By Allison McGreal, Assistant Vice President, PartnerOne Environmental
When a friend tells you he needs a root canal, you cringe. It sounds just awful. You empathize but are thankful it’s him, not you. Broker of Record (BOR) letters often illicit the same reaction, depending which side you’re on. Are you the broker gaining the account or losing it? (Are you having the root canal or is your friend?)
What is a BOR letter?
A broker of record, for insurance purposes, is the agent appointed by the Named Insured to represent them with respect to their insurance policy, endorsements, claims and other insurance transactions.
A broker of record letter is required when the Named Insured desires to change their agent either during the policy term or at the policy expiration. The letter should be signed by the Named Insured, reference the policies in question, and name the new agency taking over the account on their behalf.
There are a few steps you can take to help make writing a BOR letter a smooth process.
- Make sure the BOR letter is on the insured’s letterhead, when at all possible, and is signed and dated by a principal of the firm.
- Reference the existing carrier, policy numbers, policy type, the policy effective date, and expiration date. Make sure the insured’s intent is very clear regarding who they wish to work with going forward.
- Most carriers have a standard waiting period before accepting the BOR to allow the incumbent broker a chance to retain the account. Some carriers may waive the waiting period when requested, others do not. Know which type of carrier you are working with.
- When you submit the BOR, include your full submission. The carrier may already have the incumbent application but your information may differ. It’s also imperative that the new broker doesn’t benefit from the efforts of the initial broker. It would be unfair for a broker to work through the investigative process with the underwriter, answer questions, discuss premiums, etc. only to lose the account via BOR to a new broker who hasn’t done the work. This may happen, but many carriers will at least require the new broker to put in some of the effort before taking over the account.
What are midterm BORs and when do they make sense?
The best time to change brokers is at renewal, but there are times when a midterm move may be necessary. For example, brokers may want to get a foot in the door before a renewal or there may be another line of coverage involved and moving the entire account to one broker may be the driver. Assuming the carrier will accept a midterm BOR (many don’t) it presents a myriad of additional issues, primarily with respect to premium payments and commissions. It’s important for the carrier to fully explain the process at the time the BOR is presented to ensure the broker understands the implications of a midterm move.
With a midterm BOR, typically the new broker will take on the responsibility for servicing the account but will not receive any compensation until the policy term expires. The new broker must understand that they are responsible for return commissions throughout the policy term due to audit, cancellation, a reduction in or deletion of coverage, or any other reason regardless if they received compensation or not. All of these situations can result in an accounting problem if the new broker doesn’t fully understand the details of the account.
Another difficult situation with midterm or renewal BORs is the collection of additional premiums. For example, if a deductible needs to be collected for a claim that occurred prior to the BOR, this becomes the responsibility of the new broker. If there is a large audit a.p. or a dispute, the new broker will need to have these difficult conversations with the insured. The first broker may not have aided the client in providing the most accurate information about payrolls and revenue, but in an audit, post BOR, the new broker will be the negotiator between the client and the carrier. Trying to explain to the insured why they owe a large sum of money for an audit is a tough conversation made more difficult when it’s based on prior misinformation. Often it’s perceived that a midterm BOR is an easy transition, “we’ll just take it over now with a BOR.” It’s critical for all parties to fully understand what they are undertaking before submitting a midterm BOR.
Picking the right dentist for your root canal, or in this case, working with carriers who fully explain the process before accepting a BOR, can be the difference between a painful procedure and the beginning of a long term relationship where all parties are satisfied.
Have a question about BORs? Contact us for more information.