Can I Charge My Clients a Fee?
From this month’s mailbox comes a common question we receive at KAIA. I love that our agents want to make sure they’re complying with the law, so let’s tackle this common question together. The short answer is yes, but have you ever met an attorney who gave you a short answer?
K.S.A. 40-4911 is the governing statute on this topic and it does allow agents to charge fees. An insurance agent can receive compensation by way of commissions from carriers, fees charged to clients, or a combination of commission and fees. KSA 40-4911 does put forth a couple of requirements to keep in mind.
First, any fee you charge a client must be supported by a written agreement (a contract!) between the agent/agency and the client. We recommend having this written agreement in place prior to the effective date of the underlying insurance policies and obtaining an updated version each year. The agreement doesn’t have to be long or fancy, so keep it as simple as you’d like. Make sure you include the name of your client, your agency’s name, the amount of the fee, and the services you are performing for said fee.
Second, the fee you are charging does need to be supported by the services you are performing and those services should be spelled out in the agreement. Are you providing additional risk management or risk mitigation services? Do you provide 403 certificates of insurance each year on behalf of this contractor client? Are you procuring policies with non-admitted carriers that require extra administrative effort and service?
If this happens to be a client that has business with a non-admitted carrier, keep in mind that surplus lines taxes are based on premium and not fees. For instance, if your client’s premium is $1,000 but it pays an additional $200 in fees, the client will pay surplus lines tax on the $1,000 and not the overall cost of $1,200.
If you have any questions, please contact Beth Smoller.