For a business owner seeking general insurance, the difference between a business insurance agent and broker is critical. There are important distinctions between the two that should influence whom you should insure your business with.
Both business insurance agents and brokers are insurance intermediaries who assist business owners with insurance decisions. Typically insurance agents deal with a particular insurer (captive agents). Also, agents do not procure insurance contracts for clients, but merely recommend them. Even independent agents deal primarily with one insurer- the difference being that they are allowed to recommend any product from any company to a client. Brokers procure insurance contracts on behalf of their clients.
A broker should not be automatically superior to an agent and vice versa. However, there are certain distinctions that should indicate whether you should consult an agent/broker or both in seeking certain types of business insurance.
The key differences between insurance agents and brokers are:
1) Duty to clients
2) Qualification and experience
3) Fees and premiums
4) Special deals and policy arrangements
5) Options for clients
Duty to clients
A business insurance agent has an ‘administrative liability’ to clients. Brokers have that liability and a legal obligation to their clients as well. Agents are merely facilitators- representatives of a particular insurer (or insurers in the case of independent agents). Agents have a responsibility to both the insurer and the client and ensure that the client provides all necessary material for an application to be underwritten. Brokers can even be held liable for not fully fulfilling the request of a client and thus, have a higher duty towards their clients.
Qualification and experience
Both agents and brokers require licenses to operate. However, brokers require a special license or, in some cases, a higher mark in the same licensing exam. Brokers generally have higher qualifications and experience than agents. This does not suggest that some business insurance agents are not as qualified or have as much experience than brokers do. However, brokers generally handle a larger portfolio and normally have a wider range of experience with business insurance.
Fees and premiums
The level of service and higher duty is not a free bonus with brokers. Brokers may charge a fee for their service or offer higher premium than the base premium. Agents are not allowed to do the same, since they do not have a similar level of accountability to clients and are usually captive agents.
Special deals and arrangements
As a result of their networks and experience, brokers can arrange special deals or contract arrangements for clients. A broker has the power of negotiation with insurers, whereas an agent typically has to present the insurer’s package to a client and is unable to effectively negotiate terms and conditions of the business insurance contract. As a result, it is easier to get what you want or need from a broker.
Options for clients
Business insurance brokers and independent agents are free to deal with any insurer that they choose. Captive agents usually offer fewer options to clients and may not always be in a position to recommend alternatives. Brokers and independent agents differ because independents agents typically have one or two companies that they work with on a regular basis. It is the brokers’ negotiating power that enables the broker to provide better options for a client.
One of the critical insurance decisions that a business owner may have to make is which insurance intermediary to choose. In some cases, it may actually be appropriate to choose an agent if the insurance needs are straightforward and the business owner requires the best deal with basic criteria. However, for larger and more intricate insurance solutions, a broker has the position and experience to procure what is required. Clearly, the choice between a broker and agent is not just a matter of preference. It can significantly influence how well your business is protected.