A broker of record letter (BOR) is one of the most important documents for your company’s economic well-being, but far too few business owners and leaders understand what it is and how it works. Also known as the agent of record letter or agency of record letter (AOR), an insurance broker of record letter may seem like an unimportant formality, but it’s an important document.
What is a BOR or AOR, and what does BOR and AOR mean in insurance? The easy answer is “the company that takes care of insurance for you.” Specifically, that means working with insurance companies to structure and obtain the right insurance coverage (along with providing other risk management strategies) and issuing insurance certificates as needed.
Most commercial insurance companies prefer to work through brokers or agents of record. That’s because they know the brokers understand coverage well and aren’t likely to investigate coverage for a company that wouldn’t be a good match. Because they need to maintain good relationships with brokers, insurance companies won’t allow multiple brokers to submit requests for the same company.
So What Exactly Is a Broker of Record Letter?
Because a BOR insurance letter is usually very short, it may appear to be a very simple document. On one level, it is. Essentially, an insurance BOR informs an insurance company that a particular broker is now managing the insurance coverage for your business and is replacing the broker who had previously been doing that for you.
However, this “simple” document may:
- end your working relationship with your current broker;
- prevent your current broker from working with the insurance company on your behalf;
- allow your new broker to handle conversations and negotiations with insurance companies on your behalf;
- give your new broker access to any proposals or documents that are already being considered; and
- provide a limited number of days in which your company can change its mind and return to the current broker.
It’s normal for your broker to develop a BOR based on its insurance broker of record letter template. You’ll sign the letter and return it to the new broker. Either you or your new broker can send it to your current insurance company. A template is included later in this post.
Things to Consider with an Insurance Broker of Record
It’s easy to think of business insurance as just another expense, but few things are as crucial to the continued health of your business as identifying and addressing potential risks. Whether it’s something like a fire, cyberattack, or unforeseen weather event, many types of risks could put you out of business temporarily or permanently.
That’s why choosing the right insurance BOR is so essential. It’s not just someone who buys insurance policies on your behalf. You need a BOR who acts as a partner to your business, addressing risk management issues beyond insurance policies. For example, an effective BOR may suggest loss prevention strategies such as employee cybersecurity training or a review of safety practices at your locations.
When Should You Sign a Broker of Record Letter?
There are several occasions when it may make sense to sign a BOR letter, whether you develop the letter on your own or use an agent’s broker of record letter template. One occasion is when your current broker provides poor service or is difficult to reach. Other reasons to consider issuing an AOR letter to a new broker include the following:
- You believe your current premiums are too high, and you think a fresh look at the marketplace may result in better rates.
- Your premiums don’t seem to reflect your excellent claim history and risk profile, and your current broker hasn’t taken the initiative to suggest alternative risk financing options.
- You would like to divide your coverage areas among multiple brokers (such as one for property and casualty areas and one for employee benefits), or you would like to consolidate coverages with one broker.
- Your current broker is just an order-taker who doesn’t share insight to address and improve your risk management concerns.
Since insurance companies will not accept requests for quotes for your business through multiple agents, you need to assign the power to represent you to your new broker.
There’s a common misconception that insurers will allow companies to change brokers only at renewal. The reality is that, in most cases, you can make a change anytime you want. If you’re unhappy with your current broker for any reason and want to switch, generally you can issue a BOR whether there are 30 days or 10 months before renewal. If your insurance policies are in force, they’ll continue to provide protection, and the insurer will start working with your new broker of record.
When Shouldn’t You Sign a Broker of Record Letter?
Because a BOR looks like a simple document, it’s easy to forget that it generally confers substantial authority to the broker. Unscrupulous brokers may encourage potential clients to sign a BOR letter so they can obtain quotes for coverage and fail to tell those potential clients that signing the letter can actually fire their current broker and give the new broker control over their insurance.
Have your attorney review the language if you’re unsure whether you should sign a BOR letter. The attorney will be able to explain the potential consequences of signing.
Is It Possible to Rescind a Broker of Record Letter?
Rescinding a broker of record letter is usually easy because a BOR in insurance typically includes a clause in which you can change your mind within five to 10 days. Sometimes a company will become frustrated with its current broker and decide it’s time for an agent of record change. When the original broker realizes they haven’t treated the company as well as they should have, they reach out and promise to do better. That leads the company to reconsider its decision, so they ask the original broker to issue what’s known as a countermanding or rescinding BOR to restore the insurance broker of record to the original agent.
Can I Have Multiple Agents Working on My Behalf?
It is possible to have multiple BOR relationships as long as your BOR letters specify precisely what areas of coverage each BOR is empowered to handle on your behalf. For example, you might have one BOR that handles all your employee benefits coverages and a separate AOR that takes care of property and casualty coverage.
What Happens When You Sign a Broker of Record Letter?
When you sign a BOR letter, the broker may immediately share that letter with the insurance companies with which you have policies. The insurance companies will then reach out to your current broker to let them know you’re making a change, and unless something happens within the five- or 10-day rescindment period, they’ll lose your business. Once that rescindment period ends, the new broker will generally take control of your insurance as directed in the BOR letter.
While there’s no requirement for companies to notify their current broker that they’re issuing a BOR letter, it is a business courtesy to do so. If you’ve maintained a good relationship with your current broker, they’ll appreciate being told of your plans. If you haven’t told your current broker that you want to switch agents, this may be the first they have heard about it, which may create an awkward situation. The current broker may request an opportunity to address your dissatisfaction and restore the working relationship.
Broker of Record Letter Template
What follows is a sample agency of record letter template. If you are asked to sign a BOR/AOR, the letter would be printed on your letterhead and signed by the company official who oversees insurance coverage:
Gigantic Insurance Ltd.
123 Financial Street
Metropolis, NY 01234
Policy ID #NUMBER
Policy Effective Date
This is formal notification that our company is appointing NAME OF BROKER, with offices at ADDRESS, to serve as our sole broker handling coverage provided by your insurance company, effective immediately.
NAME OF BROKER will replace PREVIOUS BROKER, and we ask you to share any information regarding our policies with them. NAME OF BROKER will handle our needs until we notify you otherwise in writing.
Working with the Right Broker
Since founding our family-owned business over 85 years ago, Hylant has promised to make our clients our top priority. We offer many risk specialty services for your business insurance needs and a full suite of employee benefits services, including health and wellness.
We’re more than an insurance brokerage firm. We view risk holistically, so we’ll work closely with you to develop risk management strategies that align with your short- and long-term goals. Contact our team today to learn how we help organizations like yours reduce risks and protect your assets.
Related Reading: Smarter Strategies for Selecting Your Next Broker
The information above is intended for general informational purposes only. The information does not, and is not intended to, constitute legal advice. You should contact your attorney to obtain advice with respect to any particular legal matter.