The Seller's Broker vs Your Own Broker

Keeping the seller's broker through the first renewal is a reasonable default if the program fits the company you now run. After a stock purchase the policies usually stay in force (check each policy's change-of-control terms) and the broker knows the account. But that broker was hired to serve the seller, so confirm they fit the lender, investors and customers you now answer to. This guide is for new owners deciding whether to keep, supplement or replace the broker who came with the deal.

Whose interests did the seller's broker serve?

The broker's client was the selling business and its owner. In general industry usage, a broker represents the insured, so for years the insured was the seller's company. The question after closing is whose client the broker is now, and the answer depends on the deal.

• Stock purchase. The company you bought is the same legal entity and the broker's client. As the new owner you can generally direct the broker or replace it, once the carrier has the right authorized signer. Confirm the structure effects with deal counsel.
• Asset purchase. Your new company was not the broker's client. The seller's policies generally do not carry over, so you are choosing a broker for new policies. The incumbent may still be a good candidate, but it is a fresh decision.

Even in a stock purchase, check each claims-made policy for a change-in-control provision, and ask the broker to confirm in writing which carriers have been notified of the ownership change. Some claims-made policies convert to run-off at a change in control: they keep covering claims about acts before the change until the policy period ends, but stop covering acts after it. Terms vary policy by policy, so ask whether a replacement policy or a tail (an extended reporting period, which lets claims be reported after the policy ends) is needed.

If the seller's contact is a captive agent for one insurer rather than a broker, the market-access questions have a different answer. See independent broker vs captive agent.

None of this implies the incumbent did a poor job. A broker that kept an owner-run company insured for years may have done it well. The issue is fit. A few situations deserve a plain question:

• The program may have been built for an owner-operator, not for a lender or investors. Ask what limits and values it was built on and when they were last updated. See was the seller underinsured.
• The seller may have other business with the same broker, such as personal policies or another company. Ask whether any relationship could affect how the account is handled, as a routine disclosure question.
• The seller may stay on as a consultant or hold a license or lease. See insurance when the seller stays on as a consultant.

When does keeping the seller's broker work, and when should you hire your own?

What continuity is worth. An incumbent already knows the claim history, the endorsements added over the years, the insurers' underwriters and why past decisions were made. That is slow to rebuild, and it matters most when the first renewal is close or a claim is open.

A middle path is common: keep the incumbent through the first renewal for continuity, and agree on a date to decide. A broker that welcomes a second opinion is showing confidence, and the Small Business Administration advises comparing offers from several different agents, so a second opinion is routine. If you do go a different way, keep the seller's insurance or start over covers the policy side of the same decision.

How do you test the seller's broker before you decide?

Treat it as an interview, not a confrontation. Ask:

1. Which insurers quoted this account at the last renewal, and why were these chosen?
2. When were property values, payroll and vehicle schedules last updated, and what changes does the new ownership require?
3. Have you worked with a lender's insurance conditions on an acquisition loan? Can you show a clause you have added?
4. Who will be my contact, and who handles certificates and claims?
5. How are you paid on this account, and does it depend on volume or profit? See how insurance brokers get paid.
6. Do you have any other relationship with the seller I should know about?
7. Which policies are claims-made, and what are their retroactive dates? See occurrence vs claims-made.

In New York, a producer must describe its role and whether the insurer or another third party pays it, and a buyer can ask what the producer expects to earn on the sale and on alternatives. The rule has exceptions, including most renewals, though a buyer who asks within 30 days of a renewal is entitled to the written information. Other states differ. You can ask anywhere.

How do you hand over smoothly if you switch?

1. Pick the timing. The easiest moments are after closing and before renewal work starts, or at renewal itself. Open claims generally stay with the insurer that is handling them, so a change of broker should not by itself cancel them. Confirm with each insurer.
2. Collect the documents. Get the declarations pages, full policies and endorsements, loss runs, schedules, and any certificates issued. See what documents you need for an insurance review. Ask the incumbent for a written list of open claims with adjuster contacts, the certificate log, the endorsements added over the years, anything pending with the carrier, and a note of who the named insured is on each policy.
3. Check who can sign. A broker of record (BOR) letter typically must be signed by someone with authority to bind the named insured (the business the policy is written for) on the policy. If a policy names the seller or another entity you did not buy, you cannot sign for it. Ask the insurer what it will do.
4. Ask what happens to the policy itself. Some carriers keep the policy in force and others cancel and rewrite it. For claims-made policies, get written confirmation that the retroactive date and continuity carry over before you sign the letter.
5. Send the letter the way each carrier wants it. Tell the incumbent first, then use a BOR letter. Ask each carrier what it requires, including whether it wants one letter per policy and how long the change takes. Most notify the current broker first and allow a short window. The mechanics are in broker of record letters, and the timing choice is in when to change brokers after an acquisition.
6. Re-confirm the lender and certificates. Ask the new broker to confirm that endorsements and certificates carry over, and tell the lender if the contact changes.

Can the same broker be right for one buyer and wrong for another?

A hypothetical example. A buyer closes a stock purchase of a company with a package policy and workers' compensation, renewing in five months. The seller's broker of many years sends loss runs promptly, adds the lender's loss payable clause and an additional insured endorsement within days, and agrees to a call about the renewal. The buyer keeps the broker, asks it to show the account to several insurers at renewal, and sets a date to decide again.

A different buyer finds that the broker built the program for the seller's simpler needs, had not seen the lender's requirements before closing, and takes longer on certificate requests than the customer contracts allow. That buyer starts the broker of record conversation, tells the incumbent first, and keeps the incumbent on until the new broker confirms the endorsements. Both buyers did the same thing: they tested fit. The results differed because the facts differed.

Can Morrow work alongside the seller's broker?

Morrow is the brand of Afthonea Inc., an insurance agency in Boston that focuses on business insurance. It can review inherited policies, flag gaps and request quotes from insurers, whether or not you keep the seller's broker. Some carriers accept an account from only one broker at a time, so a quote request may need to be coordinated with the current broker of record. Morrow does not issue policies or decide coverage, and any new terms depend on carrier underwriting. A quote request is not bound coverage. Morrow is licensed in these 18 states only: Arizona, California, Colorado, Florida, Georgia, Illinois, Louisiana, Massachusetts, Michigan, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas and Virginia.

If your state is not on that list, or you need a very large, complex program, look for a broker licensed in your state and confirm the license on your state insurance department lookup. Staying with the seller's broker may suit you better if the program fits and the service is good. For life, disability or health benefits questions, ask a benefits adviser or life insurance specialist.

Keep reading

• Should I Keep the Seller's Insurance or Start Over? A Decision Guide
• Broker of Record Letters: Switching Brokers Without Switching Policies
• How to Remarket an Inherited Insurance Program After an Acquisition
• When to Change Insurance Brokers After You Buy a Business
• Questions to Ask an Insurance Broker After Buying a Business
• All guides for new business owners

Frequently asked questions

Should I keep the seller's insurance broker?

It can be reasonable, especially after a stock purchase with a fitting program. Test the broker on insurers used, update history, experience with lender conditions and service. Keep through the first renewal if things look sound, and set a date to decide again.

Can the seller's broker share the seller's policy documents with me before closing?

The broker usually takes direction from its client, the seller. Ask the seller in writing to authorize the broker to share declarations pages, policies and loss runs, and say which documents you need. Your purchase agreement may also address access to records.

Will switching brokers cancel my policies or open claims?

It depends on the carrier. Some carriers keep the policy in force, others cancel and rewrite it on the effective date of the change. Open claims generally stay with the insurer handling them. For claims-made policies, ask that the retroactive date carry over. Ask each carrier how it processes the change before you sign the letter, and confirm lender clauses and certificates afterward.

How long does a broker of record change take?

It depends on the carrier. Two published examples are five business days for one state fund and a 10 business day rescinding period for another insurer. Many carriers notify the incumbent broker first. Ask each carrier for its timing and whether a waiver is allowed.

Is it rude to move to my own broker after buying?

No. A broker serves the client, and the client's needs changed with the purchase. Tell the incumbent yourself before the letter reaches the carrier, thank them for the handover, and ask for the policy files and loss runs in a clear, businesslike way.

The seller's broker is slow sending my files. What can I do?

Ask the seller in writing to authorize the broker to release the policies and loss runs. After a stock purchase you can also ask the insurers directly for loss runs as the new owner of the named insured, and an insurer may ask for proof of your authority. After an asset purchase the seller's policies are not yours, so the insurer will likely need the seller's authorization. Your purchase agreement may also give you access to records.

References

• IRMI: Broker
• State Compensation Insurance Fund: Broker of record process
• Encova Insurance: Agent / Broker of Record Change (June 2021)
• New York Department of Financial Services: 11 NYCRR 30.3, Compensation disclosure (Cornell LII)
• IRMI: Contingent commission
• SBA: Get business insurance

This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.