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Why Agents Own: How to Maintain Control of Your Book of Business

PIA Connection's three-part series on Agent Ownership of Expirations draws to a close with this third and final installment. Repeatedly, in these first two...
January 20, 2004

Part Three of a Three Part Series on Independent Agency Ownership

By Alyssa Keehan
Manager of Business and Legal Affairs
PIA National

PIA Connection's three-part series on Agent Ownership of Expirations draws to a close with this third and final installment. Repeatedly, in these first two articles, it was made clear that independent agents own their book of business not because of language in their agency agreements, but because courts across the U.S. have traditionally recognized independent agents as the owners of expiration information.

Consequently, as a complement to the preceding two articles in PIA's Ownership Series ("Why Independent Agents Own" and "What Independent Agents Own"), this last article seeks to give agents sound advice on how to ensure they maintain control and ownership of their books into the future. By examining trends in agency agreement language and federal and state legislation, this article will give agents real-life examples of the ways their ownership rights may be usurped and advise agents on the steps they need to take in order to stop any encroachments upon their ownership rights.

Read Those Agreements!

While agency agreements may not be the source of an independent insurance agent's ownership rights, an agent's book of business can be taken away by contractual language that proclaims the carrier (and not the agent) the owner of the book. So, an agent's first step in maintaining ownership should be to review the language in their agency agreements.

Yet, this task is not as easy as it sounds due to the confusing manner in which these agreements are constructed. Increasingly, pertinent language relating to the agent's ownership rights is not placed in the section of the contract dealing with "ownership of expirations." Rather, ownership language can pop up unreferenced in unrelated sections of the agreement. This is why it is important for agents to read their entire contract before signing. These documents are defining your rights, so you need to be aware of what they say. Also, PIA National has a contract review service that is complimentary with your PIA membership. If you have questions about an agreement, you can send it to PIA at or FAX it to (703) 836-1279 and it will be reviewed free of charge.

Identifying appropriate ownership language in agency agreements is not always as straightforward as it may sound. Agents need to make sure that the agreement acknowledges the agent's ownership and control of expirations (or the book) throughout the term of the agreement and after it ends, provided there is no outstanding debt. Often, PIA has read agreements that acknowledge an agent's ownership rights "upon termination of the agreement." This is unacceptable. Agents own the book before their original appointment with their carriers and a good agreement should reflect this fact.

Also, agents who deal with life and health (L&H) carriers need to pay particular attention to the contents of their agency agreements. While increasingly more L&H companies are using independent insurance agents to market their products, many of these L&H carriers are treating independent agents like captives.

Significantly, many of the L&H agreements PIA has reviewed contain verbiage appropriate for a captive agent environment where the carrier, not the captive agent, owns the actual book-of-business produced. Independent agents need to be aware of this lack of understanding by L&H carriers when dealing with them. Read through the L&H carriers' agency agreements and make sure they are compatible with the legal environment of independent insurance agents and, if any questions arise, direct them to PIA. If a PIA member-agent is disturbed or unsatisfied with the language in an agency agreement, there are options other than signing. Please do not hesitate to utilize PIA's contract review service.

Your Privacy Compliance Obligations

With passage of the Gramm-Leach-Bliley Act, the Health Insurance Portability and Accountability Act, the No-Call/No-Fax Rules, the CAN-SPAM Act, and state privacy-related laws, agency owners have a slew of privacy obligations with which to comply. However, very few of the obligations are actually new. Rather, agents have always had a duty of care when handling client information, and all these laws did was to formalize this duty into a series of legislative actions. Yet despite this, we hear members say that they plan to leave privacy compliance to their carriers, or don't need to change any of their procedures. This is a very dangerous course of action because these obligations are not going to "go away" if ignored. Agents who believe they can rely on their carriers to comply for them are generally incorrect and place their agencies in legal peril.

These laws place privacy obligations directly on independent agents who are at times attached to their carriers, and at other times, independent of any of their carriers. The primary reason courts have traditionally recognized independent agents as the owner of the book is because the agent (and not the carrier) is viewed as the cultivator and servicer of the client relationship. When the agent lets go of his or her servicing duties, by failing to protect client information, and turns this key aspect of client service over to the carrier, then the agent runs the risk of the court looking at the carrier's privacy compliance efforts and determining the carrier is the true owner. This is because the carrier is the one protecting client information and properly servicing their communicated needs.

Therefore, PIA stresses that agencies make it a priority to draft a privacy policy for their agency and send their clients a copy of this policy annually. Additionally, agents need to update their procedures manual for privacy compliance. If PIA members need help in drafting their privacy notices or updating their procedures manual, please do not hesitate to call PIA.

Privacy and Agency Agreements

As more privacy obligations are formalized through state and federal laws, agents have undoubtedly received an increasing number of privacy amendments from their carriers. In reviewing these amendments, agents need to make sure that their expiration ownership is either reaffirmed in these amendments or not called into question. This is because much of the so-called "protected information" that these amendments address and place limits on is the same information contained in an agent's book of business, i.e. "the records." Hence, PIA always recommends that language similar to the following be added to the privacy amendments the agents receive, before signing: "None of the language in this amendment shall interfere with or be construed as interfering with the agent's ownership of expirations."

In addition to requesting that carriers add the above language to their agreements, agents also want to make sure they understand what sort of information the carrier deems "protected." Often times, "protected information" includes more client information than agents would assume. Moreover, the limitations placed upon the use of such information do not make sense in terms of (1) the agent's ownership of expirations and (2) the services traditionally performed by independent agents. This is why it is important to seek clarification regarding what sorts of information the carrier is trying to protect with its contract language.

Trends in State Legislation

PIA is deeply concerned by a recent trend in state legislation (which has appeared in two states thus far) attempting to legislate or place into statute an independent agent's ownership of the book.

As a general rule, electing to legislate ownership rights is a bad idea for two reasons: (1) agents are already acknowledged as owners of the book under the common law and (2) the legislative process is imperfect and filled with compromise. With rare exception, what starts out as a simple law to declare agents owners of expirations, turns into a law that redefines what constitutes an independent agent and might be read to actually take away ownership rights from independent agents.

If a PIA member-agent hears of a plan to legislate ownership rights in his or her state, please alert PIA so that we can work with you on determining the best course of action and means to accomplish the end goal. Also, remind any agents who are considering the option of legislation that it is a duplicative effort because the law already acknowledges their ownership. Check out what the case law in your state says on the issue before rushing to pass a law that may have unintended negative consequences for PIA members.

Read the other articles in this series:
Part 1: "Why Independent Agency Owners OWN"
Part 2: WHAT You Own

This article originally appeared in the January 2004 PIA Connection.