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Broker of Record Explained
Members who want to switch from SPA's old insurance program to the new one
are being asked to sign Broker of Record Letters. These letters been a source of concern
amongst and confusion. To understand Broker of Record and how our new insurance program
differs from the old program, you need to understand how insurance is written, sold, and
serviced. This document explains those processes, and goes into greater detail on the
implications of the Broker of Record letter.
First some basics:
An insurance agent (or broker) is very similar to a travel agent. The agent uses his or her
knowledge of the supply market to help customers get the best deal, and in return, the
supplier pays the agent a commission on the sale.
In insurance parlance, the supplier is an "underwriter," or a company that takes on risk in
exchange for premiums. It is the underwriter that pays claims, not the agency, just as in
travel it is the airline that provides you with transportation, not the travel agent.
Unlike the travel industry, in which airlines and other suppliers sell their products
directly to the public as well as through agents, there is only one insurance underwriter
that will write policies directly to customers: Avemco. In fact, Avemco sells insurance
exclusively to customers, and will not sell insurance through an agent. All other aviation
insurance underwriters sell their insurance policies through agencies.
Now let's get into the intricacies of the client-broker-supplier relationship...
Let us assume that you want to purchase airline tickets from New York to Los Angeles, and let
us also assume that you want to use a travel agency. You call Ed's Extraordinary Travel Deals,
and Ed goes to United Airlines to get ticket prices. He tells you what it will cost, but you
don't think Ed got you the best deal. You then go to Penny Pincher Travel, who also contacts
United, and Penny Pincher finds a better deal by exploring the special fare deals, the ones
with all those restrictions. Bingo, you have the fare you want, and Penny Pincher Travel gets
your business. Competition reigns, and you walk away happy.
Now let us assume that you want to purchase insurance for your Cessna 185 floatplane. You
call Hayes-Utley Hedgspeth (HUH), and HUH obtains a quote from U.S. Specialty Insurance
Company (USSIC). You think you can do better, and you want to check out the new SPA insurance
program, so you call Falcon Insurance Agency. Unlike in the travel industry, Falcon cannot
get a quote from USSIC on your behalf because USSIC (like most aviation insurance underwriters)
will not release quotes to an agent if another agent is already working with them on your behalf.
This difference is crucial. Whereas United Airlines and other transportation providers will
provide quotes to any travel agent without regard to the identity of the client, insurance
underwriters keep track of the agent's identity and that of the agent's client. If the same
client asks for a quote through another agent, the underwriter will either refuse to issue
the quote, or will issue a quote identical to the one obtained through the original agent.
In other words, the underwriter that has in the past written all of the Seaplane Pilots
Association insurance policies, USSIC, will not release a quote for your insurance to Falcon
Insurance Agency if you have obtained a quote through Hayes-Utley Hedgspeth. The only way Falcon
can obtain a quote from USSIC on your behalf is if you sign a Broker of
Record Letter, also known as a "BOR" in the insurance industry. A BOR has the effect of
firing your past agent and hiring your new agent. With a BOR in hand, after a five-day waiting
period in which your past agent can try to convince you to revoke the BOR, Falcon Insurance
Agency can go to USSIC and obtain a quote on your behalf.
Broker of Record Letters are not permanent. You can revoke a BOR, and you can sign a new BOR
designating a new agent if you are not happy with your current agent.
What to expect...
If you sign the BOR, you can expect to be contacted by your former aviation insurance broker
(Hayes-Utley Hedgspeth if you have participated in the SPA Insurance Program in past years).
Your former broker has five days to convince you to revoke the BOR.
If you do not revoke the BOR within 5 days, Falcon Insurance Agency will obtain a quote from
USSIC and any other markets that provide insurance appropriate to your situation. In all
probability, USSIC's rate will be the most competitive, and in all probability, the insurance
and premiums will be the same as those you would have otherwise obtained through Hayes-Utley
Hedgspeth.
If you do not sign the BOR, or if you revoke the BOR, Falcon will not be able to obtain a quote
from USSIC. If you have worked through agents with other aviation insurance underwriters, Falcon
won't be able to get quotes from those underwriters either. With the best seaplane underwriting
markets unavailable, Falcon will probably not be able to get a competitive quote, and working
with Falcon is likely to be a waste of your time and theirs.
Why (or why not) work with Falcon...
If you are happy with the service you are receiving from your current agent, whether that is
Hayes-Utley or any other agent, the only reason you might want to switch to Falcon Insurance
Agency is to support the Seaplane Pilots Association's insurance program. The Seaplane Pilots
Association receives support from Falcon Insurance Agency that helps us improve the services
we offer you as a member.
Further, your participation in the program strengthens Falcon's negotiating position,
improving Falcon's ability to negotiate with underwriters to keep premiums under control and
improve the available coverage.
To recap:
Even though you have not signed an agreement with your current insurance agent, that agent,
as the first to work on your behalf with a given underwriter, by default has an exclusive lock
on your business with that given underwriter. To transfer that exclusive relationship to another
agent, you need to sign a Broker of Record Letter.
If you switch from Hayes-Utley Hedgspeth to Falcon Insurance Agency, you can expect your
premium and coverage to be the same or better than what you would have otherwise had through
Hayes-Utley Hedgspeth.
We will gladly spend time with you to answer any further questions you might have. Just call
us (888/772-8923 toll-free, or 863/701-7979) or email (spa@seaplanes.org).
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