The Role of Insurance Agents and Brokers in the Distribution of Insurance Products
Insurance agents are intermediaries between the applicant for insurance and the insurance company. They are not a party to the insurance contract.
An insurance agent represents the insurance company in dealings with a third party.
Example: The XYZ Insurance Company has entered into an Agency Agreement with Justin Case Agencies. All salespeople who work at Justin Case Agencies are considered to be agents for this insurance company when selling its products. As agents of the insurance company, they are given the authority to accept insurance applications from consumers (third parties) who need insurance.
Note: Sometimes agents will be given additional authority to act on behalf of an insurance company. This additional authority could be for doing things such as issuing policies, making policy changes, and/or settling claims under specific amounts.
Most insurance offices will have an Agency Agreement with more than one insurance company. When selling for Insurer A, they are considered to be agents for Insurer A. When selling insurance for Insurer B, they are considered to be agents for Insurer B.
Insurance agents need to be licensed before engaging in the business of insurance.
The name of the insurance office will usually reflect its agency status (e.g.R. Jone’s Insurance Agency, Fleet Agencies).
Representatives of life insurance companies who sell only life insurance are also called agents.
Insurance brokers are intermediaries between the applicant for insurance and the insurance company. They are not a party to the insurance contract.
Insurance brokers represents the client in dealings with insurance companies. They are considered to be independent middlemen not tied to a particular insurance company.
When placing insurance for the client, the broker will seek out an insurance company that has the insurance policy that will best suit the client’s needs.
Example: The insurance brokerage does not need a formal agreement with the insurance companies it uses to provide their clients with insurance. Instead, those companies will determine at the time a quotation or application for insurance is submitted to them if they are interested in providing that insurance. When the broker has received an insurance quote from two or more insurers, they will select the one that best fits their client’s insurance needs.
Like with agents, sometimes brokers will be given additional authority to act on behalf of an insurance company that writes a lot of business with that broker. This additional authority could be for doing things such as issuing policies; making policy changes; settling claims under specific amounts.
Insurance brokers have a primary duty to their clients and are expected at law to exercise reasonable skill, care and diligence.
Insurance brokers also have a primary duty to ensure that they act ethically at all times in any dealings with an insurance company. An integral part of this duty is to:
– ensure that they always tell the truth about the applicant and/or the risk being submitted for insurance, and
– they must not withhold any information that the insurance company would consider important in making the decision whether to provide the applicant with insurance.
An insurance broker can also serve as an agent for an insurance company.
For the most part, the term “insurance broker” has generally replaced the term “insurance agent.” The rationale is that even though an insurance office may be an agent for two or more insurance companies, they really function as insurance brokers by selecting the best policy from those insurers for their client.
Insurance brokers need to be licensed before engaging in the business of insurance.
Point 9: The name of the insurance office will usually reflect its brokerage status
(e.g. R.W. Insurance Brokers, Cunningham’s Insurance Brokerage).