The Broker of Record (BOR) letter is one of the most powerful and abused documents in the insurance industry.
Unfortunately, many less-than-scrupulous brokers convince lay insurance buyers to sign this document without explaining exactly what it accomplishes, cautions Stuart Hope.
Let’s look at a typical scenario where the BOR letter might come into play. Your insurance policy is due for renewal and you decided to seek a competing proposal from another insurance broker.
You provide the competing broker with all the pertinent underwriting information and then wait to receive his or her quote at a later date.
Instead the competing broker calls you back and complains that competing quotes are unattainable because your current broker has already contacted all available insurance markets, therefore blocking any further quotes. This seems unfair; even anti- competitive.
The competing broker then suggests a way to “fix it”. Simply sign a BOR letter appointing him or her as broker, which allows access to the insurance market to obtain a quote. The fact the competing broker is asking you to sign an ominous looking letter should be a huge red flag! Be careful and give thoughtful evaluation before signing!
The Broker of Record letter is a very powerful document. Here is what is going to happen as soon as you sign it:
• The competing broker will forward it to the insurance companies that were “blocked”, informing them you have fired your current broker and hired the competing broker to represent you in the market.
• The insurance company will then notify your current broker by sending a copy of the signed BOR letter confirming same.
• The insurer will give your current broker five days to obtain a rescinding BOR letter.
• Your current broker is going to contact you and ask why they have been fired.
A call from your broker can be uncomfortable if you don’t know it is coming. To ensure that there are no surprises, a responsible broker will have carefully explained exactly what will happen if you sign a BOR letter. If it is not explained, the broker is being unscrupulous and you should run, not walk, away from dealing with them. Keep in mind if the competing broker cannot contact any markets it means your current broker already has made inquiries on your behalf, which is proof positive (in most cases) that the agent is doing his or her job.
WHAT EXACTLY IS A BOR LETTER, AND WHY IS IT NECESSARY?
Insurance companies rely on insurance brokers to bring accounts to them for evaluation. There are a small number of aviation insurance companies, each with limited staff, and they do not want to tie up their underwriters by quoting the same risk to numerous different brokers. Therefore, each will recognize only one broker on any given risk on a first-come, first-served basis.
The first broker who submits a risk to an aviation insurance underwriter is the official “broker (or agent) of record”, and the insurance carrier will assume this person is the customer’s first choice. The choice of broker belongs entirely to you, the customer, so the broker can be changed later if that is the wish of the customer via a Broker of Record Letter.
It is a serious document that accomplishes the following:
• Terminates the relationship between you and your current broker.
• Suspends your current broker’s ability to negotiate on your behalf with the insurance company.
• Affirms the appointment of a new broker, giving that broker the sole ability to negotiate with the insurance company for you.
• Grants access to any underwriting information or proposals that are currently “on the table”. (Without a significant change in the basic underwriting information, if the insurance company has already made a firm commitment to the first broker to either decline or provide a quote, the new broker “inherits” that decision – whether it is a declination or a specific premium proposal.)
• Provides a relief mechanism or transition period from one broker to another, expressed in number of days, to allow full disclosure of the letter to all parties involved, thereby granting the former broker the opportunity to review the implications of the letter with you and to confirm your desire to change brokers.
REASONS FOR SIGNING YOUR BOR LETTER
• You are simply unhappy with the service or performance of your current agent/broker.
• The competing broker convinces you he or she brings more benefits to the table including possible expertise in areas such as experience in your class of business, claims, or loss control unique to your risk.
• You want to assign a competing broker access to a particular insurance company while leaving the other insurers open for your current broker to work with.