Difference Between Insurance Agent and Broker

Posted On: July 18, 2024
What's the difference between insurance agent and broker?

Successfully selling an insurance policy takes a lot of effort. From the client’s willingness and readiness to buy insurance to the policies of the insurer, a lot of factors must coincide before both parties can come to terms. However, the key in most cases is the insurance brokers and agents. While selling insurance is common between these two roles, they both tend to offer a significantly different approach. 

In this blog, we’ll look at the definitions of an insurance agent and an insurance broker, how their role differs, and the benefits of working with each one.

WHAT IS AN INSURANCE BROKER? 

The insurance broker definition is anyone who holds a state-issued license for insurance brokerage and is authorized to sell insurance within a particular jurisdiction. They are not associated with a specific company and perform the role of a distributor for several companies. 

This means that, as sellers, they have the authority to sell a wide range of policies to their clients. This puts clients at an advantage when dealing with brokers since they have the option of choosing from the plans of more than one company. 

Because they aren’t bound to just one provider, people don’t consider them to have a bias towards a particular company and trust them more, as opposed to the employees of insurance companies doing the same job. 

Moreover, once the client agrees upon a specific policy, brokers act as intermediaries between the client and the company. They demand quotes and policies from the insurer, negotiate with the companies on behalf of the client, and even file applications for them. 

WHAT IS AN INSURANCE AGENT? 

Like brokers, an agent also sells insurance. They are, however, typically associated with one company, therefore selling only the policies of their employer. 

To be able to sell insurance on behalf of an insurer, the agent must be in a legal contract with that insurer. This is called an appointment.

The appointment document specifies the types of insurance an agent is authorized to sell. It also outlines their binding authority, which refers to the power to negotiate with the client on the insurer’s behalf.

It may be possible that an agent has binding authority for some policies of the company and not for others. The agents can still educate the clients on the insurance they don’t have binding authority for but can only sell it with the permission of the insurer. 

INSURANCE AGENT VS BROKER 

Agents and brokers are both primarily intermediaries between an insurance buyer and the insurer. Although their jobs are similar in that regard, there are quite a few differences in terms of how they perform the job. 

Brokers enjoy a distribution deal with numerous insurers and are, therefore, able to sell the insurance of more than one provider. The agent, however, is mostly associated with a single company and sells its insurance only. 

The broker searches the entire market and takes quotes from multiple insurers when they are looking for the best-suited options for their clients. An agent, however, doesn’t have this option. 

Both agents and brokers are supposed to educate prospective insurance buyers regarding policies that are available in the market (and with a specific company in the case of an agent) and then negotiate with the seller once something satisfies the clients. 

When dealing with customers, a broker must clarify how many companies they represent. This is to ensure that the clients are fully aware of the authority of the broker. Similarly, an agent should also clarify what policies they are contractually authorized to sell to a client and whatnot. 

Main Differences Between Insurance Agents and Brokers 

Although it may seem as if there are more similarities than differences between the job of an agent and broker, it is not entirely true. There are some significant differences between how the two of them work, including: 

1.   COMPENSATION STRUCTURE AND SALARY 

It is true that both brokers and agents have commissioned-based jobs. That is, earning commission on the number of sales they make. 

However, since a single insurer employs agents, they enjoy the benefit of having a single compensation plan. 

For brokers, on the other hand, the commission varies from company to company. Some companies offer higher commission rates to those selling their insurance, while others don’t. They do, however, have the option of signing the clients up with the companies of their choice, which includes the ones that offer the highest rates for the brokers. 

This is not always possible, though, since not all companies offer the solutions that suit the requirements of most clients. Therefore, it can be difficult to maintain a stable and steady income. 

Additionally, while brokers face more instability in their incomes, they usually earn more than agents do in terms of their annual salaries. 

According to indeed.com, a broker, on average, makes about $91,179 a year, whereas an agent makes about $24,000 less, with an average annual salary of $66,812

This is due to a couple of reasons. The most significant factor is that a broker has multiple options to sell, while the agent is captive to the policies of just one company. If the client doesn’t like the rates and terms of one company, the broker can offer them the plans of another. Therefore, the former has a better chance to close deals. 

The second reason is that, since brokers don’t associate with a particular company, they are deemed a neutral party. People, consequently, tend to believe them more than a person who is an employee of a specific seller and loyal to just that company.

2.   RESPONSIBILITIES

While ethical insurance agent responsibilities and insurance broker responsibilities are pretty much the same for both, the legal duties for agents are higher. This is mainly because an agent is responsible not only to the client they are representing but also to the insurance company they are an employee of. 

In contrast, a broker is legally only liable to the client they represent. Their contact with insurers is limited only to the distributorship contract with them. 

If, however, an agent, or even a broker, misrepresents the client or doesn’t educate them properly in terms of the policy they are selling, the clients can still sue them. Since agents have twice the responsibility, they must be properly informed about the matters that can land them in trouble.  

However, you can take specially designed Insurance Training Courses that will train you not only on the issues that constitute fraudulent activities but also on government policies relevant to the industry. 

3. EXPERTISE AND SERVICES 

Insurance agents possess a deep understanding of the policies offered by the insurance companies they represent. This specialization allows them to expertly navigate the distinction of various insurance products, making them invaluable for clients seeking detailed insights into specific coverage options. 

Agents play a critical role in managing the insurance process, from application through claims assistance, acting as the intermediary between the client and the insurance company.

Their services extend beyond policy sales; agents are involved in policy renewals, adjustments to coverage, and providing personalized advice based on the insurer's offerings, which can significantly streamline the insurance management process for their clients.

On the other hand, insurance brokers bring a broad market perspective, offering advisory services that span across multiple insurance companies. This breadth of knowledge enables them to compare diverse insurance solutions, ensuring their clients receive the most comprehensive coverage at competitive rates. 

Brokers stand out for their ability to offer unbiased advice and custom insurance solutions, thanks to their focus on serving the client's best interests rather than representing a specific insurer. Their expertise often includes risk management consulting, where they assess potential risks and advise on strategies to mitigate them. 

For clients with unique or complex insurance needs, brokers can negotiate tailored policies, making them a go-to resource for businesses and individuals seeking versatile insurance coverage and risk management strategies.

Pros and Cons of Working With Each Role  [CS1] 

Let’s look at the pros and cons of working with an insurance agent vs working with an insurance broker: 

Insurance Agent Role 

Pros 

  • Product Expertise: Insurance agents often have a deep understanding of the products offered by the insurers they represent, allowing them to provide detailed explanations and guidance on policy features, benefits, and exclusions.
  • Direct Carrier Relationships: Agents have direct access to insurance companies, which can facilitate quicker policy changes, claims processing, and resolution of issues.
  • Personalized Service: Especially in the case of captive agents, there can be a strong emphasis on personalized service, with agents building long-term relationships with clients and understanding their evolving insurance needs.
  • Convenience: For clients who prefer simplicity and direct dealings with a specific insurer, working through an agent who represents that company can streamline the process.

Cons 

  • Limited Options: Captive agents can only offer policies from one insurer, and even independent agents may have a limited selection, potentially restricting the client's options.
  • Possible Bias: Since agents' primary allegiance is to the insurance companies they represent, there may be a bias towards those products, regardless of whether they are the best fit for the client's needs.
  • Commission-Based Compensation: Agents typically earn commissions based on the policies they sell, which might influence their recommendations.

Insurance Broker Role 

Pros 

  • Wider Market Access: Brokers can access a broad range of products from multiple insurance companies, providing clients with more options to find coverage that best fits their needs.
  • Client Advocacy: Brokers work for their clients, not insurance companies, offering unbiased advice and prioritizing the client's interests when selecting policies.
  • Customized Solutions: With their ability to negotiate with various insurers, brokers can tailor insurance solutions to meet specific client needs, especially beneficial for businesses or individuals with unique risks.
  • Risk Management Services: Many brokers offer comprehensive risk assessment and management services, helping clients minimize potential losses through strategic insurance planning.

Cons 

  • Complexity in Service: Working with a broker can sometimes introduce complexity, as they operate independently of insurance companies, requiring more effort from the client to understand the various offerings.
  • Possible Fees: In addition to earning commissions from insurance companies for policies they place, brokers might charge fees for their services, potentially increasing the cost of obtaining insurance.
  • Varied Expertise: While brokers have a broad market perspective, their expertise may vary, and finding a broker with in-depth knowledge in a specific area of insurance requires research. 

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Regulatory Compliance With 360training

Selling insurance also has its own legal aspects that one must be aware of and abide by. 

Both agents and brokers are required to be licensed in the states where they operate. They must adhere to the regulations and standards set by state insurance departments, including Insurance Continuing Education and ethical standards. 

Therefore, it’s important to ensure that you are properly educated in the legal and ethical aspects of selling insurance, regardless of whether you’re an agent or broker. 

At 360training, we help you understand your legal responsibilities in the agency, with the insured, in liability, in consumer protection, and more with our Legal Responsibilities of the Insurance Agent course.  

Whether you're new to the insurance industry or just need some refreshers, 360training has online training courses for you. Let us help you start your career today!

 

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