Two of Florida’s largest property management companies disagree over whether commission splitting with the association’s insurance agent is a conflict. Some property managers feel that commission splitting is fine and actually induces competitive pricing on insurance quotes for their associations. For example, if the property manager is intricately involved in the association’s efforts to obtain the insurance quotes, then the manager may be able to induce the association’s current insurance agent to match bids from competitors looking to write the policy. Property managers familiar with the association can provide competitive information to the agencies in this regard. Annual commissions on association policies can be tens of thousands of dollars, and, as an incentive for the placement, they are often split with the agents in this type of arrangement.
Other property managers who feel that splitting of these commissions with agents is a conflict may stay out of the bidding process completely and simply have sealed bids sent directly to the association board of directors.
Jerri Franz, a spokesperson for the Florida Department of Financial Services said “[r]eferrals should be based on good service only and not financial incentives.” This referral arrangement may not actually result in the association getting a better deal on its insurance. It may result in a preferred agent being pushed on the association. The preferred agent may have access to information about the association that competitor agents do not.
Last Monday, November 15, 2010, the Florida Department of Financial Services held a public hearing on potential changes to a proposed Administrative Code Rule regulating insurance agents and unlawful inducements to procure insurance. However, it does not appear that commission splitting was discussed. This proposed Florida Administrative Code Rule is 69B-210.005, and is titled “Unlawful Inducements.” This Rule is meant to clarify Florida Statutes 626.9521 and 626.9541(1)(h)(1) and their definition of what constitutes unlawful inducements or unlawful rebates to policyholders who purchase insurance. The proposed Rule has not yet been adopted, and is not part of the Florida Administrative Code as of this date.
Currently, Florida Statute 626.9541(1)(h)(1) states that “unlawful rebates” are an unfair trade practice. However, the statute does not contain too much clarity on what actually constitutes an unlawful rebate. It generally prohibits offering “anything of value whatsoever not specified in the insurance contract.” The proposed Rule 69B-210.005 defines the following as unlawful inducements:
- Paying or offering to pay an inducement to purchase the insurance;
- Paying any portion of premium, cost of underwriting, policy fee or claim cost;
- Paying any portion of the inspection, inspection report, appraisal, survey or wind inspection;
- Discounting any commission;
- Providing membership in any organization, society or club at a discounted rate or at no cost;
- Making a charitable contribution on behalf of the potential purchaser of insurance;
- Offering stocks, bonds securities, or property; and
- Offering or providing employment in exchange for the purchase of insurance.
Some insurance agents have stated that even with the current law, they do not participate in commission splitting because they feel that it is unlawful rebating of insurance. (See Property Managers Make Money off Condos’ Insurance, Sun Sentinel, Julie Patel, November 13, 2010).
Whether insurance agents and property managers split these commissions or not, they do have to compete in an environment where this activity is going on. Agents who split commissions with association property managers are likely to get an introduction they might not otherwise obtain, along with a source of some information about the association they may not otherwise have.
We will follow the development of proposed Rule 69B-210.005 and whether it is adopted into the Florida Administrative Code. One thing is clear with the proposed Rule, it is an attempt to offer some clarity or definition to what could be an unlawful rebate or unlawful inducement to purchase a particular insurance policy.
