Fiduciary Responsibility

A “contract of agency” establishes a fiduciary relationship between an insurer and an agent. One central tenet of this contract is the agent’s duty to act in the best interests of the insurer. This duty extends through all actions the agent takes in which the insurer’s interest is at stake:

The most obvious fiduciary duty is the duty to account for premiums. Premiums must not be commingled with personal funds nor may they be used (“converted”) for personal expenses. Agents who do so are guilty of embezzlement — a criminal offense ranging from a misdemeanor if the amount is $300 or less, to a felony if more.

Florida law requires that agents maintain records of premium payments for at least three years. Premiums accepted by the agent must be submitted to the insurer on a timely basis.

In the solicitation of insurance, the agent has an ethical and fiduciary responsibility to solicit business that will be profitable to the insurer. Agents should focus their solicitation efforts on business that is likely to result in a reasonable claims ratio. For the life insurance agent, that means selecting prospects who are in reasonably good health and who are in a position to pay both the initial and future premiums.

Agents must make a full disclosure to the insurer of all pertinent information that bears on the placement of an insurance policy. The agent report attached to the application should note the agent’s pertinent first-hand observations and knowledge of the insured.

One ethical issue that arises following the sales process is following through on business transactions within a reasonable time. The definition of “reasonable time” is ultimately left to the courts based on the facts of the situation.

Agents owe a legal and ethical duty of loyalty to their represented insurers — acting in good faith and with integrity in all dealings. Agents have an obligation to follow their carriers’ lawful and reasonable instructions. Many insurers provide thorough instructions regarding the solicitation of business and the type of illustrations agents can use, designed both to limit the insurer’s liability and provide a minimum standard against which agent conduct may be measured.

Agents have an obligation to carry out authorized activities with reasonable care. If the agent is not familiar with an area of business, he or she should seek the assistance of another agent who is — such as a company’s pension specialist, disability expert, or someone with particular skill in that area.

The standard applied to conflicts of interest depends on whether the agent is a captive agent or an independent agent. A captive agent is held to a higher ethical standard than an independent agent.