How States Regulate or Restrict MGA Non-Fee Charges: A Pattern


This put up is a part of a sequence sponsored by AgentSync.

Managing normal brokers (MGAs) are a black gap of insurance coverage data – with many avenues of compensation, it may be complicated to know how MGAs are even allowed to gather income, and it varies by state!

(After all it does, however you already knew that, you smartypants.)

MGAs and their life insurance coverage counterparts, MGUs, are sometimes skating the perimeters of insurance coverage regulation. In some contexts, they’re regulated like businesses, in others, like carriers. The Venn diagram of alternatives to get combined up about once they’re regulated like what is an ideal circle.

With that in thoughts, in case you’re liable for MGA or MGU regulation, bear in mind this can be a place to begin, nevertheless it’s not the premise for authorized choices. Readers should do their very own due diligence, interval, exclamation level.

Company-like MGA compensation

As a result of MGAs maintain an odd house within the trade, they may receives a commission via a wide range of means.

MGAs and MGUs that present downstream producer gross sales will possible have assigned commissions from these producer gross sales, in addition to any related gross sales incentive perks or “finders charge” sort incentives. These charges are the identical that an company performing in the identical capability would make.

Service obligation MGA compensations

An MGA or MGU that’s doing underwriting, claims-paying, or taking up different duties for a service goes to be compensated by that service in keeping with their particular state-mandated contract.

The MGA or MGU is performing in a fiduciary capability, performing on behalf of the insurance coverage service on this occasion, and their actions are going to be held up as if they’re the actions of a service.

Just like a TPA association, MGAs are typically going to be compensated by the insurance coverage carriers for these providers both as a proportion enterprise or by way of a transaction-based charge. That is one other space the place being acquainted with primary MGA regulation is so key, and understanding your service contract is important.

Underwriting, particularly, although, is a humorous factor. In the event you’ve ever been underwritten for a life insurance coverage coverage, there’s an excellent probability you didn’t pay a factor. However in case you’ve bought a house, the underwriting in your financial institution’s mortgage insurance coverage possible was included in your price, even when it wasn’t precisely clear as a line merchandise.

Non-commission client charges

If carriers don’t must compensate MGAs for underwriting, and that is perhaps handed on to a client, what else may be handed on? Genuinely, compensation constructions increase a variety of questions!

For example, say an MGA focuses on a brokerage-style service, constructing a plan and looking for a selected service protection for the shopper that delivers on a distinct segment want? The MGA might wish to accumulate a dealer’s charge for service, separate from any fee for the last word sale of the coverage.

Or, how a couple of life insurance coverage MGU that hires a concierge medical service to conduct medical health exams for all times insurance coverage qualification screenings? Is {that a} charge the MGU can cross on to customers?

Most states keep a reasonably tight rein on the fees they permit carriers, MGAs, businesses, and producers to cross on to customers, however whilst we dive in, that is an space with a variety of variation, nuance, and grey house.

Regulation concerning MGA non-commission charges

In the event you learn our previous piece on dealer compensation, a variety of these sentiments apply right here, too: States have totally different concepts, and, whereas all states say “customers shouldn’t pay twice for a similar service,” they don’t all agree on what that truly means. (Critically you need to learn that dealer piece. We’ll wait.)

Like brokers, MGAs and MGUs maintain a wibbly jibbly center floor the place there aren’t a variety of rules particularly directed towards their particular enterprise constructions. As a substitute, as we famous from the outset, they usually change between company and service regulatory contexts. To make issues extra difficult, businesses and MGAs are sometimes held to the identical normal as producers in relation to due diligence and sure product rules.

To get a straight reply, then, on the specifics of their regulation, we requested a number of states immediately. “How do you deal with MGA charges that aren’t commissions?”

Rhode Island’s strategy to MGA non-commission charges

The Rhode Island Division of Enterprise Regulation pointed to a bulletin it launched in 2002 decoding state regulation. The bulletin makes use of “P&C producer” all through the piece, however, since this was in response to an MGA-specific query, we’re decoding it to use to MGAs, as nicely.

The bulletin says if the producer collects a fee, they will’t additionally cost a charge for “providers which can be typically related to the promoting, soliciting or negotiation of the insurance coverage.”

Moreover, carriers can’t cross on costs within the P&C house which can be a part of the price of doing enterprise. As a substitute, the bulletin says the service must issue commissions and different prices into ratepayer arguments they submit for approval to the state.

And Rhode Island’s bulletin particularly instructs the concerned events to not cost based mostly on how a client pays for insurance coverage merchandise: If there are back-end charges for bank card costs or money transfers, the state says plan forward for these bills as a result of you’ll be able to’t cross them on to customers.

Within the full textual content of regulation for surplus traces brokers, Rhode Island says surplus traces brokers should cost a tax and should cross on pre-agreed and pre-approved prices of underwriting to insureds. In the event you’re confused about taxes and insurance coverage, keep in mind nonadmitted insurance coverage – which is offered via surplus traces brokers – isn’t lined by the complete protections and advantages of state regulation, so it’s taxed as a sale.

Maryland’s strategy to MGA non-commission charges

The Outdated Line State additionally responded to our request for charge steerage. Just like Rhode Island, Maryland has a charge or fee (not each!) response, though there are some nuances to Maryland state insurance coverage legal guidelines which can be price speaking about.

  • Variable commissions on business insurance policies: If a producer sells a coverage to an exempt business policyholder (which comes with very strong pointers, outlined on this helpful 2018 bulletin), they will settle for a variable fee payout that doesn’t comply with normal state-approved pointers provided that it is going to imply the policyholder can pay at or under the state-approved price.
  • Fee or a service charge: Producers can cost a charge of as much as 15 p.c of the coverage premium provided that the insurer or MGA isn’t paying a fee again to them.
  • Life insurers (or, presumably, MGUs if they’re filling this position) can cross on the price of a medical examination to underwrite a life insurance coverage applicant.
  • Surplus traces brokers can cross on the price of the gross sales tax related to promoting non-admitted insurances, and might – to a restrict – cross on the prices of underwriting, inspecting, or writing a coverage.
  • A producer can cross on the fees of inserting a coverage within the Maryland Vehicle Insurance coverage Fund, together with the price of procuring a driving report from the Maryland Motor Automobile Administration.
  • An insurer can cost a charge for late premium funds, or cost to have a lapsed coverage reinstated.
  • A producer or a surplus traces dealer can cross on the price of operating a fee via a bank card or different fee-incurring course of. You’ll word, that is explicitly totally different from Rhode Island’s steerage.

Kentucky’s strategy to MGA non-commission charges

Kentucky’s regulation is sort of transient concerning insurance coverage charges. The state’s insurance coverage division pointed us to a piece that principally simply says insurance coverage distributors ought to solely accumulate premium for insurance coverage, and any further precise prices essential to safe that insurance coverage. One other modification to Kentucky regulation in 2010 provides that P&C insurance coverage producers can accumulate to cowl the prices of underwriting if these prices have been accredited by the Kentucky insurance coverage commissioner.

The Kentucky Insurance coverage Division’s response to our questions additionally included the division’s personal interpretation:

The Division doesn’t produce a breakdown of allowable or prohibited charges, however moderately has suggested entities previously of the Division’s interpretation of KRS 304.12-190.

The Division’s place is that an company might cross mailing and bank card charges to an insured, as long as the company shouldn’t be profiting off of the extra charges. Moreover, you could have particularly referenced underwriting charges. That is addressed in KRS 304.13-171, which permits underwriting charges to be handed to insureds as long as these charges have been filed with and accredited by Kentucky’s Insurance coverage Commissioner.

You’re most likely pondering, “Properly thanks loads for that pattern, now I’ve obtained a listing of three states that every take totally different approaches to a easy query.” And also you’re proper. Our takeaways:

  • Discover, Maryland and Kentucky each particularly say it’s tremendous to cross on the price of accepting bank card funds to your buyer. In the meantime, Rhode Island particularly says you’ll be able to’t do this.
  • All three permit surplus traces insurers to cross on underwriting charges, however take different approaches to how different traces of enterprise ought to deal with these prices.
  • Your finest guess is to examine particularly with every state to see what charges it does or doesn’t permit earlier than you get your self in regulatory sizzling water.

AgentSync can’t remedy your state-by-state allowable charge complications, however in case you’re bored with studying via state laws and doing your individual interpretation of state necessities for producer licensing and compliance, we really feel your ache. In the event you’re a service, MGA, or company and wish to take a regulatory aspirin, see how AgentSync will help.

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