Insurance Broker Bonds

The insurance industry is a huge one since most individuals and businesses require at least one insurance policy at some point. Insurance brokers often provide the best prices and insurance options since they sell several different types and brands. But how do consumers know they are working with an ethical broker who is getting the appropriate insurance policy?

Protection

State and local governments require insurance brokers to have insurance broker bonds to ensure that their practices are ethical and operate according to the law. These specialized bonds protect both consumers and the general public against fraud and unethical behavior on the part of the broker. The bond protects against predatory practices such as:

• using inflated or false quotes to increase profit
• coercing consumers to purchase inappropriate insurance products
• encouraging customers to misrepresent themselves on insurance applications
• encouraging customers to misrepresent their financial situation on insurance applications

The insurance broker bond also protects companies that provide brokers with insurance products. Since the broker acts as an intermediary between the insurance company and the consumer, the company needs to know it receives payment for its products. Insurance brokers often sell many different "brands" of insurance, and the bond reassures each insurance supplier that it will receive the money collected by the broker.

Getting the bond

Companies that specialize solely in selling all types of surety bonds, including mortgage broker and auto dealer bonds, also issue insurance bonds. Bond prices are typically based on an application process, your credit score, a thorough financial check, and your financial strength.

The insurance broker must be able to cover the face value of the bond since the broker could potentially have to pay the whole amount if a valid claim is ever filed against the bond. Bond values are usually based on the volume of business the broker performs or expects to perform.

Insurance brokers who have poor or little credit can still obtain a bond but will most likely have to go through a company that specializes in sub par credit bonds. Since the underwriting is more complex and the bond represents a greater risk for the surety company, sub par bonds have higher rates.