Broker Service Agreement
Market Intelligence

Broker Service Agreements – Part 1

In our capacity as an independent advocate for the insured, RAS regularly encounters Broker Service Agreements (BSAs) – also referred to as Service Level Agreements (SLAs) – that disproportionately benefit brokers rather than clients. BSAs are written by the brokers’ legal teams with the sole focus on protecting the brokers’ remuneration and exposure to liability. They are not written to protect you, the client.

RAS recommend paying particular attention to the following clauses when negotiating your Broker Service Agreement:

Limitation of Liability

Most standard Broker Service Agreements place a limitation on liability that is unacceptably low for clients. Seek increases to this limit wherever possible, noting most brokers have flexibility to increase these limits. We recommend that as a minimum all corporate clients should seek $10m+ for their broker’s limitation of liability.

Remuneration

Clients are typically unaware that broker remuneration is based on a combination of the annual service fee plus commission and/or profit share arrangements with insurers. RAS recommends annual fees are the only method of remuneration for brokers.

In the first instance, seek an amendment to the BSA which prohibits your broker from earning commissions on placements. Where this is not possible, ensure a percentage (%) cap to the commission noting a range of (5% to 10%) is typical.

Termination Clauses

Broker-drafted service agreements are increasingly penalising clients for terminating the broker’s appointment. Most termination clauses state 60% of fees are earned in the three months leading up to renewal with the remaining 40% earned in the 9 months post-renewal. RAS is aware of some brokers imposing a termination provision that states 100% of fees are earned at placement. Such conditions protect the interests of the broker, leaving the client with no avenue for recourse if service standards are poor. Typically, when clients terminate BSAs it is due to service-related issues, transparency concerns or poor claims settlements – all good reasons to terminate a relationship.

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The above list is not exhaustive and is intended to provide a sample of pitfalls in these agreements. RAS regularly collaborates with clients, their legal teams, and brokers to negotiate service agreements that balance the interests of our clients with those of their broker. Above all, you do not have to accept a broker’s first offer – it is up to you whether you sign their BSA.