What is a broker of record letter and why is it necessary?

From Dan in MD

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  1. Property and Casualty Insurance companies will only work with one insurance agent exclusively once a submission for a quote on a specific business has been received; or if they are already currently insuring the business with another agent. The broker of record letter is essentially used to change insurance brokers without having to change the insurance company that is actually insuring you.

    These letters are necessary when a business owner may have the right insurance companies insuring them, but the wrong insurance broker or agency to manage their insurance program and total cost of risk. Historically if a business owner was unhappy with their broker they would ask a new broker to shop out their insurance program. That model is rapidly changing. Now a business owner may sign a broker of record letter so that they can choose their agent, rather then let the insurance companies chose it for them.

  2. Dan,
    Great question and one that confuses many business owners. As stated in a previous response the insurance industry recognizes only 1 insurance professional to quote an account.

    Why do they do this? The insurance companies have filed their rate structure with the state department of insurance for each state they do business. In these filings there is a bandwidth in which they apply debits or credits to the filed rates. So the underwriter (The person that works with the actual insurance company that determines the rates they are willing to offer in order to assume the risk of paying the claims) has the flexibility to go up or down within the filings. So there is discretion here which is an important element of why they only give 1 insurance professional the opportunity to have that market. This prevents the same insurance company for having very different premiums for the same risk. You should also know that the spread in pricing can be as much as 25%-50% in either direction so a $10 rate could be $5 to $15 which would generate a very big difference in pricing.

    A Broker of Record Letter or BOR is used to allow the business owner to select the insurance professional they choose to represent them. We like to think there are 2 decisions in every insurance transaction; Who the agent is and then who the insurance carrier will be. The agent is a critical decision as they tend to become very involved in you and your business.

  3. Can an insurance agent or carrier refuse to accept a Broker of Record Letter in the State of Maryland…..example: my agent is at a different agency but represents the same insurance company (which I like my rates)and I want him to handle all my families insurance policies, we have no claims and pay all our premiums on time, we just like the other agent better and want to go with him. Doesn’t the agent I don’t want to be with have to transfer my account?

    Thanks for any information.

  4. Does a business owner have to issue a BOR letter to an agent (s)just to get competitive quotes for thier business.

    • TV India,

      Your question is a very common one. The simple answer is no, an insurance broker does not need a broker of record letter to approach carriers (unless the carrier approached is already working with another broker).

      This is a very common, and dishonest, method used by unscrupulous brokers to obtain a broker of record letter to use the work of another agent. Brokers of this sort will tell a business owner something along the lines of: “I need you to sign this letter, granting me permission to shop your insurance”. They are then given the ability to use markets they may have not approached soon enough (sleeping on the job), and the broker working with the carrier initially has their work turned over and is forced to try and explain to the misguided owner what they actually signed.


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