The 3 Types of Authority Granted to Insurance Agents

In the insurance industry, companies authorize agents to represent them and conduct business through different types of authority. There are three main categories that these various agent authorities fall under:

• Express authority
• Implied authority
• Apparent authority

Understanding how these insurance agent authorities work is important for both agents and consumers when entering into agreements and contracts.

What is Express Authority for Insurance Agents?

Express authority, also known as explicit authority, refers to powers clearly spelled out and directly granted to an insurance agent in writing by the insurance company. This written authority defines the specific actions and responsibilities that the agent is allowed to perform when acting on behalf of the insurer.

Some examples of express authority granted to an insurance agent may include:

• Authority to sell policies for the company
• Authority to evaluate risks and accept or reject applications
• Authority to collect initial premium payments
• Authority to provide quotes to potential customers
• Authority to make policy changes for existing clients

Generally, the express authorities given to an insurance agent are laid out in the contractual agreement between the agent and the insurance carrier. These granted powers are intentionally well-defined and unambiguous.

Both the agent and insurance company are clear on what activities the agent is permitted to engage in when representing that insurer. Any action by the agent that falls outside their defined express authority is not binding on the insurance carrier.

Some key things to know about express authority:

• It must be explicitly stated in writing by the insurance company.
• The agent cannot expand their own express authority without written changes from the insurer.
• Violating the expressed limitations may allow the insurer to terminate the agent’s appointment.
• It provides legal protection to insurers from agent actions exceeding authorized powers.

Overall, express authority gives agents clearly delineated powers to speak and act for the insurer. It benefits both parties by avoiding confusion about the agent’s specific roles and responsibilities.

What is Implied Authority for Insurance Agents?

In contrast to express authority, implied authority is not directly expressed or written out in the contractual agreement between an insurance agent and the company.

However, implied authority refers to additional incidental powers that the agent has by nature of their appointment, which are reasonably necessary and customary to carry out their expressly authorized duties.

Some common examples of implied authority for insurance agents include:

• Using the insurance company’s letterhead, logo, and trademarks
• Accepting routine payments on existing policies
• Making minor changes to policies such as address updates
• Answering clients’ questions about policies and coverage
• Promoting and advertising the insurance company’s products

Insurance agents need some degree of implied authority to effectively conduct everyday business on behalf of the insurer. If the agent had to request additional express permission from the company for each minor action related to a client, it would not be practical or efficient.

The scope of implied authority may vary based on the types of insurance policies sold and other factors. But in general, the agent is assumed to have the implied powers that normally come with their express authorities.

It is implied and understood that the agent has the authority to perform necessary, customary tasks related to their authorized duties that are not spelled out word-for-word in the contract.

Key facts about implied authority:

• It is not directly expressed in writing but inferred as reasonably necessary.
• Limitations still apply based on the agent’s express authority.
• Insurance companies can notify agents if implied authority is revoked.
• Its scope may be interpreted through industry norms and customs.

Implied authority allows agents to act on behalf of the insurer while carrying out their regular duties. But insurance carriers are not bound by agent actions that improperly exceed implied powers.

What is Apparent Authority for Insurance Agents?

Insurance agents may also possess something known as apparent authority or ostensible authority.

Apparent authority refers to the appearance of authority and powers granted to an insurance agent based on the reasonable perceptions and observations of third parties, such as clients.

Some examples of apparent authority include:

• An agent providing their business card showing association with the insurer
• The agent’s advertisement presenting their connection to the insurance provider
• Office signage indicating the agent sells policies for that carrier

Even if the agent is not expressly authorized in writing to perform certain acts, the insurance company may still be legally bound if they have allowed the appearance of authority to exist through the agent’s actions and presentations.

A consumer who reasonably believes an insurance agent has certain authority to make representations and contracts based on apparent factors may be able to hold the insurer responsible for supporting that authority.

Key characteristics of apparent authority:

• It depends on the reasonable impressions of a third party.
• It may exist even without express or implied authority.
• Insurance companies should monitor public presentations of their brand.
• Legal disputes may arise if apparent authority exceeds actual authority.

Insurers need to be aware of how their appointed agents are presenting themselves to the public and portraying their powers. Apparent authority perceptions ultimately create risk exposure for the insurance company.

Why Understanding Insurance Agent Authority is Important

There are a few key reasons why express, implied, and apparent authority are important concepts:

Legal protection – Express authority provides defined legal protection to insurance companies regarding authorized agent activities. It limits exposure from agents overstepping powers.

Efficiency – Allowing for reasonable implied authority permits insurance agents to efficiently conduct daily processes and transactions.

Managing perceptions – Insurers must monitor apparent authority signals to the public to avoid misperceptions of agents having inflated powers.

Consumer awareness – Clients need to understand agents’ authority powers and limitations when buying insurance products.

** Agent accountability** – Authority types hold insurance agents accountable by defining what actions they can and cannot take on the insurer’s behalf.

Overall, authority establishes boundaries, protects reputations, empowers agents, and informs the public. It enables the insurer-agent relationship to function smoothly.

How Insurance Companies Grant Authority to Agents

Insurance carriers utilize a few methods to officially confer authority to appointed insurance agents who will be representing their brand.

Written Contracts

Formal contracts detailing express authority granted to the agent are a key method used by insurers. These agent appointment contracts specifically outline authorized sales territories, types of permissible policies and products, collection of payments, and other powers.

Training Materials

Insurance companies may provide training manuals or materials to agents highlighting procedures, sales processes, and company expectations regarding their authority. These help clarify the scope agents should stay within.

Licensing

By only appointing and contracting agents who have attained proper state insurance licenses, insurers help ensure agents have completed legally required training on appropriate duties and ethical behaviors.

Oversight

Insurers use supervisor reviews, audits, feedback channels, and other oversight to monitor insurance agents are not operating outside their authorized scope or misrepresenting their authority.

Limiting Access

Companies avoid providing agents with items that may incorrectly imply extensive powers before they are officially authorized, like certain promotional materials, office supplies, branded merchandise, etc.

Revocation

Insurers can revoke authorized powers at any time through written notices of cancellation when agents act inappropriately or beyond their authority.

Taking measures to properly confer, supervise, and control insurance agents’ authority is crucial for managing legal risks.

Examples of Insurance Agents Acting Within and Outside of Authority

To illustrate how these authority types come into play, here are a few examples of insurance agents acting:

Within express authority

• An agent approving a simple policy change request from a client such as updating their address.

Within implied authority

• An agent providing brochures and promotional materials about the company’s insurance products to prospective clients.

Within apparent authority

• A client seeing an insurance agent’s newspaper ad indicating the agent provides quotes for policies from a certain company.

Outside express authority

• An agent attempting to approve a complex claim settlement without authority limits to do so.

Outside implied authority

• An agent trying to retroactively alter policy rates and provisions without the power.

Outside apparent authority

• An agent presenting themselves as having the authority to sell insurance nationwide, when in fact they are limited to certain states.

These examples demonstrate how agents may act appropriately within granted authority, or at times may try to overstep their authorized boundaries.

Can Insurance Agent Authority Be Revoked?

Yes, an insurance company may revoke an agent’s granted authority under certain circumstances, such as:

• The agent exceeds or violates authority limitations repeatedly.
• The agent fails to comply with legal or ethical regulations.
• The insurer chooses to stop doing business with the agent.
• The insurer decides to exit a particular market or state.
• The agent’s contractual agreement with the company expires.

Revocations are typically executed through written notice provided to the agent by the insurance carrier. The agent must immediately stop representing the company once authority is revoked.

In some cases, insurers may only revoke certain authorities but allow the agent to retain others. But ultimately all authority powers stem from the insurer and may be rescinded at their discretion through prescribed procedures.

Key Takeaways – Understanding Insurance Agent Authority

There are three primary types of insurance agent authority:

• Express – Powers explicitly granted in writing by the insurer.