For a business owner seeking general insurance, the difference between a business insurance agent and broker is not just a matter of semantics. There are sufficient distinctions between the two that can influence whom you should insure your business with.
Both business insurance agents and brokers are insurance intermediaries who assist business owners with insurance decisions. Typically insurance agents deal with a particular insurer (captive agents). Also, agents do not procure insurance contracts, but merely recommend them. Even independent agents deal primarily with one insurer- the difference being that they are allowed to recommend any product from any company to a client. Brokers procure insurance contracts on behalf of their clients.
A broker should not be automatically superior to an agent and vice versa. However, there are certain distinctions that should indicate whether you should consult an agent/broker or both in seeking certain types of business insurance.
The key differences between insurance agents and brokers can be categorised as follows:
1) Duty to clients
2) Qualification and experience
3) Fees and premiums
4) Special deals and policy arrangements
5) Options for clients
Duty to clients
A business insurance agent has an administrative liability to clients. Brokers have that liability and a legal obligation to their clients as well. Agents are merely facilitators- representatives of a particular insurer (or insurers in the case of independent agents). Agents have a responsibility to both the insurer and the client and ensure that the client provides all necessary material for an application to be underwritten. Brokers have a legal duty to their clients and can even be held liable for not fully fulfilling the request of a client. Brokers therefore have a higher duty towards their clients.
Qualification and experience
Both agents and brokers require licenses to operate. However, brokers require a special license or, in some cases, a higher mark in the same licensing exam. Brokers generally have higher qualifications and experience than agents. This does not suggest that some business insurance agents are not as qualified or have more experience than brokers do. However, brokers tend to handle a larger portfolio and normally have a wider range of experience with business insurance than the average agent.
Fees and premiums
The level of service and higher duty is not a free bonus with brokers. Brokers may charge a fee for their service or offer higher premium than the base premium. Agents are not allowed to do the same, since they do not have a similar level of accountability to clients and are usually captive agents.
Special deals and arrangements
As a result of their networks and experience, brokers can arrange special deals or contract arrangements for clients. A broker has the power of negotiation with insurers, whereas an agent typically has to present the insurer’s package to a client and is unable to effectively negotiate terms and conditions of the business insurance contract. As a result, it is easier to get what you want or need from a broker.
Options for clients
Business insurance brokers and independent agents are free to deal with any insurer that they choose. Captive agents usually offer fewer options to clients and may not always be in a position to recommend alternatives. Brokers and independent agents differ because independents agents tend to have one or two companies that they work with on a regular basis. As a result of their higher duty to their clients, brokers must attempt to find the best arrangement for their clients. That fact and the brokers’ negotiating power enable the broker to provide better options for a client.
One of the critical insurance decisions that a business owner may have to make is which insurance intermediary to choose. In some cases, it may actually be appropriate to choose an agent if the insurance needs are straightforward and the business owner requires the best deal with basic criteria. However, for larger and more intricate contracts, a broker has the position and experience to procure what is required. Clearly, the choice between a broker and agent is not just a matter of preference. It can significantly influence how well your business is protected.
By: Darrell Victor
Posts Tagged ‘Insurance Agent’
The Difference Between Insurance Agents and Brokers
March 4th, 2010How to of Become a Commercial Insurance Broker
February 9th, 2010
First, we need to make a distinction between an insurance “broker” and an insurance “agent.” In the insurance business, an agent is in partnership with one or more insurance companies. A dedicated agent has a contract with a single company, normally an insurance business that prefers exclusivity, and can only sell the insurance products of that company. An independent agent may work with a large number of companies, including AIG, CHUBB, and The Hartford, to name only a few.
A broker does not work for an insurance business but instead for a client in the market to obtain insurance. So if a new business owner wanted to purchase commercial liability insurance, a broker would not be restricted to only those insurance products sold by his or her partners as an agent would be, but could check with any commercial liability insurance provider. Brokers tend to work with non-standard, “excess and surplus” line insurance providers. These firms specialize in unusual coverage, often for emerging technologies, and generally do not enter into agreements with agents. For example, if XYZ company created a new kind of communication equipment where the potential liability risks were unknown, XYZ would most likely need to approach a broker in order to buy commercial liability insurance.
The best way to get started as a broker in the insurance business is to get a job with an established broker. There are many classes you can take on commercial liability insurance and a great deal of research you can do on the existing excess and surplus carriers, but having theoretical knowledge isn’t enough to make you a successful broker. An established broker can introduce you to the people in the insurance business. After all, it is a surprisingly small world and your future success depends on the associations you make. Additionally, an established broker can steer you past the many pitfalls inherent to the industry, mistakes that could cost a client his business. It is best to make these mistakes with someone experienced at your side to catch them and instruct you as to how to avoid them. And, more importantly, you don’t want to make these mistakes when you’re the one paying for the errors and omissions policy, because once you are on your own, the first thing you’ll need to do is get your own errors and omissions coverage. After all, even people in the insurance business need to have insurance. Any broker you work for will probably ask you to sign a limited term non-competition contract, but these usually only apply to businesses within the same state.
A broker, like an agent, is licensed by the state, with the assumption that the broker resides in the same state they do business in. Each state has its own requirements, which generally include a fee and a specified minimum level of education. An insurance business license must be renewed regularly, and continuing education courses may be required as part of the renewal requirements.
You may apply for a non-resident license, but do keep in mind that other states may have different licensure qualifications. Licensing information can be found on most states’ insurance department websites. Additionally, if you intend to work in a different state, you will find it useful to have an agreement with an in-state brokerage firm for tax purposes. And if you move to a new state, you will need to get a certificate of license status from your previous state where you were licensed in order to prove that you were a broker in good standing.
By: James Cochran
