Insurance agents and brokers both are the bridge of communication between the insurance buyers and the providers. They both operate on the same grounds and under the same law of their respective states. They provide coverage that best fit their client’s needs and earn based on commissions. As these two terms, agents and brokers, are used interchangeably in the insurance industry, it gives rise to misunderstanding and misconception. However, even if they both share similarities, they are not the same. Agents and brokers have distinctive differences between them. The critical factor that differentiates a broker from an agent is who they represent.
Anyone interested to work in the insurance industry must first obtain an insurance license. This goes for both the agents and the brokers. They function according to the laws enforced by the states’ insurance department they wish to operate in. Insurance agents and brokers both work on common grounds and sell similar products to their clients. However, the manner that they operate and who they represent sets the two entirely apart. Let us highlight their roles separately.
Who are Insurance brokers?
According to Agency Height, a US based insurance publication, insurance brokers are licensed professionals that serve their client’s best interests. An insurance broker’s primary role is to research coverage from multiple insurance companies for their clients. The objective is to find the best fit for their clients based on their needs and financial status. They do this by comparing terms & conditions, and pricing of policies from different options However, brokers are legally bound to recommend products and coverages that best fit their client’s financial needs. Brokers also play a role similar to that of insurance advisors, suggesting financial pieces of advice and plans to their clients.
Insurance broker’s first and foremost duty is to look after their clients throughout the insurance process. Brokers should be highly knowledgeable and must be able to facilitate insurance solutions to their client’s problems. A broker must be well informed about the products and services.
However, a broker does not qualify to bind coverage or complete insurance process on behalf of their clients. Only insurance agents have this ability, and a broker will most likely require an agent or their clients to close the deal.
Who are Insurance agents?
According to the National Association of Insurance Commissioners (NAIC), insurance agents are individuals who sell insurance policies on behalf of a company or independently. They are the bridge of communication between the buyers and the sellers. Unlike brokers who research coverage provided by multiple carriers, agents offer information on the products and services provided by the carriers they represent. Clients select the insurance products they wish to purchase, and agents earn off of it through commissions.
Although agents are required to sell coverage that best fit their client’s needs, the primary duty is towards the carrier they represent. Apart from increasing sales, agents carry the burden to enhance the carrier’s brand image. However, this is only applicable for captive agents as independent agents are not bound to a single carrier and represent multiple insurers.
How do agents and brokers get paid?
Although agents and brokers operate on common grounds, the key factor that differentiates them is who they represent. Similarly, their income methods also differ from the others, and here is how brokers and agents make money.
Insurance brokers get their paycheck through a brokerage once a purchase is successfully made. The underlying value of the policies the brokers sell, determine their earnings. Hence, brokers can experience fluctuations in their income.
In some states, brokers also charge fees for administrative services. Such payments come directly from the buyers, and hence, brokers are obligated to reveal the sum of money charged.
Agents have a more diverse income stream than compared to that of a broker. Agents mostly make money through commissions. Agents receive a commission when they bring in new clients or every time the client renews their policy.
Captive agents receive a commission for the policies they sell, but in some cases are also paid on a salary basis by the carriers they represent. Whereas independent agents have a slightly more diverse income stream as they represent multiple carriers.
Independent agents have access to a broader range of policies and products and, hence, cater to various needs. However, unlike captive agents, independent agents do not get paid on a salary basis as they represent more than one insurance company.
Thus, unlike insurance brokers who get paid directly by the buyers, agents are not required to disclose the commission’s rate they receive for every sale.
While a broker is well informed of the best carrier regarding the specific coverage their clients require. An agent has more specialized knowledge of the policies his insurance carriers have to offer. Furthermore, while a broker can save individuals or business owners a lot of time and money by handling the process for them. An agent has access to sell exclusive products from the carriers they represent.
The role of an insurance agent and a broker is similar. They both have moral responsibilities of not representing anything misleading or misinformation. They are also required to sell products that best fit their requirements or a legal dispute with the clients is inevitable. However, the key difference lies in who they represent. Selecting an insurance seller is as important as buying one. You may require different insurance sellers, based on the risks you are exposed to. Identify the risks and then make a clear choice of hiring an insurance broker or an agent accordingly.