Unauthorised commitments by agents

What it is

Organisations control who may commit them: signing limits, delegated authorities, approved wording. An agent that converses with customers or transacts with counterparties can make a promise, quote a price, accept terms or waive a fee. Whether the organisation is legally bound depends on the facts and the jurisdiction; the practical exposure is that customers rely on what they were told and the organisation is held to it.

How it happens

• The agent's instructions describe its task and say nothing of its limits.
• A customer negotiates and the agent agrees in order to be helpful.
• The agent applies a policy that is out of date or that it invented.
• Authority limits that bind staff were never translated into limits on the agent.

Why it matters

The exposure is financial, legal and reputational, and it scales with the number of conversations. A disclaimer that the agent may be wrong carries little weight where the customer had no means of checking.

Warning signs

• No statement exists of what the agent may and may not agree to.
• Transcripts contain undertakings such as refunds, rates or deadlines.
• Complaints cite what the assistant said.
• The agent can complete a transaction that a member of staff at that level could not.

Who owns it

The business owner of the channel is accountable, as for a team of staff. Legal and compliance set the limits. Engineering enforces them in the agent's permissions and approval steps.

In practice

An insurer's assistant, pressed by a customer about a late renewal, states that cover will be backdated. No such concession exists in the policy, and the customer relies on it when a claim arises. The same pattern generalises to any agent that speaks or transacts for an organisation.