Do I have to use a consulting agreement? If
The basic premise behind consulting agreements is found
in the Indiana insurance code on licensing producers. The statute is Indiana
Code 27-1-15.6-23. Section 23 says that a person cannot act as an insurance
consultant unless they have a license to do so. Good news for most Big “I”
members: insurance producers who are licensed as producers do not have to have
a consultant’s license. In fact, you can’t hold both a producer’s license and a
consultant’s license at the same time.
So, insurance producers can act as consultants and can
use their producer’s license to do it. When is a producer a “consultant”? The
answer is in Section 22 of the same code. Essentially, it uses the existence of
a fee as being the dividing line between being a producer (no fee; usually
commission only) and a consultant (compensation by fee). Section 22 says:
An insurance producer may
not receive compensation for the sale, solicitation, negotiation, or renewal of
any insurance policy issued to any person or entity for whom the insurance
producer, for a fee, acts as a consultant for that policy unless:
(1) The insurance producer
provides to the insured a written agreement in accordance with section 23(c) of
this chapter; and
(2) The insurance producer discloses
to the insured the following information prior to the sale, solicitation,
negotiation, or renewal of any policy:
(A) The fact that the
insurance producer will receive compensation for the sale of the policy.
(B) The method of
Is the Department of Insurance involved in
You bet. Both Sections 22 and 23 require a written agreement
for consulting fees. Section 23 requires that we send the agreement to the
Department first. In fact, subsection (i) of Section 23 says that the form of
the agreement has to be filed with Department “not less than thirty (30) days
before the form is used.” If there is no approval or disapproval within that
time, the form is considered to be approved. However, the approval can be
The department’s review can involve any aspect of the
consulting agreement, but it is most likely to focus in on the requirements of
Section 23(c). These requirements are:
a written agreement, signed by the person receiving the services.
a copy of the agreement to the person receiving the services before the
the nature of the services to be performed and the nature or method for
calculating the compensation.
a copy of the agreement for not less than two (2) years after completion of the
If a consultant does not have a written agreement on the
fee, then “the consultant shall not be entitled to recover a fee in any action
at law or in equity.”
Is there a form out there? What has the Big
“I” done with this?
The consulting law was first put into effect in 2001 and
was subsequently amended in 2006. When the statute passed and when it was
amended, your association worked with the Department of Insurance to have forms
approved for use by producers in Indiana. Current IIAI Executive Vice President
Steve Duff was instrumental in getting this done. If we hadn’t had Steve and
Big “I” staff involved with department personnel, we wouldn’t enjoy forms that
are so easy to use today.
The forms, which were approved by the department for use
and may be used by IIAI members, provide some simple options for producers. The
idea was to create a safe harbor by having standard language for a form that
had been pre-approved for use.
One of the agreement forms is informally known as the
“short version.” It contains some basic provisions, such as:
Client engaging the Consultant, “to provide advisory and consulting services to
Client for the purposes of assistance in the procurement and placement of
Client’s property and casualty insurance needs with appropriate insurers.”
termination of the agreement on thirty (30) days written notice .
that the Consultant may have access to confidential information and an
description areas for both services to be rendered and the fee to be charged
(and more on that later).
an indemnification provision for the Consultant if, among other things, the
Client commits gross negligence.
One of the statements in the “short form” is a statement
about the Consultant’s duties of objectivity and loyalty. The reason it’s in
there? Subsection (h) of Section 23 says that a consultant’s obligation is to
“serve with objectivity and complete loyalty solely the insurance interests of
the consultant's client; and render the client such information, counsel, and
service as within the knowledge, understanding, and opinion, in good faith of
the licensee, best serves the client's insurance needs and interests.” The
agreement’s language tracks the language of the statute.
That same language also appears in the long form version,
which also has been approved by the department. The long form version uses the
same organizational structure as the short version, but amplifies the confidentiality
provisions and the description of services (among other things). It also
contains a more extensive description of the responsibilities of the Client for
decision-making. Producers have found that the long form is more appropriate
for commercial insureds, or where there are more extensive services being
Both the short form and long form contain substantial
blank space for the Consultant to describe the particular services being
performed. Both forms also contain substantial blanks to permit description of
the fee or fees to be charged and how they are calculated. Both forms also have
a space for the Consultant to identify if a fee as well as a commission will be
Using the language and formatting from the forms is
encouraged. Again, they’re relatively easy to use. But that doesn’t mean that
they are a proverbial “blank check,” because the Department of Insurance retains
the authority to disapprove of exorbitant fees or any other perceived abuses of
the basic form.
One last form consulting agreement deserves mentioning. This
is specific to personal lines and is reflective of the statutory changes adding
section 24.1 in 2007, which permit personal lines fees. After this statutory
enactment, the Department of Insurance issued Bulletin 157, which permitted
fees such as $25 for policy reinstatements or rewrites; $25 for payments made
to an agency on company/direct bill accounts; and $25 for filing of state
forms, such as an SR 21.
Insurance Consulting Agreement (Long Form)Insurance Consulting Agreement (Short Form)Insurance Consulting Agreement (Personal Lines)