Originally published September 2, 2005

The Georgia General Assembly amended the insurance code to create new disclosure and licensing obligations for insurance producers. Under Georgia law, the term "producer" is defined broadly enough to cover persons acting as traditional brokers. The new section of the Code, O.C.G.A. § 33-23-46 ("Section 46"), became effective on July 1, 2005 and appears to have been added in response to recent allegations by New York Attorney General Eliot Spitzer regarding insurance brokers and contingent commissions.

Primarily, this new section creates obligations on the part of insurance producers and insurance counselors to disclose the form and the source of their compensation in certain circumstances. The language of the statute, however, also affects the Georgia insurance licensing requirements for insurance producers. The effect of this statute on insurance producers is outlined below:

  • While the law focuses on disclosure to customers, the most significant impact on Georgia insurance producers will be the statute’s effect on licensing requirements. Specifically, Section 46 affects the licensing requirements by restricting the compensation insurance brokers may receive unless they are also licensed as insurance counselors.

  • Section 46(b)(2) requires that an insurance producer be licensed as a counselor in order to receive fees from a customer for the placement of insurance. This is the case regardless of whether the insurance producer also accepts any compensation from the insurer. Previously the law was unclear as to whether producers were also required to be licensed as counselors. However, this new law removes that ambiguity in situations where a broker is paid by the insured. This represents a dramatic change from the common industry practice in Georgia where insurance brokers have generally been licensed as agents only.

  • To become licensed as a counselor, the new law keeps the previous requirement of five years experience in the line of authority for which a counselor’s license is sought. Thus, people who have not worked in the industry for five years may be precluded from accepting fees from insureds altogether.

  • It is not yet clear what this law means in the context of a corporate broker where several employees work as a team on customer fee-based accounts. While the most conservative approach would be to have every team member licensed as a counselor, it is anticipated that not all corporate brokerage employees who work on fee-based accounts in any capacity would be required to be licensed as counselors. This is because the statute prohibits non-counselors from receiving compensation from customers for placement of insurance only. While placement remains undefined, it is arguable that not all employees working on a customer-fee-based account actually "place" insurance.

  • Section 46(b)(1) also tightens and clarifies the disclosure requirements when any fee or other compensation is received from the customer. In this situation, in order for a producer or his affiliates to also receive compensation from an insurer or other third party, the producer must:

    • obtain the customer’s written consent, or "documented acknowledgement," to such compensation from the insurer (an exception is made for telephone or electronic purchases where such written consent cannot reasonably be obtained; in that case, the producer may document such consent); and

    • disclose the amount of such compensation, or the method of calculating such compensation and a reasonable estimate of the amount.

  • The new law defines "compensation from an insurer" very broadly and includes "payments, commissions, fees, awards, overrides, bonuses, contingent commissions, loans, stock options, gifts, prizes, or any other form of valuable consideration, whether or not payable pursuant to a written agreement." "Compensation from a customer" appears to be defined by what it does not include, such as premiums or fees billed by a producer on behalf of an insurer, or allowable service charges on past due premium accounts. There is also a provision allowing the Insurance Commissioner to set a floor amount paid by the customer before the disclosure requirements are triggered.

  • These new written consent and licensing requirements do not apply to every situation in which an insurance producer places business. Most notably, this restriction does not apply to renewals or "other continuation[s] of a policy." In addition, because the statute applies only to payment by the customer, this requirement does not appear to apply in situations where the insurance producer is paid by the insurer via commissions.

© 2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purposes and is not intended to constitute legal advice.