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A commission of authority is a process that is typically used by insurance companies to convey authority to insurance agents. In most cases, the process requires the preparation of a document that specifies the powers that the insurance company is choosing to assign to the agent, making it clear what the agent can and cannot do when conducting business on behalf of the company. It is important to note that these powers are subject to the agent observing the policies and procedures put in place by the insurer, and may be revoked if the agent is found to be in violation of those policies.
The purpose of a commission of authority is to make sure the insurance agent has a clear understanding of what type of activities he or she may pursue when acting on the behalf of the insurer. While the exact format may vary somewhat depending on any laws and regulations that impact the sale of insurance within a given jurisdiction, the content of the commission of authority will normally include details regarding what actions may or may not be conducted by the agent. Setting this type of boundary on the powers or authority of the agent can often help to prevent issues that would lead to significant difficulties for the insurance company, possibly costing a great deal of money that would cripple the ability of the company to provide benefits to its clients.
From the perspective of the agent, a commission of authority also helps to form the basis of the working relationship between the agent and the insurer. By understanding the exact powers that the company is granted, and the circumstances that must prevail in order for those powers to be utilized, the agent can structure his or her selling efforts to comply with those provisions. Often, the extension of those powers makes it possible for an insurance agent to responsibly pursue new clients for the business, provide help and support to existing clients, and in general promote a solid working relationship that is ultimately beneficial for everyone concerned.
In the event that an agent chooses to step outside the boundaries identified in a commission of authority, the issuing insurance company may choose one of several solutions. Depending on the nature of the actions of the agent, he or she may be suspended from representing the company for a period of time, or be required to tender some sort of penalty for the unauthorized actions. At other times, the breach may be so significant that the agent loses all powers to act on behalf of the insurance company, and may even be subject to litigation.