Definition - What does Binding Authority mean?
A binding authority is an agreement where an insurer gives full authority to an agent to act on their behalf for the purpose of underwriting. The agent is typically an insurance broker. Once the agent has binding authority, they are legally allowed to sell policies on the insurer's behalf to clients. Insurance companies hire brokers for this purpose.
Insuranceopedia explains Binding Authority
Without a binding authority, insurance brokers would not be able to make business actions on behalf of their insurance company clients. This would significantly slow down the process of buying and selling insurance through brokers. However, a binding authority gives the brokers the power to act on the company's behalf. This speeds up the process, but it also creates a need for insurance companies to make sure they hire proper brokers. Otherwise, they could be trusting brokers who may make poor decisions for the company.