Both an insurance broker and an insurance agent help consumers buy insurance policies from insurance carriers. The primary difference is who each party works for and represents in the insurance purchase process. An insurance broker works for a client while an insurance agent works for one or more insurance carriers.
One of the reasons an insurance broker and insurance agent are often interchanged terms is because both offer insurance products from more than one carrier. A broker offers policies from multiple insurance carriers as does an independent agent. The broker has a wider net to cast by nature of his broker’s license while the agent is a surrogate of the insurance carrier.
What Is an Insurance Broker
An insurance broker is a licensed professional who works on behalf of a client to find the best possible policies to meet their needs. This could mean getting the most favorable pricing or the most dynamic coverage options. Insurance brokers have a fiduciary responsibility to clients to provide them with the solutions that best protect their financial interests.
Insurance brokers have the access and ability to shop insurance pricing for any and all insurance carriers, which gives their clients access to the widest spectrum of cost and coverage comparisons. The insurance broker does not need to be appointed with the insurance carrier to do this, and thus has no contractual obligation to represent the carrier’s interests.
Once you become a client of a broker, their responsibility is to perform standard maintenance of policies. There may be times where a policyholder must go directly to the carrier for assistance, since it is the carrier who has a contractual relationship with the insured.
How an Insurance Broker Is Compensated
An insurance broker’s process of shopping insurance policies among carriers is called “brokering policies out.” When a quote is accepted by the consumer and bound—meaning paid for and purchased—the broker receives a commission from the insurance carrier at purchase and at renewals of policies. There are some states where the broker is also able to charge fees for services, including account setup and administration fees such as obtaining certificates of insurance (COIs) for clients.
Why Use an Insurance Broker
The significant advantage of using an insurance broker is having someone compare multiple providers for you. A consumer or business owner who is limited on time and doesn’t understand the line-by-line details presented in insurance quotes can benefit from working with an insurance broker. Experienced brokers have a good understanding of what carriers work best with certain risks.
For example, a broker might know that The Hartford and Nationwide both have great policies for fitness studios compared to Hiscox, which works well with fitness trainers who are independent contractors. Having an expert know the best place to start and then provide you with the top three or four choices for your insurance needs not only saves a lot of time, but helps you to compare quotes in an apples-to-apples scenario.
What Is an Insurance Agent
An insurance agent sells insurance on behalf of one or more insurance carriers through contractual agreements called appointments. The relationship between the insurance agent and the insurance carrier could be an in-house agent, independent agent, or independent captive agent. An agent doesn’t represent the client but is required to provide the best possible solutions to clients with the products available to him.
Here are the three insurance agent-carrier relationships:
- In-house agent: This agent works directly for the carrier and is usually an employee of the insurance company. This is how Geico agents are employed.
- Independent agent: This is an independent contractor who has a relationship with one or more carriers. This is still an agent relationship, where the independent contractor’s loyalty is to the appointed carriers, though they may offer more options. Allstate is an example.
- Independent captive agent: Captive agents are independent contractors who often open an agency and employ their own in-house agents representing one insurance carrier. All State Farm agencies are captive with specific contractual requirements.
While an independent insurance agent is able to get appointments with multiple carriers, he is obligated to represent his carriers and doesn’t have the same fiduciary responsibility as an insurance broker. Independent agents are often mistakenly referred to as brokers because they provide multiple quotes; the important distinction is that independent agents can only quote policies with carriers they are appointed with—not with all insurance carriers, like with a broker.
How an Insurance Agent Is Compensated
Independent insurance agents and independent captive agents work on commissions paid by the insurance carrier when someone purchases an insurance policy through them. The contractual relationship pays a commission based on a percentage of premium on new and renewal business, the same as it does for brokers. There are few instances where an independent agent is able to charge fees directly to the consumer, as most states and insurance carrier appointment contracts forbid this.
In-house captive agents may work on commission or may have a salary paid instead. In-house captive agents could be an employee of an independent captive agency owner, as in the case of State Farm agencies, or someone working at a call center providing quotes and binding coverage for companies such as The Hartford.
Why Use an Insurance Agent
There are two significant reasons to use an insurance agent: desire to work with a specific insurance carrier, and time. Some consumers may already know they want to buy insurance directly from a carrier because of past experience, referral, or advertising campaigns. Insurance carriers such as State Farm and Liberty Mutual don’t sell services via brokers, even if a broker could obtain the quote.
Because an insurance agent is a representative of the insurance carrier, they have the ability to expedite the process of actually buying insurance. Many agents have the ability to bind coverage immediately with the carrier even while the application is still being processed and completed in the underwriting department. This is also true for the online quote and bind services found directly with carriers who are obtaining the information directly without an intermediary.
Insurance Carrier Availability Examples
Insurance carriers may change which model they use for business relationships with agents and brokers. For example, both Nationwide and Allstate have undergone adjustments from being exclusive captive agency to working with independent agents.
What Is an Insurance Producer
An insurance producer is someone who sells insurance products on behalf of an insurance company. If that sounds a lot like an insurance agent, it is because it is the same thing. It is just a different term the industry uses to streamline contracts. Many states have moved toward the licensing language of referring to salespeople as producers rather than agents. Most carriers have led the way in using the term producer rather than agent or broker because often, to the consumer, there is little to no difference.
Additionally, more and more states are doing away with broker’s licenses, creating further confusion. However, as with everything in the insurance industry, rules are governed by each state insurance commissioner; a state like New York still has both licenses and actually allows producers to maintain both licenses. These broker-agents are expected to act as a fiduciary broker and carrier surrogate at the same time.
Companies That Work With Both Brokers & Agents
Some insurance carriers offer insurance policies through brokers and all types of agents. This means the consumer can call a broker and may be given the insurance carrier as a purchase option, they could call an independent agent who also represents the company, or go directly to the company.
The Hartford is an example of an insurance carrier that offers multiple ways to buy a policy. The pricing for policies is the same regardless of whether you buy it through a broker, independent agent, in-house captive agent, or online portal. The only time an additional fee may apply is if one is charged by an individual broker.
Insurance Broker vs Agent: In-depth Look
With so many similarities between agents and brokers, it is important to clearly define the differences. There are great insurance providers in both categories, so understanding the difference helps you to determine what type of insurance producer is best suited for your insurance shopping needs.
Insurance Broker vs Agent: Feature Breakdown
|Pricing of Services|
|Customer and Claims Service|
When looking for an insurance agent or broker, it is important to know what you want and the services that are most important to you. There are advantages to each type of insurance producer as well as disadvantages. In the end, the pros and cons level out, and which one is better will depend entirely on individual circumstances.
Insurance Broker vs Agent: Pricing of Policies & Services
The pricing of policies generally remains equal among most insurance carriers, making policy pricing equal between insurance brokers and agents. Even when carriers could reduce the price because of lower costs when selling directly to the public, they rarely do so in order to maintain good relationships with networks driving customers to them.
Where insurance agents have an edge is in pricing services, since they are unable to charge any additional fees directly to consumers. Not every broker charges fees, but it is important for consumers to ask questions and look at the actual premium plus any additional charges if they are comparing pricing with a captive or in-house agent.
Here are some questions to ask when talking to a producer about pricing:
- Other than my premium, are there any fees?
- What happens if I cancel my policy before the term?
- Are there charges for things like certificates of insurance?
Insurance Broker vs Agent: Expedited Binding of New Policies
New online platforms certainly help both insurance brokers and agents to expedite the process of quoting and binding policies. However, because brokers typically need to take that information out to the actual carriers, they don’t always have the ability to get coverage bound as quickly as agents.
Many independent agents have the ability to “conditionally bind” insurance policies, making them immediately effective. This is a clear advantage for consumers who need coverage quickly, realize that they accidentally let their policy lapse, or need a new one for something like buying a new car or getting a new business contract.
Insurance Broker vs Agent: Comparing Carrier Offerings
Both brokers and independent agents have the capability to offer consumers options from multiple carriers. Captive agents don’t have the ability to show multiple carrier options or specialty policies, while independent agents are limited to the carriers they have appointments with.
This gives brokers a clear advantage in the carrier comparison category because of accessibility to all quotes across all carriers. They also have the fiduciary responsibility to look out for the best interests of their clients, not the carriers.
Here are some questions to ask when talking to a producer about comparing carriers:
- How many carriers did you look at?
- Are you appointed (contracted) with all of these carriers?
- Is there another carrier on your list that maybe I should consider?
Insurance Broker vs Agent: Customer & Claims Service
Insurance agents represent the company and have direct access to accounts. They are able to do routine maintenance quickly and efficiently and, while they are not claims adjusters, often work through the claims process with their clients. This is an advantage that agents have over brokers.
This is where the rubber meets the road when it comes to owning insurance. Insurance agents represent the carrier and have direct access to resolve customer service issues. Brokers do not because they have no contractual agreement with the carrier. This means you will need to contact the carrier directly if you have service issues or need to file a claim.
Here are some questions to ask when talking to a producer about service:
- When I have a service issue, who do I call? You or the carrier?
- Do you have local claims adjusters?
- In the event of a claim, how long does it take to get adjusters on site?
Insurance Broker vs Agent: Policy Options
Being able to quickly compare apples-to-apples isn’t always easy when shopping from carrier to carrier. Every agent has a different standard policy to quote new business that isn’t always equal. Additionally, different carriers have options and policy riders that may be automatically included. Only a trained eye knows what to look for.
Here are some questions to ask when talking to a producer about policy options:
- Are all of these insurance quotes the same in coverage?
- What are some extras offered by any of these carriers, if any?
The ability to compare policy options equally is an advantage of the insurance broker over the agent. Not only is the broker familiar with the options different carriers provide and extra policy options that may be necessary for a small business, they have access to them to help consumers get the right policy without sacrificing something they want or need.
Insurance Broker vs Agent: Underwriting Process
When buying insurance, underwriting is completed by a dedicated department for the insurance carrier. While brokers and agents sell insurance and help to service accounts, the underwriting department looks at the information collected in applications to properly price the risk and determine the actual premium.
Because underwriting is always finalized by the carrier outside of the sales process, both agents and brokers compete on the same playing field. With that said, there may be a slight advantage to agents who are able to conditionally bind coverage and may have more direct access to underwriters and guidelines to streamline the process, particularly with risks that are difficult to place.
Insurance Broker vs Agent: Overall Customer Satisfaction
Historically, when comparing insurance brokers versus agents, overall customer satisfaction varies depending on the consumers’ expectations and needs. Consumers’ expecting a captive agent to be able to show them offerings from different carriers will be disappointed. On the other hand, captive agents often get clients migrating from brokers because of additional fees or service issues.
Consumers must decide what the most important factors are for them in the buying process and duration of insurance policies. If you want a personal contact that you can speak with for individual guidance, then an agent is probably better. If choices or premium pricing is the most important thing, a broker is probably a better option. This leaves the overall customer satisfaction ratings equal among both independent brokers and agents; each satisfy a different aspect of the market.
Tips for Finding an Insurance Broker or Agent
Here are five tips when looking for a great insurance broker:
1. Confirm If They Are a Broker or Independent Agent
Just because multiple insurance options are presented to you doesn’t mean that you are working with a broker who is acting on your behalf. Ask the producer if they are an independent broker able to get quotes from any carrier. This way, you can consider all possibilities.
“In most jurisdictions, both agents and brokers will be held to a duty to use reasonable care in obtaining the insured’s requested coverage. They won’t be responsible for negligently failing to include a specific type of coverage if the insured did not specifically request it. Additionally, brokers—unlike agents—may also be liable for a breach of fiduciary duty. A fiduciary is someone who stands in a position of special trust to another. Fiduciary duty claims have been recognized against brokers in various jurisdictions where, for example, the broker: 1) misused or misappropriated funds of the insured; 2) acted out of a conflict of interest; 3) engaged in self-dealing to the insured’s detriment; or 4) received excessive compensation. So, all things being equal, the insured probably has more legal recourse against the broker than against the agent.”
– Dirk A. Beamer, Attorney, Wright Beamer
2. Request a Fee Schedule
When discussing costs, don’t be shy—ask the broker for a fee schedule. Just because something has additional fees doesn’t mean it isn’t worth the price, but you need to have this information upfront so expectations are clear. Reputable brokers should have a fee schedule prepared that states the fee price and for what purpose.
3. Check the State Insurance Commissioner’s Website
Insurance brokers are licensed via state insurance commissioner’s offices. Every consumer has a right to do a public search on a broker’s license to see if there are any complaints against him and the nature of those complaints. Most department of insurance web portals allow consumers to search using the broker’s name or license number, which must be publicly displayed in offices, websites, and advertising.
4. Determine How You Want to Buy Insurance
If you know the insurance company that you want to use, for whatever reason, determine the best way for you to get quick and reliable service. For some people, this is having a local agent’s office to walk into and discuss things. Other people want to call a carrier directly or buy online.
5. Ask an Agent if He Is Captive or Independent & Why
When a producer chooses to open a captive agency, it usually is because they fervently believe that the product is best suited for the majority of clients he will serve. Independent agents want more flexibility to give clients options, usually trying to compete on pricing. Don’t be afraid to hear why an agent decided to choose a specific designation.
You might find that a captive agent believes the ability to work with clients through the claims process helps him provide better service. If that is appealing to you, this might be the agent for your insurance needs.
Whether you purchase insurance from an agent or a broker, always make sure you know the most important things you need from insurance coverage. While brokers represent buyers and agents represent carriers, both have it in their own best interest to make you a happy customer because both get their primary income via commissions on new sales and renewals.
If you still have questions about whether a broker or agent is the best insurance provider for you, please check out our best brokers guide to understand what makes a great broker for your small business.