Understanding the Implications of a Broker of Record Letter

The Broker of Record (BOR) letter is one of the most powerful and abused documents in the insurance industry. Unfortunately, many less than scrupulous brokers convince lay insurance buyers to sign this document without explaining exactly what it accomplishes.

Your insurance policy is due for renewal and you have decided to seek a competing proposal from another insurance broker. You provide this broker with all the pertinent underwriting information and then sit back and wait to receive his or her quote at a later date. Instead, the competing broker calls you back and complains they are unable to obtain any quotes because your current broker has already contacted all available insurance markets and therefore, he/she is “blocked” from obtaining any quotes. This seems unfair, even anti-competitive.

The competing broker then suggests a way to “fix it.” Simply sign a BOR letter appointing him or her as broker, which will allow them access to the insurance market to obtain a quote.  Be careful and give thoughtful evaluation before signing!  This is a very powerful document.  As soon as you sign this letter, the competing broker will forward it to the insurance companies who were “blocked,” informing them you have fired your current broker and hired the competing broker to represent you in the market. The insurance company will then notify your current broker by sending them a copy of the signed BOR letter confirming same. The insurer will then give your current broker five days to obtain a rescinding BOR letter. Your current broker is now going to contact you and ask why they have been fired. This can be an uncomfortable call to receive if you do not know it’s coming. A good broker seeking a BOR letter will have carefully explained exactly what will happen if you sign the letter so there are no surprises. 

What exactly is a Broker of Record letter and why is it necessary?

Insurance companies rely on insurance brokers to bring accounts to them for evaluation. There are a small number of aviation insurance companies, each with limited staff, and they do not want to tie up their underwriters by quoting the same risk to numerous different brokers. Therefore, each will recognize only one broker on any given risk on a first-come, first-served basis. The first broker who submits a risk to an aviation insurance underwriter is the official "broker (or agent) of record" and the insurance carrier will assume this person was the customer’s first choice. The choice of broker belongs entirely to you, the customer, so the broker can be later changed if that is the wish of the customer. Enter the Broker of Record Letter.  It is a serious document that accomplishes the following:

1. Terminates the relationship between you and the current broker and suspends the current broker's ability to negotiate on your behalf with the insurance company.
2. Affirms the appointment of a new broker, giving that broker the sole ability to negotiate with the insurance company for you, and grants access to any underwriting information or proposals that are currently "on the table." (Without a significant change in the basic underwriting information, if the insurance company has already made a firm commitment to the first broker to either decline or provide a quote, the new broker "inherits" that decision – whether it is a declination or a specific premium proposal.)
3. Provides a relief mechanism or transition period from one broker to another, expressed in number of days, to allow full disclosure of the letter to all parties involved, thereby granting the former broker the opportunity to review the implications of the letter with you and to confirm your desire to change brokers.

Reasons you might decide to sign a broker of record letter include:

• You are simply unhappy with the service or performance of your current agent / broker.
• The competing broker convinces you they bring more benefits to the table including possible expertise in areas such as experience in your class of business, claims, or loss control unique to your risk.

Be certain you understand the ramifications of this document. Have your broker (either your current broker or the candidate broker) explain its intent before you sign it.  You are generally best served by selecting, up front, one competent aviation insurance broker who has access to all the markets and will consult with you on the resulting proposals. To learn more, contact an AssuredPartners Aerospace insurance specialist.