The Role of Insurance Intermediaries- Egents and Brokers
In most insurance transactions, there is an intermediary, usually an insurance agent or broker, between the buyer and the insurer. In commercial property-casualty insurance markets for instance, the intermediary plays the role of “market maker,” helping buyers to identify their coverage and risk management needs and matching buyers with appropriate insurers.
The role of the intermediary is to scan the market, match buyers with insurers who have the skill, capacity, risk appetite, and financial strength to underwrite the risk, and then help their client select from competing offers. Price is important but is only one of several criteria that buyers consider in deciding upon the insurer or insurers that provide their coverage. Also important are the breadth of coverage offered by competing insurers, the risk management services provided, the insurer’s reputation for claims settlement and financial strength, and other factors.
The role of the intermediary is to scan the market, match buyers with insurers who have the skill, capacity, risk appetite, and financial strength to underwrite the risk, and then help their client select from competing offers. Price is important but is only one of several criteria that buyers consider in deciding upon the insurer or insurers that provide their coverage. Also important are the breadth of coverage offered by competing insurers, the risk management services provided, the insurer’s reputation for claims settlement and financial strength, and other factors.
The relationship between the insurer and the intermediaries is basically an agency relationship and is therefore governed by the principles of agency. Basically, an agency is a relationship when a person, called the agent, is authorized to act on behalf of another (called the principal) to create a legal relationship with a third party.
The FUNDAMENTAL element of the law of agency is that the AGENT must have the authority to act on behalf of the Principal. In this respect, the principal is bound by any acts of his agent within the latter’s actual, apparent (or ostensible) or usual authority and by an unauthorized act which the principal ratifies.
ACTUAL AUTHORITY is what the agent is expressly authorized to do by the principal insurance company. Authority may however be implied.
IMPLIED AUTHORITY arises where in the circumstances, it must be the position that the agent had actual authority but it was never conferred on him. For instance, if an Insurer gives his agent cover notes, it impliedly authorizes him to effect temporary binding contracts. [See notes on Cover note above].
APPARENT AUTHORITY arises where the principal, by words or by conduct holds out his agent as having particular authority. The essence of apparent authority is the representation made by
the principal to the third party and it matters not what the agent says or whether he/she is acting fraudulently.
RATIFICATION is the act of validating an act by an agent that would otherwise not be valid due to the absence of authority provided that the agent was purporting to act as such and the principal was in existence and identifiable by the parties. The effect of ratification is that it dates back to the time of the original act of the agent.
Previous post: Assignment of the benefit and Assignment of the policy under insurance
Next post: IMPUTING THE AGENT’S KNOWLEDGE UNDER INSURANCE
Tags : Insurance Law