MARKETPLACE
OWNERSHIP OF EXPIRATIONS
Ownership of expirations is one of the most critical issues for agencies to consider in agency-carrier contracts . It is the cornerstone of the independent agency system , and an agency derives much , if not most , of its value from the ownership of its expirations and records .
U . S . courts have generally recognized independent agents ’ ownership of expirations dating back to the seminal case of National Fire Insurance Company v . Sullard , 97 A . D . 233 ( N . Y . App . Div . 1904 ), finding an independent agent owned his “ expiration register ” over company claims . Despite this longstanding precedent , the contractual terms surrounding ownership of expirations have significant consequences .
For example , contracts will often address the circumstances under which a carrier may take ownership of expirations , particularly after termination of the contract . Contracts may also address ancillary issues such as whether and how the company may engage in direct marketing through use of the agent ’ s client records . One important emerging issue is the control of data and records , which continue to grow in value in an increasingly digital world .
First , agents should ensure that the carrier affirmatively recognizes the agency ’ s ownership of both expirations and records . Also , try to limit the carrier ’ s ability to take control of the agency ’ s expirations to only the agency ’ s nonpayment of undisputed premiums collected by the agency after termination of the contract . Agents can also require that the carrier provides advance written notice and an opportunity for the agency to cure or furnish acceptable collateral security before taking the agency ’ s expirations .
Some contracts may attempt to provide the company with a lien or security interest against agencies ’ books of business or expirations . Such a lien or security interest could conflict with the agency ’ s obligations to a lender or limit the ability to obtain financing .
In any event , the agency should ensure that any lien or security interest applies only to the expirations or book of business with the applicable company .
“
... an agency may be able to secure significant improvements before executing a contract .”
COMMISSIONS
While expirations constitute much of an agency ’ s inherent value , commissions represent much of the day-to-day income . The agency should be aware of how its agency-carrier contracts address a variety of commission-related issues , including the timing of commission payments paid directly by the company , whether or not the company has the right to deduct commissions from premiums , the frequency of adjustments and the amount of advance notice , if any , that the carrier has to provide before adjusting commissions rates .
The contract should specify whether the agency may deduct commissions on agency-billed policies . If the policies are direct billed or the agency is not allowed to deduct commissions , the contract should specify the timing of commission payments .
The frequency that the carrier may reduce the agency ’ s commissions can vary . Carriers typically agree to provide 30-90 days advance written notice prior to any unilateral reductions , but the agency may wish to request 90 or more days advance written notice for any changes . The agency may also want to request that carriers limit reduction to once per calendar year .
CONTINUED ON PAGE 24
MAY / JUNE 2023
9