Insurance brokers and agents act as intermediaries between insurance companies selling insurance and consumers seeking to purchase insurance. There are several insurance options and insurance organizations from which to choose. Brokers and agents help navigate the many choices of insurance available to meet the needs of their clients at a fair price. If you’re in the market for personal or business insurance, you might be wondering what the differences are between an insurance agent and an insurance broker.
Insurance Broker and Insurance Agent Similarities
Similarities between insurance agents and insurance brokers include license requirements and insurance types represented.
Both insurance brokers and agents require licenses to operate. License requirements are mandated by the state in which the broker or agent operates and typically involves the successful completion of pre-licensing requirements and a written examination. Continuing education requirements need to be met for insurance licenses to remain in good standing.
Insurance Types Represented
Insurance brokers and agents can specialize in a specific type of insurance or represent a variety of insurance types. Licenses are required for each type of insurance represented.
Individual or personal insurance that a broker or agent might represent include:
- Automobile insurance
- Homeowner’s insurance
- Flood insurance
- Life insurance
- Disability insurance
- Health insurance
Business or commercial insurance that a broker or agent might represent include:
- Worker’s compensation insurance
- Commercial auto insurance
- Employee benefits (see below)
- General liability insurance
- Errors and omissions insurance
- Property insurance
- Business interruption insurance
Employee benefits that a benefits broker or agent might help a business secure include:
- Medical insurance
- Life insurance
- Disability insurance
- Dental insurance
- Vision insurance
- Pet insurance
Insurance Broker and Insurance Agent Key Differences
The primary differences between insurance brokers and insurance agents are who they represent and how they initiate policies. There is also variation in the compensation structure.
Insurance Agents Represent the Insurer
Insurance agents represent the insurance company and have in-depth knowledge of the insurance coverage offered by those companies. An agent can be an independent agent or a captive agent.
A captive agent represents only one insurance agency. For example, when you walk into a State Farm insurance office and work with one of its agents, you are working with a captive insurance agent who works solely for State Farm. Captive agents are either employees or independent contractors of the company that they represent. They typically receive support from the company, including office space and insurance referrals.
Independent agents, on the other hand, represent several insurance companies. An independent agent typically operates as an independent business, seeking out referrals and paying all overhead costs.
Insurance Brokers Represent the Buyer
Insurance brokers are insurance specialists who represent and work on behalf of the consumer. Insurance brokers can be independent or work for a brokerage firm and offer in-depth knowledge for a wide variety of insurance coverage types. Brokers work with their clients to complete insurance applications for submission to insurance companies; these are followed by insurance quotes from those companies.
There are different types of insurance brokers, including retail and wholesale brokers. A retail insurance broker works directly with clients to help them acquire insurance from a wholesale broker or insurance company.
A wholesale broker does not have contact with the end client. Instead, they work with retail agents and brokers to offer specialized insurance products that require specific expertise for complex risks. Wholesale brokers often work with surplus line brokers who help to secure insurance for coverage that other providers don’t offer. Examples of such coverage include insurance for high-risk establishments (e.g., a motorbike racing event, waterpark, or doggie daycare center), coverage for risks without much historical data, coverage for new ventures, and coverage for high-risk clients that have a history of losses.
Policy Initiation and Binding
Another difference between an insurance broker and an insurance agent is how an insurance policy is initiated. Insurance agents can bind, or initiate insurance policies. On the other hand, insurance brokers are required to have an insurance binder that is signed by the insurance company’s underwriter to initiate policy. The insurance binder is a temporary policy provided to the consumer that is eventually replaced with a permanent policy. The permanent policy is typically put into place 30 to 90 days after the insurance binder is initiated.
Insurance companies also provide insurance agents with appointments. Appointments are contracts that indicate which insurance products the agents can represent and sell, along with the compensation they will receive for each sale that is closed. Insurance brokers do not receive appointments from insurance companies.
Independent insurance agents and independent brokers typically receive commissions on the insurance policies they sell from the insurance companies who issue the policies. When representing more than one company, the compensation structure might vary based on the terms agents or brokers have with each insurance company.
The pay structures of captive agents depend on the company for which they work. A captive agent might receive a base salary only, a base salary and commissions, or a base salary, commissions, and bonuses.
Some states allow insurance brokers to charge a broker’s fee, in addition to commissions. Such fees must be disclosed and reasonable.
Advantages of Working with an Insurance Broker
The benefits of working with an insurance broker are many. When working with a reputable insurance broker:
- Your interests are the top priority.
- You save time and resources on research and selection.
- You’ll receive a competitive rate.
- You can check off the legal compliance box.
- You can trust you have the coverage you need.
- You can remain competitive in the job market.
- You’re building a long-term partnership.
Your Interests Are the Top Priority
Insurance agents have a fiduciary duty to the companies that they represent. Insurance brokers, on the other hand, have a fiduciary responsibility to you, the consumer. Therefore, your interests come first.
You Save Time and Resources on Research and Selection
Insurance brokers take the guesswork out of insurance. You’ll save valuable time and money by having an insurance broker research insurance options for you, as well as review insurance terms with you. An insurance broker will ensure that you’re clear on the policy terms, provisions, and exclusions of the options presented. From there, you can work together to select the best fit for your business.
You’ll Receive a Competitive Rate
One of the key benefits of working with an insurance broker is the competitive pricing you’ll receive. Because brokers work for their clients to secure the best possible insurance to mitigate risks, it reduces the rate of unnecessary claims, which insurance companies appreciate. As a result, insurance companies generally offer lower rates to insurance brokers, which means that those lower rates are passed on to the client. Also, because insurance brokers work with many insurance companies, they can shop around to guarantee you get the best price for the coverage you need.
You Can Check Off the Legal Compliance Box
The legal landscape that encompasses business insurance is continuously changing. There are federal, local, and state insurance requirements that businesses must adhere to unless they want to face hefty penalties and fines. It’s an insurance broker’s job to be “in the know” about the legal requirements that govern insurance for your area and business, so you can be sure that you have the coverage that meets those requirements.
You Can Trust You Have the Coverage You Need
Based on extensive risk assessments and industry knowledge, insurance brokers can ensure that you have the coverage you need for your potential liabilities and risk level.
You Can Remain Competitive in the Job Market
Employee benefits tie into numerous employment statistics, including hiring, retention, and job satisfaction. Thus, offering a comprehensive benefits package for employees helps you to hire and retain top talent and improve productivity. Benefits brokerage firms can provide insights into the marketplace to advise you on what current trends and benefit plans are available to you to meet the needs of your business and employees.
You’re Building a Long-Term Partnership
Insurance needs and legal requirements change, and regular review of current policies and plans is necessary. Forging a partnership with a reputable insurance brokerage firm means you have people to turn to for future needs and to confirm you continually have the coverage to support your business.
KBI Benefits Brokerage Firm Is Here to Help You Secure Coverage
Securing proper coverage is critical for businesses to mitigate risk and ensure financial support when required due to an unfortunate or unforeseen event. Offering a comprehensive benefits package as part of your organization’s compensation package is also essential to attract and retain talent and increase job satisfaction.
At the same time, securing proper insurance is no small feat. There are numerous factors to consider and several insurance options to choose from based on those factors. Working with a reputable insurance broker can alleviate much of the guesswork and stress when it comes to researching and evaluating insurance options.
KBI’s team of insurance experts will work with you to determine the best coverage to meet your business’ needs and budget. We work with some of the most reputable insurance companies in the industry to ensure that you receive the best policy terms and rates possible. We will take the time to get to know you, assess your current insurance policies and gaps, and do a thorough risk analysis. From there, we’ll provide you with insurance options to help you secure the best policies and plans possible for your business and your employees.
If you are ready to explore the travel insurance plans we offer, contact us today by submitting our online contact form or calling us at 408.366.8880. We look forward to working with you!
By Chris Freitas