Tech Agreements Need Overhaul

Report says agreements dont reflect the realities ofagent-company electronic relationships

As agents become more reliant on technology to transact dailybusiness, and as carriers work to develop easier, quickerelectronic transaction features, the dynamics of agent-carrierrelationships are being redefined.

But all too often, technology agreements between agents andtheir carrier partners aren't keeping pace with the “new electronicrelationships” that are being forged between them, according to areport released in May by the Agents Council for Technology.

Like well-drafted prenuptial agreements, technology agreementsbetween agents and carriers need to address some key issues upfront like what to do about agents' electronic access to companydata when a relationship ends.

But termination issues are just one set of issues that need tobe addressed in technology agreements, according to the reporttitled “Guidelines for Effective Agent-Carrier TechnologyAgreements.”

More importantly, the technology agreements need to addressaccess, use and indemnity issues that can crop up to createproblems in otherwise healthy ongoing relationships.

Whether technology issues are addressed directly in an agencyagreement or through separate amendments, an overriding point tobear in mind is that there should be no conflict between thedocuments, according to the report. In other words, the principlesand protections provided to the respective parties in an agencyagreement cannot be taken away by the language of a technologyagreement just because the agent happens to be using an electronicmedium, the report said.

Roy Riley, chairman of the ACT Technology Agreements Work Groupthat produced the report, said it is intended to illuminatepotential problemsand find remedies for them before they becomeissues for agents and carriers alike.

“We have not seen a problem nor do we know of one that hassurfaced,” said Mr. Riley, who is also chief operating officer forPeel & Holland Financial Group, an independent agency based inBenton, Ky. “This report is more of an attempt to avoid one in thefuture.”

He said the report represented a broad set of viewpoints basedon input from agency and company representatives. It is a guidelineon general issues, he continued, and both producers and carriersneed to keep the points the report makes in mind as they go forwardin the future.

“These are good business practices that need to be addressed inthe future,” said Mr. Riley.

Ken Clark, director in the Consultative Services Department forThe Hartford, based in Hartford, Conn., felt insurance companieswould view the report positively.

“The way the document was put together, it really givescarriers, I believe, a very balanced approach to items andfunctions that need to be included in any technology agreements,”observed Mr. Clark, who also served as director of the members ofthe ACT committee that put the report together.

“It's a balanced approach. It's not from a carrier side or anagent's side,” he said.

Mr. Clark described the report as “a guideline or road map” thatcan be used both by companies that do not already have technologyagreements in place, as well as by companies that do have themalready. As the technology changes, the latter group will need tomake sure those changes are captured in the technologyagreements.

According to the report, “the agreements reviewed were 'all overthe lot' in the scope of issues that they addressed, and manyseemed to be adapted from technology software agreements which didnot take into account the unique aspects of our distributionsystem.”

Some of the key recommendations in the report included:

o Limiting Access.

The group felt that access to insurance company Web sites shouldbe limited to authorized personnel and that an agency administratorshould audit who has access to the sites. Companies should alsoperform audits to make sure password access is being protectedproperly by agencies.

Using Electronic Data, Other Carrier Information.

The report recommends that technology agreements clearly spellout the kinds of information on carrier Web sites that agents areallowed to use and share with customers and other parties (formarketing, underwriting, or loss control purposes, forexample).

While the report said that some agreements do not adequatelyaddress the use of data today, others go overboard by stating thatthe carrier “owns” all software and Web content.

Addressing Termination.

Agreements need to be updated to allow agents to have access tocompany data on their clients and policies after termination from acompany for the period specified by state regulators to keeprecords available. Allowing this, the report said, would generatesupport among agencies for carrier initiatives to “turn off ” thepaper.

Indemnification.

There should be fair and equal indemnity agreements betweeninsurers and agents for damages caused by technology systems.Current agreements hold agents responsible for damages eithercaused by them or limited to “the agent's 'intentional or grosslynegligent' failure to adhere to the carrier's Conditions of Use ofits technology.”

Also, electronic information should be as reliable astraditional forms of information. The same level of indemnityshould apply from carrier errors as currently exists fromtraditional forms of information that results in an agent'sloss.

Correction of Data, Systems Errors.

Each party should make a commitment to alert the other ofincorrect information and make corrections as promptly aspossible.

Document Retention.

Company rules on record retention by agencies should reflectstate regulations that allow for keeping electronic records,instead of in paper format with the customer's “wet” signature. Theagreements should also reflect how long those records need to bekept.

Third-Party Information Reports.

Carriers should not shift their responsibility to get permissionfrom consumers to collect third- party information reports (such asmotor vehicle records) to agents where the company is responsiblefor the collection of that information.

The next step with the report, said Jeff Yates, executivedirector of ACT, is to encourage agents and carriers to pursueimplementation of the recommendations in the report in theiragreements so the agreements reflect advances in technology. Thereport, he said, is a tool for agents and companies to use tostructure the best possible agreements.

Mr. Yates said there has been no negative feedback to thereport. Some carriers have told ACT that they were already in theprocess of looking at the agreements in order to make them current,before this report came out.

“The report is worth little unless the industry takes it andadopts it,” noted Mr. Yates. “We will continue to monitor[implementation] to see that the industry is responding to it.”

The seven-page report is available at www.independentagent.com.

Reproduced from National Underwriter Edition, June 11, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.