What Is a Broker of Record?
In insurance, a broker of record is an agent designated by the policyholder to represent and manage a policyholder’s insurance policy. A broker of record may receive copies of all communications to the policyholder and may receive all quotes, policies, and notices on behalf of the policyholder. A broker of record letter establishes the agent’s authority.
Key Takeaways
- A broker of record is an agent assigned to manage and represent a policyholder’s insurance policy.
- They often receive a commission from the insurance company for managing policyholder communications and negotiations.
- A broker of record letter legally establishes the agent’s authority to act on the policyholder’s behalf.
- Switching brokers requires a new broker of record letter to designate the replacement agent.
- A letter of authorization differs by only granting limited information access without negotiation rights for a policyholder.
Understanding the Role of a Broker of Record
A broker of record can help an individual or company with, for example, handling the health insurance policies of its employees. In return, the broker of record may earn a monthly commission from the health insurance company.
Navigating the Broker of Record Letter
A broker of record letter establishes the legal relationship between the broker, policyholder, and insurance company. A broker of record letter can be used to designate a broker of record for the first time or to replace an existing broker of record with a new one. When someone changes their broker of record, a letter identifies the new broker.
Important
A broker of record may also obtain and evaluate insurance quotes, policies, and recommend changes to existing policies.
Insurance companies require broker of record letters to identify whom the policyholder has selected to act on their behalf to communicate with the insurance carrier for negotiating rates, plan options, claim assistance, etc. In return, the broker of record generally receives commissions from the insurance company.
A broker of record letter should include specific information, including the name of the group plan and the selected broker, the effective date of the broker designation, and terms in which the broker of record designation can be terminated. Policyholders can also include specific directives regarding communication with the plan and other agencies/brokers.
Comparing Broker of Record Letters and Letters of Authorization
A letter of authorization is neither as comprehensive nor as powerful as a broker of record letter. It allows the broker to get information on insurance contracts, rates, policies, and other financial data. Such a letter may be written to be very specific, such as naming the insurance company from which the broker may obtain information. However, a letter of authorization usually won’t include the authority to negotiate on behalf of a policyholder.
The Bottom Line
A broker of record is an agent designated by a policyholder to manage their insurance policy. A broker of record letter is a legal document that can do the following:
- End the relationship between the policyholder and broker.
- Stop the current broker from negotiating for the policyholder with the insurance company.
- Make official the appointment of a new broker, giving that broker the sole authority to negotiate with an insurance company.
- Grant access to underwriting information or proposals currently under consideration.
- Allow for a transition period from one broker to another, expressed in a number of days, to allow full disclosure of the letter to all relevant parties. This should allow the former broker a chance to review the implications of the letter with the employer and its desire to change brokers.
