In this article today, we are going to discuss the differences between two important terms in the field of insurance - an ‘insurance agent’ and a ‘broker’. People often use these two terms interchangeably as they are not fully aware of what these terms mean. Yes, there exist significant differences concerning who these two groups of people are and what they actually do.
It is an agreed fact in the insurance sector that expert guidance from seasoned insurance professionals can help clients to ensure they are getting the best coverage, at the right price. However, the type of professionals they consult with can make a striking difference in the results they obtain. This may lead to questions in your mind such as who should you consult with- a broker or an insurance agent? Are there any differences between them? If so, what are these?
After going through this blog, you would understand these differences and would also be able to make informed decisions while purchasing insurance coverage, whenever the need arises.
Here we go!
Let’s start with the very basics!
What are insurance agents? What do they do?
As the term suggests, a person acting on someone else's behalf is known as an agent. In the insurance sector, an agent represents one or more insurers. The products of the insurers and their insurance policies are distributed by the agent. They may represent a single insurance provider or a number of them. Agents serve as intermediaries or facilitators, supplying information from the insurance business or companies they represent to prospective customers.
They have agreements with insurers that outline the types of policies they are permitted to offer and the expected earnings they will receive, from doing so. They can also commit insurers to policy obligations, which is often done directly within the insurer's underwriting processes. One of the most crucial attributes that characterize an agent as an agent is the ability they have to bind the insurer since they represent the company.
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Usually, two types of insurance agents exist- independent agents and captive agents.
- Independent agents
Independent agents are called so because they work with various insurers and are not obligated to a single organization. As they are connected to a bigger network of insurance firms, they are able to provide their clients with a greater selection of insurance products, as compared to captive agents.
Independent agents are given the right to quote and issue insurance policies, on behalf of the insurer(s) they represent, mainly through the systems of the concerned insurer(s). The systems are designed to provide consumers with specific policy types, price structures, and support facilities. These agents might provide their clients with special offers like assistance with claims, an assessment of other insurance contracts, and necessary guidance. They are quite identical to insurance brokers, but there are restrictions on what they can offer a client because they are obliged to the insurer and not to the clients.
- Captive agents
Unlike independent agents, captive agents might work full-time or as independent contractors for a single insurance provider. The insurance company that hires them could provide them with operational assistance, such as an office or an administrative team. They frequently receive leads and recommendations from the insurance provider regarding prospective customers.
Because they solely sell the products offered by the insurance provider, captive agents are well aware of the coverage options provided by the insurer they represent. As a result, they are capable of providing their customers with exact and updated information on the coverage they are offering. However, they could be less knowledgeable about other similar products available in the market.
What are insurance brokers? What do they do?
A broker is a qualified insurance professional who legally represents individuals or organizations looking to purchase insurance products. In certain cases, insurance brokers are obligated by law to operate solely in the best interests of their clients. This is known as a fiduciary obligation. A broker will collaborate with clients to determine and put forward the most appropriate insurance plan, to cater to the unique coverage requirements of his clients. He will search around to obtain the best plans at the right price, based on the needs of their clients. This is because he is not required to sell policies from any one particular insurance provider.
When a business engages an insurance broker, it can expect to receive complete guidance throughout the insurance purchase process. In order to understand the different exposures and dangers that businesses face, brokers often meet with the representatives of the business. Then they formulate an insurance plan that will be best suited to cover those risks for the business.
Now, we will discuss different types of brokers that exist in the insurance sector these days-
- Direct brokers
Direct brokers are licensed by the IRDAI (Insurance Regulatory and Development Authority of India). They seek and arrange insurance business for their clients with insurers in India for remuneration and/or a charge. A direct broker provides advice on the most appropriate policy and its associated terms and conditions. He is also permitted to provide claim consultancy, risk management services and other such services covered under the IRDAI (Insurance Brokers) Regulations, 2018. These brokers carry out the instructions given to them by their clients. They must also remain up to date with precise information on the insurance markets, manage insurance records and assist the clients in claim negotiations. The minimum capital required for registration is Rs. 75 lakhs, with a net worth of Rs. 50 lakhs, to be maintained at any point in time after getting registration.
- Composite brokers
A composite Broker does all the services that a direct broker provides with additional access to the international insurance market where they can arrange insurance coverage provided in the global marketplace.
Difference between Agent and Broker in Insurance
In the section above, we have discussed what insurance agents and brokers do and also touched upon almost all the major differences between these two groups of people. However, we are listing some key differences here as well-
- Insurance companies are represented through agents. Brokers represent their clients only.
- Because they work for the insurer, agents can bind coverage, which brokers cannot. This means that when a customer is ready to purchase from a broker, the broker must obtain a binder from an insurance agent or the insurance provider directly.
- Because an insurance agent represents a specific insurance provider, he is provided with in-house training on the products offered by the provider. On the contrary, brokers are not trained by any particular provider because they sell a diverse range of insurance products. Before starting to sell insurance products, brokers can, of course, get enrolled in external courses, as and when required.
- Brokers, unlike insurance agents, have a fiduciary obligation to their clients. This means that, unlike brokers, agents do not provide advice during the purchasing process. Agents can explain the coverage in detail, but it is ultimately up to the individual or business buying the policy to determine whether the insurance coverage meets their specific needs.
- Certain agents may be required to market specific insurance products, but brokers do not have any such obligations
- The activities of An insurance company can be held accountable for the activities of its agents. The IRDAI ( Insurance Regulatory and Authority Development of India ) has the authority to penalize an insurance company for the misconduct of its insurance agents. On the other hand, brokers are not backed by a specific insurance company as such. In other words, an insurance company cannot be held accountable for the activities of a broker. Brokers are required to provide their clients with a variety of products and to disclose the costs of these products. Brokers can be sued if they provide their clients with inaccurate or misleading information.
- Agent commissions are typically greater than as compared to broker commissions. Agents tend to get steady earnings because they deliver services for only one organization. Companies may also provide additional compensation depending on the performance of their agents. When it comes to brokers, they sell a variety of items and earn commissions on each sale they make. Brokers must inform their clients about the products they sell and collect a commission from the companies. Brokers' earnings may vary depending on the type of policies they sell.
- Because the products they sell usually have a small customer base, agents may be able to provide personalized service to their clients. Furthermore, agents represent a company's image and must act accordingly to provide personalized service. On the other hand, brokers provide service to their clients by utilizing their professional know-how. However, their large consumer base may impede the brokers from providing personalized care to their clients.
Who is better for you - Insurance Agent or Broker?
Brokers and insurance agents can both help your business in obtaining the coverage it requires. Agents are people who sell insurance policies on behalf of their insurance firm only. Whereas, brokers bring forth a plethora of policies from varied insurance companies to suit your customized needs. Consult a broker to get the best possible cover and they provide the claim settlement services also.
Brokers may be preferable for businesses with complex insurance requirements. In brokers, you get an advisor who will collaborate with you to grasp everything your company does with respect to risk management practices. They will also ensure that your insurance policy properly protects you without any gaps in coverage. Because those insurers prefer to distribute through brokers, they usually have access to more specialist insurers.
However, if your business does not require specific coverage and you already know what you precisely require, opting for an insurance agent may be the best option for you. Insurance agents have a thorough understanding of the products they provide and can explain the intricacies of the coverage in greater depth - so that you can make an informed decision regarding what to purchase.
Businesses can now acquire insurance coverage digitally, thanks to the recent advances in technology in the insurance sector. digital insurance products can now be purchased online, with just a few clicks on your mouse. Companies can obtain quotations from numerous websites, evaluate insurance products online and can make coverage selections on their own. However, a broker or an agent is still behind those products. Despite technological developments, in reality, most businesses require some assistance when obtaining insurance. This is the reason why, brokers and insurance agents are still playing vital parts in the insurance sector and will continue to do so, in the foreseeable future.
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