that Swiss Re Corporate Solutions, which handles the E&O insurance program that is available to IIAG members, decided to settle claims of inadequate or inappropriate coverage made by customers of the agencies on whose websites those statements appeared.
In the next article, IIAG’s communications coordinator advises agencies and agents to use their websites to give potential customers “a real reason to choose you as their insurance provider.” This will not happen unless your website stands out the most from your competitors’ websites. To do so, it needs to reflect the agent’s or agency’s personality and relate to the customers they are trying to attract. This is done by offering to do what those customers need done. Thus, the website should be ” a reflection of your area of expertise and should speak directly to the needs of your target customers.”
However, in doing so, the agent and agency need to be mindful of making statements that can then be used against them by a dissatisfied customer. If a claim of expertise with respect to a certain type of risk is made, that may well create a duty to use that expertise in recommending insurance coverages and their amounts for such a risk. Stating that an agency will satisfy the specific needs of its customers may well impose a duty to do so, which duty could be very difficult to fulfill.
In deciding what to say in social media posts and on a website, agencies and agents should only make statements about what they can or will do that they can live up to and recognize that once such a statement is made, they will be expected to live up to it with every customer. It would be a good idea for every agency and agent to review what’s on their social media posts and websites to make sure that they can do for every customer what those posts and their websites say they will do.