Broker of Record Letter – Should you Sign?

Broker of Record letters are a legitimate tool but they are abused.  Broker A  told us “I need a broker of record letter to approach Carrier X”.  We asked her to send the language required.  We expected something like this:

“This letter will serve to notify you that as of today’s date, we have appointed Broker A as our exclusive agent and/or broker with respect to X Insurance Company.  Broker A is hereby authorized to negotiate directly with X Insurance Company regarding placement of coverage for our insurance program(s).”

Instead we got:

“This letter will serve to notify you that as of today’s date, we have appointed Broker A as our exclusive agent and/or broker. Broker A is hereby authorized to negotiate directly with any interested insurer regarding placement of coverage for our insurance program(s).  We understand, however, that they will not share responsibility for any deficiencies in the insurance program to which this letter applies and to provide us with their recommendations. [emphasis added]”

The format proposed by the broker is not what they said it would be.  They said they were just trying to get to one insurance company, but presented a letter saying they were allowed to go to all of them, thereby undermining the competitive bid structure.

Would a busy CFO catch this? Maybe not. Without understanding the system, it would not be immediately clear that Broker A was trying to prevent all other brokers from getting to the marketplace.

Don’t try to go it alone, we understand the system, we can help.

This post was written by Abby Krueger of LicataRisk Advisors.  Contact Abby with questions or comments at [email protected]

Jan 30, 2015