RISKY BUSINESS

Since the beginning of the pandemic, employee turnover and retirements have reached all-time highs across many industries. The insurance industry has seen its fair share of panic, competition, and overhaul, but with a potential tapering coming later this year it’s time to look for opportunity (if you haven’t done so already).

Human Resource professionals are not always a full-time employee on an agency payroll, so determining your strategic plan for current and future employees may not be at the top of your priority list. You may also not have an opportunity to think of potential risks and opportunities associated with how you manage former employees – and manage them for your benefit.

An agency recently reached out to me with an inspiring question that sparked my curiosity given the current retirement figures. The question was this, “How should I formalize a referral

for the agency?” Of course, my first reaction was, “What a great opportunity!” Then, my risk manager hat crept out from beneath my desk and my mind began to wonder…or wander. What could be potential risks for this type of agreement and how can we mitigate these risks?

Not wanting to diminish potential revenue generating ideas for a member, I sat down and went through similar scenarios. Agents regularly receive referrals from other professionals, so how was this going to be different? For starters, a referral from someone who was in the industry could pose E&O risks if that former agent misrepresents coverage or makes promises or guarantees to the prospect. Also (enter risk manager hat), what could potentially go wrong with this relationship? Well, money is involved and that can always bring stressful conversations. There could potentially be large clients brought to the table which could create high stakes for all parties involved. Overall, this was a relationship that could be successful for both parties with the proper agreement language in place.

Every formal Referral Fee Agreement should be looked at individually (and preferably by an attorney, which I am NOT), but here are a few quick considerations if you find yourself in a similar situation:

1. Define the parties involved and if there are specific lines of business within the scope of the agreement.

2. Outline the effective date and a potential end date or review date for the agreement

3. Be specific about the referral amount a. Consider a % or a flat $ amount b. Is there a cap to the amount of the referral (ex. 10% but not to exceed for a single referral $1,000)?

4. Define if the referral fee is for all business “referred” to the agency or only for “paid written premium” received by the agency from the referral.

5. Define payment guidelines. If the agency is making payments for referrals to an individual, a 1099 should be in place for that individual.

6. Is this an exclusive relationship between the individual making the referral and the agency?

8. Determine guidelines for severability of the agreement.

9. Include language that clearly states the agency is NOT responsible for any misrepresentation or negligent claims against the individual referring business to the agency. Furthermore, that individual should, under no circumstances, provide guidance or advice to prospective clients on insurance terms, conditions or services provided.

My final piece of advice would be to familiarize yourself or update your understanding of Unfair Trade Practices (s. Ins 6.60 (2)) in Wisconsin. Share this same knowledge with anyone who is helping you generate leads or sales, either as a referral or as an agency employee.

Special thanks to all our members and agency partners who continue to inspire great ideas and changes related to day-to-day operations. We encourage everyone to reach out if you have questions you would like to roundtable.

Vice President, IIAW

MGA AND E&S BROKER | EST. 1920