The Conflict and Burden of Insurer Appointments for Brokers and the Need for Regulatory Reform

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The Conflict and Burden of Insurer Appointments for Brokers and the Need for Regulatory Reform

Brokers are supposed to be independent to represent the insured, rather than the
insurer; yet, the law in many states still requires insurers to appoint a broker as an agent
actually to transact insurance with the insurer. This dual agency creates well-known
conflicts and burdens. We contend that the requirement that insurers appoint agents
in each state with the department of insurance (DOI) has outlived its usefulness and
should be abolished for independent insurance brokers, at least those of a minimum
size. Insurers with exclusive agents should retain the appointment requirement. Protection
of the insured against rogue brokers is not accomplished by this appointment
requirement. Protection against rogue brokers is already achieved by malpractice claims
and malpractice insurance, which can be strengthened by requirements for higher
malpractice insurance limits. Removing the appointment for brokers will further the
goals of simplified regulatory burdens, business efficiency, and customer protection
by removing one conflict of interest of the dual agency situation.

Dr. Brenda Powell Wells

Owner

Risk Education Strategies