Watch What You Pay for Auto Insurance

A law in California prevents auto insurers from charging excessive rates and requires that rates be approved by the state Insurance Commissioner. From 1999 through 2004, Mercury’s insurance agents have charged consumers unapproved broker fees on more than 180,000 transactions. By doing so, the auto insurance company improperly collected $27,593,562 million from consumers, California State says.

Mercury Insurance did not obtain the California Insurance Commissioner’s approval for theses broker fees and so consumers paid more than the rates approved by the commissioner. Mercury Insurance has now been ordered by the California Department of Insurance to pay a fine of $27.56 million.

Who Are You Dealing With?

Those who were identified as brokers were actually functioning as agents, according to the state. This is why their fees had to be approved by the commissioner, which Mercury failed to do.

Following California law, brokers are allowed to charge additional fees and agents may not.

An insurance agent is “a person authorized, by and on behalf of an insurer, to transact all classes of insurance other than life insurance“. In contrast, an insurance broker, is defined as “a person who, for compensation and on behalf of another person, transacts insurance other than life with, but not on behalf of, an insurer“.

In other words, an agent represents the auto insurance company and may NOT charge you a fee in addition to any commission.

A broker works independently and represent you (or somebody else, but not an insurance company) and may charge a fee for his or her services. Any broker or agent charging a lawful fee is required to obtain your consent after telling you about the service and any fees. He or she must also tell you if he or she receives a commission from the insurance company.