IDOI Reduces Regulatory Burden on Agents Charging Consulting Fees

FORM OF CONSULTING AGREEMENT FOR USE BY AGENTS

This Bulletin is directed to insurance producers licensed under IC 27-1-15.6 who write products that are not commercial property & casualty coverage and to insurers placing policies through those producers. The purpose of this Bulletin is to reduce the regulatory burden on agents wishing to charge a consulting fee to allow them to continue to assist Hoosiers with insurance purchases even when an insurer discontinues paying commissions for a product.

A licensed producer may charge a consulting fee for placement of a policy without an insurance consultant license if certain requirements are met. The fee must be reasonable and reimburse the producer for expenses, including labor, incurred in placing the business. The insured must be provided written notice before any fee is incurred, and the notice must state the amount of the fee and the basis for calculating the fee. If the producer will receive compensation for the sale of the policy other than the consulting fee, the producer must disclose that fact prior to the sale as well as the method of compensation. Also, the amount and basis may not vary among insureds, the fee must be identified separately from premium on any invoice. Furthermore, the fee must be provided for the services provided, rather than for the provision of coverage.

Producers performing consulting services are obligated, as are licensed consultants, to:

  1. Serve With objectivity and complete loyalty solely the insurance interests of the producer’s client; and
  2. Render the client such information, counsel, and service as within the knowledge, understanding, and opinion, in good faith of the producer, that best serves the client’s needs and interests.

Typically, a consultant must have a fee agreement form approved by the Commissioner before it is used. However, to reduce burden on producers and prevent any delay to consumers wishing to procure insurance from such agents, the Commissioner has approved the attached agreement tor use by producers. Other forms may be used instead of the attached form if it is filed with the Department.

The federal Centers Medicare & Medicaid Services (CMS) has provided guidance for when a health insurer may exclude agent and broker from earned premium under 45 CFR 158.130. CMS has provided seven conditions that must exist for the insurer to exclude a producer’s fees from premium:

  1. The law of the state in which the policy is sitused does not deem the agent or broker to be a representative the issuer;
  2. The policyholder is not required to utilize an agent or broker to purchase insurance and may purchase a policy directly from the issuer;
  3. The policyholder selects, retains, and contracts with the agent or broker on his or her own accord;
  4. The policyholder negotiates and is responsible for the fee or commission separate and apart from premium;
  5. The issuer does not include these agent or broker commissions and fees in rate filings submitted to the applicable regulatory agency;
  6. The policyholder voluntarily chooses to pass the fee or commission through the issuer and is not required to do so, or the policyholder pays the fees or commission directly to the agent or broker; and,
  7. The policyholder issues the 1099 to the agent or broker, if a 1099 is required.

It is The Department’s interpretation that consulting fees described in this Bulletin meet the first five conditions.

The Department will maintain FAQs on its website related to consulting by producers.

Indiana Department of Insurance

Stephen W. Robertson

Insurance Commissioner

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NAHU represents more than 100,000 licensed health insurance agents, brokers, general agents, consultants and benefit professionals through more than 200 chapters across America.
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