Definition:Brokerage agreement
📝 Brokerage agreement is the formal contract that governs the relationship between an insurance broker and an insurance carrier (or between a broker and a managing general agent), setting out the terms under which the broker may solicit, negotiate, and place insurance business on the carrier's behalf. It defines critical parameters such as commission structures, lines of business the broker is authorized to present, data reporting obligations, and the circumstances under which either party may terminate the relationship. Unlike a binding authority agreement, a standard brokerage agreement does not grant the broker power to commit the carrier to risk — the broker introduces business, but the carrier retains full underwriting discretion.
⚙️ Typical provisions within a brokerage agreement address premium collection and remittance timelines, fiduciary handling of client funds, errors and omissions insurance requirements for the broker, and confidentiality obligations. The agreement may also outline performance expectations — minimum premium volume thresholds, loss ratio targets, or submission quality standards — that the broker must meet to maintain the relationship or earn contingent profit commissions. In Lloyd's and the London market, brokerage agreements often incorporate terms of business agreements (TOBAs) that layer on market-specific conduct and transparency requirements.
🔑 A well-drafted brokerage agreement protects both the intermediary and the carrier by reducing ambiguity about roles, economics, and exit procedures. For carriers, it ensures that distribution partners operate within defined guardrails and that regulatory expectations — such as those imposed by state departments of insurance or the FCA — are contractually embedded in the relationship. For brokers, the agreement secures their commission entitlements and clarifies which party bears responsibility for policyholder communications, claims notifications, and renewal processing. As insurance distribution grows more complex — with layers of wholesale brokers, retail brokers, and program administrators — the brokerage agreement remains the foundational document that keeps accountability clear across the chain.
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