I’ve been a wholesale broker for over 20 years, and I don’t believe I’ve ever met anyone on the brokerage side who felt other than negatively overall about broker of record (BOR) changes – I suspect because in the aggregate most of them lose more business to BOR’s than they gain. Underwriters certainly don’t like BOR’s either for various reasons. Even applicants/insureds, who are supposed to benefit from a BOR change, don’t seem to like the process!
And yet the BOR process is a critical check-and-balance that exists to ensure that the customer, either the applicant/insured or the retail agent, ultimately gets what they feel they paid for (yes, retail agents do pay for their wholesale broker!). For this reason, it is critical that carrier BOR guidelines don’t impose unreasonable restrictions.
There are two types of BOR’s. The first is when the applicant/insured decides to work with another retail agent. The term agent of record change, or AOR, is often used to refer to this kind of situation. For E&S placements this typically includes a change in wholesaler broker as well, as most retail agents already have established relationships with one or more wholesale brokers they prefer to work with.
The second form of broker of record change is when a retail agent that controls the relationship with a particular applicant/insured decides to place the business through a wholesaler broker other than the one initially used for the current or previous placement. This can happen for many reasons, including the retail agent’s desire to work with a wholesaler broker that has a greater level of expertise in the class of business or line of coverage, or perhaps simply out of a desire to be provided a higher level of service.
On the E&S side, different carriers impose different restrictions on BOR’s. No E&S carriers with HPL programs allow unrestricted BOR’s that I know of. Many E&S carriers allow for mid-term broker changes, but few will allow mid-term changes to take place without the new retail agent/wholesale broker taking some financial risk. Specifically, the new retail agent/wholesale broker is often responsible for return commissions associated with mid-term policy changes that reduce the annual premium (including policy cancelation), even though they received none of the commission from the initial placement. Many other E&S carriers accept BOR’s only for an upcoming placement – either new or renewal – and within a certain period of time prior to the upcoming effective date. In other words, they will not allow mid-term broker changes. Once placed, the insured is stuck with the incumbent retail agent until policy renewal. Finally, in one extreme case that I know of, the carrier disallows BOR’s altogether, meaning once a retail agent or wholesale broker places a piece of business with this carrier, they are the retail agent/ wholesale broker of record for that insured for all time. This carrier will allow the business to be placed elsewhere rather than recognize another retail agent or wholesale broker as the placing agent/broker.
For the record, I believe reasonable BOR restrictions are appropriate. After all, I believe the applicant/insured who initially committed to work with the placing retail agent should be held accountable for that decision. Likewise, the retail agent who committed to work with the placing wholesale broker should be held accountable for that decision. For those reasons I don’t think it would be fair to make it too easy for the decision to work with a particular retail agent or wholesale broker to be changed. But then in my opinion, not allowing mid-term BOR’s at all or, certainly, not allowing BOR’s under any circumstances, are unreasonable restrictions. After all, things change - relationships change, people move to other companies or simply retire and sometimes relationships just end.
In our industry business comes and goes for all kinds of reasons – many of which are outside of the retail agent’s/wholesale broker’s control. And yet at Ethos BOR’s have always been much more often in our favor than not. We attribute this to focusing on the things we can control – primarily being selective about who we choose to accept as retail customers and the level of service we provide to them. By working with quality retail customers and consistently doing everything we can to empower them to take care of their healthcare clients’ needs we insulate ourselves from detrimental BOR situations even as we position ourselves to bring on additional business via BOR.
Ultimately, I believe anything beyond reasonable BOR restrictions serve, at best, to reward poor performance or, at worst, insulate bad retail agent/wholesale broker actors, to the detriment of those applicant/insureds and retail agents who should be able to choose who they want to work with. On the other hand, the accountability imposed on retail agents and wholesale brokers by allowing BOR’s to take place with reasonable restrictions provides a strong incentive for them to cultivate expertise and a culture of providing consistently solid service to their respective customers. Now that is something I believe is good for all of us.
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