Serving as intermediaries between the insurer and the insured, insurance agents are mostly liable for administrative tasks. Being responsible for the timely effect of insurance policies, insurance agents ensure the accurate processing of any forms, premiums, and paperwork. Also, they are responsible for little reminders to the insured about the premium payment so that the policies do not default.
Insurance agents do not conduct examination of the business and do not suggest the proper coverage. Business owners assess the risk of their business and discuss all possible insurance policies with the insurance agent. However, the final decision is taken by the business owner and it’s his obligation to ensure he has purchased the proper coverage.
Insurance agents are not employees or the insurer, but independent contractors and they have the authority to bind coverage, i.e. to legally obligate the insurer to provide coverage according to the terms and conditions as bound. Therefore, premiums paid to the insurance agent are equivalent to remitting payment to the insurer.
Insurance agents are divided into captive and independent agents.
– Captive insurance agents work for only one insurance company and sell insurance products of a particular insurer only. As they are committed to a particular insurance company, they are called “captive” in the sense that they are not allowed by law to sell the insurance policies of a competitor
– Independent insurance agents work for a variety of different insurance companies and sell insurance products from different insurers. Independent agents are allowed to compare the pros and the cons of all insurance policies, draft comparison charts and suggest the policy they consider most suitable for the specific needs of a business.
Insurance brokers are responsible for explaining all insurance policies to prospect clients and assist them in choosing the most appropriate insurance depending on their needs. Insurance brokers possess a broker’s license and typically they are more experienced and possess higher education than insurance agents.
Unlike insurance agents, insurance brokers analyze the needs of the business, collect all the necessary information and submit it to several insurers in order to suggest the suitable coverage. The final decision is taken by the business owner, but the insurance broker has a high duty to guide the client and does a lot more than administrative work.
The coverage is bound by the insurer and summarizes the coverage limits, premiums, terms and conditions that the insurer agrees to provide. For their services, insurance brokers charge commissions that are built into the premium payment and are higher than those charged by insurance agents.
Insurance brokers are largely considered advanced insurance agents who have been well educated and have advanced in their careers by acquiring management experience. By constantly attending business seminars and conferences, insurance brokers improve their knowledge and are well aware of the current forces and future trends of the insurance industry.
In addition, insurance brokers acquire specializations. Large insurance brokerage firms have the expertise to provide coverage for every type of risk. They tend to classify the coverage to provide experts in each field of insurance. For those insurance brokers who wish to become specialized in investment insurance products, the law requires that they get special training and obtain special licenses from the Securities and Exchange Commission (SEC).