Consulting Agreements

Do I have to use a consulting agreement? If so, when?
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 compensation.
Is the Department of Insurance involved in consulting agreements?
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 However, the approval can be subsequently withdrawn.
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:
1.     Having a written agreement, signed by the person receiving the services.
2.     Providing a copy of the agreement to the person receiving the services before the services begin.
3.     Stating the nature of the services to be performed and the nature or method for calculating the compensation.
4.     Retaining a copy of the agreement for not less than two (2) years after completion of the service.
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:
1.     The 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.”
2.     Permitting termination of the agreement on thirty (30) days written notice .
3.     Acknowledging that the Consultant may have access to confidential information and an obligation.
4.     Creating description areas for both services to be rendered and the fee to be charged (and more on that later).
5.     Creating 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 provided.
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 received.
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.

commercial Insurance Consulting Agreement long form.docInsurance Consulting Agreement (Long Form)
commercial insurance consulting agreement short form.docInsurance Consulting Agreement (Short Form)
insurance consulting agreement (personal lines) - Final Copy.docInsurance Consulting Agreement (Personal Lines)