Successfully selling an insurance policy takes a lot of effort. From the client’s will and readiness to buy an insurance to the policies of the insurer, a lot of factors has to coincide before both parties can come to terms. The key in most cases, however, are the people who are also the client’s first point of contact as they seek to purchase an insurance – the insurance brokers and agents.
While selling insurance is common between these two roles, they both tend to offer a significantly different approach. Today we’ll look at how they exactly differ in terms of the scope of their job, its flexibility, as well as the range of options they can offer to their clients.
What is an Insurance Broker?
An insurance broker is anyone who holds a state-issued license for insurance brokerage and is authorized to sell the insurance within a particular jurisdiction. They are not associated with a specific company and perform the role of a distributor for a number of 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.
Since 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.
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 legal contract with that insurer. This is called appointment.
The appointment document specifies the types of insurances an agent is authorized to sell and their powers to negotiate with the client on the insurer’s behalf. This is called binding power. It may be possible that an agent has binding powers 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 powers for, but can only sell it with the permission of the insurer.
Insurance Brokers vs. Agents
Agents and brokers are both, primarily, intermediaries between an insurance buyer and the insurer. Although their jobs are familiar in that regard, there are quite a few differences in terms of how they perform it.
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 only 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 the prospective insurance buyers with regards to policies that are available in the market (and with a specific company in case of an agent), and then negotiate with the seller once something satisfies the clients.
When dealing with the customers, a broker must clarify how many companies they represent. This is to ensure that the clients are in full knowledge of the authority of the broker. Similarly, an agent should also clarify what policies they are contractually authorized to sell to a client, and what not.
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 dissimilarities between how the two of them work.
1. Compensation Structure
It is true that both, brokers and agents, have commissioned-based jobs. That is, earning commission on the number of sales they make. But 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 rates of commission to those selling their insurance, others don’t. They, however, do 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.
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 $83,240 a year, whereas an agent makes about $20,000 less, with an average salary of $62,903.
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 better chances 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.
While ethical responsibilities are pretty much the same for both the agents and brokers, 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 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 don’t educate them properly in terms of the policy they are selling, the clients can still sue them.
Since agents have twice the responsibility, it is crucial for them to be properly informed about the matters that can land them in trouble. They can take specifically designed courses that will train them, not only on the issues that constitute fraudulent activities, but also in government policies relevant to the industry.
Selling insurance is not an easy job. Not only is the commission-based income quite unstable, there are also legal aspects that one must be aware of and abide by. Therefore, it’s important to ensure that you are appropriately educated in the legal and ethical aspects of selling insurance, regardless of whether you’re an agent or broker.