Insurance agents and brokers are both the communication bridge between the insurance buyers and the providers. They both work for the same reasons and under the same laws of their respective states. They offer coverage that best suits their customers’ needs and earn on a commission basis. Since these two terms agents and brokers are used interchangeably in the insurance industry, this leads to misunderstandings and misunderstandings. But even if both show similarities, they are not the same. Agents and brokers have distinct differences between them. The key factor that separates a broker from an agent is who they represent.
Anyone wishing to work in the insurance industry must first obtain an insurance license. This applies to both the agents and the brokers. They operate under the laws enforced by the insurance authorities of the states in which they wish to operate. Insurance agents and brokers both work on a common basis and sell similar products to their customers. However, the way they work and who they represent completely differentiates the two. Let’s separately highlight their roles.
Who are Insurance Brokers?
According to Agency Height, a US-based insurance publication, insurance broker are licensed professionals serving the best interests of their clients. The main job of an insurance broker is to research coverage from multiple insurance companies for their clients. The goal is to find the best solution for their customers based on their needs and financial situation. They do this by comparing terms and prices of policies from different options. However, brokers are required by law to recommend products and coverage that best suit their clients’ financial needs. Brokers also play a similar role to insurance advisors by proposing financial advice and plans to their clients.
The main task of the insurance broker is to look after their customers throughout the insurance process. Brokers should have a high level of expertise and be able to offer insurance solutions to their clients’ problems. A broker needs to be well informed about the products and services.
However, a broker is not authorized to enter into any binding coverage or insurance process on behalf of its clients. Only insurance agents have this ability, and a broker will most likely need an agent or their clients to close the deal.
Who are Insurance Brokers?
According to the National Association of Insurance Commissioners (NAIC), insurance agents are people who sell insurance policies on behalf of a company or independently. They are the communication bridge between buyers and sellers. Unlike brokers, who research coverage of multiple airlines, agents offer information about the products and services of the airlines they represent. Customers choose the insurance products they want to buy, and agents earn from them through commissions.
Although agents have a duty to sell coverage that best suits their customers’ needs, the primary duty is to the airline they represent. Aside from increasing sales, the agents bear the burden of enhancing the airline’s brand image. However, this only applies to captive agents, as independent agents are not tied to a single carrier and represent multiple insurers.
How are agents and brokers paid?
Although agents and brokers operate on common foundations, the key factor that sets them apart is the person they represent. Similarly, their earning methods are also different from the others and this is how brokers and agents make money.
Insurance brokers receive their paycheck through a brokerage firm once a purchase has been successfully completed. The underlying value of the policies that brokers sell determines their profit. As such, brokers may experience fluctuations in their income.
In some states, brokers also charge fees for administrative services. Such payments come directly from the buyers, and therefore brokers are obliged to disclose the amount of money charged.
Agents have a more diverse source of income than that of a broker. Agents mainly make money from commissions. Agents earn a commission when they bring in new clients or each time the client renews their policy.
Captive agents receive a commission on the policies they sell, but in some cases are also paid on a salary basis by the carriers they represent. While independent agents have a slightly more diverse source of income as they represent multiple airlines.
Independent agents have access to a wider range of policies and products and therefore cover different needs. However, unlike captive agents, independent agents are not paid on a salary basis as they represent more than one insurance company.
Thus, unlike insurance brokers, who are paid directly by buyers, agents do not have to disclose the commission rate they receive for each sale.
Because of this,
While a broker is well informed about the best airline in terms of the specific coverage their clients require. An agent has more specialized knowledge of the policies that their insurance carriers are required to offer. Additionally, a broker can save individuals or business owners a great deal of time and money by taking care of the process for them. An agent has access to the sale of exclusive products from the carriers they represent.
The role of an insurance agent and a broker is similar. Both have a moral responsibility not to present anything that is misleading or misinformation. They also need to sell products that best suit their needs, or litigation with customers is inevitable. The main difference, however, is who they represent. Choosing an insurance provider is just as important as buying one. Depending on the risks you face, you may need different insurance providers. Identify the risks and then make a clear decision to hire an insurance broker or agent.