Agents are permitted to negotiate compensation for the placement of premium finance business directly with the premium finance company without having to obtain a special license. (See Premium Financing.)
(Note: Throughout this report, "person" refers to an individual or any type of legal entity, regardless of organization type, and "insurance agent" refers to individuals or entities with one or more of the following licenses: general lines property and casualty; surplus lines; general lines life, accident, health and HMO; managing general agent; life and health insurance counselor; specialty lines; non-resident; risk manager.)
With regard to commercial lines of insurance only, agents can negotiate compensation for the placement of premium finance business with the premium finance company, subject to disclosure requirements in some cases.
The premium finance law permits a licensed premium finance company (including agent-owned premium finance companies) to compensate an insurance agent for placing premium finance agreements on commercial lines when the compensation is based on actual premiums financed. The insurance agent is not required to hold a premium finance license.
The compensation may not be (1) an advance on future premium finance agreements, or (2) a form of bonus for agreeing to place finance agreements with the premium finance company.
If the amount of compensation received by the insurance agent does not exceed 2 percent of the amount financed, the agent must disclose in writing the source of any compensation to be received by the agent.
If the amount of compensation received exceeds 2 percent of the amount financed, the agent must disclose in writing not only the source of the compensation, but also the amount of compensation, as a percentage of the premium financed.
The best and easiest way for an agent to comply with the disclosure requirement is to be sure the premium finance company includes a disclosure statement on the premium finance agreement.
An individual insurance agent may be the sole owner or a licensed premium finance company (sole proprietorship of sole stockholder of a corporation).
The premium finance law does not permit a licensed premium finance company to compensate an insurance agent for the placement of personal lines business with the premium finance company.
An agent or an employee of an insurance agent may share in the profits of a partnership, or other entity if the payment is based on that individual's percentage of ownership in the partnership or entity and is not based in whole or in part, by the amount of premium dollars financed.
An insurance agent who is the sole owner or sole shareholder of an insurance premium finance company may receive profits and fees of the insurance premium finance company if the insurance agent discloses in writing the agent's ownership interest in the insurance premium finance company.