INSURANCE BROKERS vs AGENTS
Most of us have insurance for our family or ourselves. And while purchasing the same, we must have come across an insurance agent who often works for one or more companies. On the other side, companies often buy insurance from insurance brokers. All these participants come under the insurance industry which is governed by the IRDAI (Insurance Regulatory and Development Authority of India). It is a regulatory body under the jurisdiction of the Government of India and it assigned with the regulation and promotion of the insurance and re-insurance industries in India. We all have heard both the terms, Brokers, and Agents, but don’t know the exact difference between the same. Both act as intermediaries between buyers and insurers and must have the appropriate license to operate in the insurance industry through respecting the regulations, statutes, and laws imposed. In this article, we will talk in detail about the definition, role, and key differences between them.
These are professionals who work closely with their clients to research and understand the terms, conditions, coverage, and other complexities and then assist them to search and opt for the best insurance policy as per their needs. A broker’s primary duty is to serve the client and unlike the agents, their duty is not towards anyone or more insurance companies because of the same they can not bind coverage on behalf of an insurer. These brokers use their skills and knowledge to understand their clients’ needs and assist them to opt for the right insurance solutions. They have to hand over the account to an insurance agent or insurer to complete the transaction.
These can be wholesale or retail. Retail brokers interact directly with buyers. If a retail broker can not obtain the required coverage from an insurer, one can contact a wholesale broker. A wholesale broker acts as an intermediary between an insurance company and retail brokers. These brokers remain in direct contact with the insurers rather than the buyers or insured. They can help the retail brokers to obtain quotes as per the terms required by the client of a retail broker.
ROLE OF INSURANCE BROKER
Insurance Brokers are independent of any insurance companies and hence offer a wide range of plans from various companies. They use their skills and knowledge and will explain aspects of the policy which the insuree may not have considered. In case of conflict with their own interests, they will make an unbiased recommendation based on insurance needs. Insuree can freely tell the specific terms and premium they can afford to pay to the insurance broker and the broker will make sure to offer and arrange the best-suited plan.
To understand the meaning of an insurance agent, let us first discuss what is an agent. An agent is a person who represents another person or entity through employment, apparent authority, or by contract. When we specifically talk about the insurance industry, the insurance agent will be the person representing an insurance company to sell its products and services to potential customers.
ROLE OF INSURANCE AGENT
The insurance agent can be independent or captive. Independent agents are those who represent several insurance companies while captive agents represent only one insurer. Unlike brokers, agents act on the behalf of the insurer and not the client/customer. We often have to adapt to the cover of the insurance company they represent. They have the power to sell and adjust coverage usually with the goal of maximizing insurer profits and turnover. Agents often have close contact with the insurance companies and this allows customers to obtain coverage before the insurance company finishes processing the required documents and issuing the policy papers and documents.
As discussed, we all have many times come across both the terms i.e. insurance broker and agent but often fail to understand the difference. As now we have discussed the meaning, let us talk about the key difference pointers:
1. Compensation Structure:
Brokers and agents both gain the bulk of their income through commissions earned on the policies they sell. A broker works with a number of companies and hence experiences income variances that depend on the product of the company sold. Whereas, an agent enjoys the stability of one compensation plan because of working in one single company. Nevertheless, brokers have the convenience and flexibility to do business with companies that offer the highest commission with the basic assumption that they provide the products and services that meet their clients’ needs.
Insurance brokers represent the clients and hence are free to offer products from any insurance company which best suits the needs of their clients. They can research the market and ascertain multiple quotes to fit the budget of their client. Whereas, insurance agents generally represent only one insurance company and are often referred to as Captive agents. In crux, it can be termed that brokers work for their clients and agents work for the insurance companies.
Virtually every state mandates that insurance brokers and agents meet the licensing requirements which normally entails the completion and passing of a written exam which is governed and prescribed by the IRDAI. Prelicensing educational requirements may also be levied which vary depending on the license type and state. For each line of insurance, separate licenses are necessary including life and health insurance. Moreover, brokers and agents may have to complete ongoing education requirements to maintain their licenses.
Brokers, as they offer products from different companies as per the consumer needs, must know the products and services offered by numerous companies, stay updated, and provide clients with reasonably assured knowledge and this can prove to be very challenging. On the other hand, agents only need to know the products and services offered by one or a few companies and this makes it convenient and easy to keep insurees abreast of any change in policy and provide better after-sale services, assisting to foster a closer ongoing relation.
WHICH IS BETTER FOR YOU?
You have many options and several considerations while looking for a new insurance policy. Before opting for any plan, take time to outline what exactly you are looking for in the plan. Do you have certain specific needs and goals, like home renovation? Will you want the policy to add-on in the future? How accessible do you need your provider to be? Once you ask yourself these questions, do a basic risk assessment by asking: do you anticipate having to make a claim in near future? If yes, how do you want your claim to be handled? The answers to these questions will definitely help you to make a sound decision without any hindrance.