Definition - What does Binding Authority mean?
A binding authority is an agreement in which an insurer gives full authority to an agent (typically an insurance broker) to act on their behalf for the purpose of underwriting. Once the agent has binding authority, they are legally allowed to sell policies on the insurer's behalf.
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.
Granting binding authority speeds up the process of selling and managing insurance policies. It also, however, makes it critical that insurance companies hire trustworthy and competent brokers. Otherwise, they may be giving authority to brokers who might make poor decisions on behalf of the company.