The insurance buyer and their broker may occasionally decide to forego the standard commission based fee arrangement where broker receives commissions directly from the insurance carrier for policies placed with them, in lieu of a separate agreed upon fee arrangement. There can be a variety of reasons why the parties may elect this approach, but as I cautioned in a previous post, the policyholder should carefully read and understand the terms of the broker fee arrangement before agreeing to it.
While reviewing an insurance quote this week, I came across a footnote in which it stated that “broker fees are fully earned at policy inception and are not refundable in the event of cancellation.” I was not reviewing the quote on behalf of the insured and thus, had no reason to chime in, but those who do have broker fee arrangements, should ensure that no such wording is included in the fee agreement nor on quotes and proposals. To my knowledge, brokers do not earn nonrefundable commissions in typical commissioned based placements and should the policy be cancelled, some of their commissions need to be returned. If a broker fee arrangement is determined to be the preferred approach between the parties, the broker fees, similar to commissions, should not be fully earned and nonrefundable in the event the policy is cancelled.