The fact that people can buy policies through both intermediaries can make them think that they are interchangeable but there are key differences. Agents are authorised by insurance companies to sell policies and therefore they represent and work for the insurers. They can also bind the insurance company to a policy contract. On the other hand, brokers aren’t tied to companies like agents and they represent the interest of their customers. Hence, brokers cannot bind a policy but have to ask an agent or insurer to get their customers covered. Agents can only work with the companies they are contracted with or work for. In contrast, brokers typically enjoy a more extensive network of connections as they have agreements with multiple companies, enabling them to act on behalf of their customers across a broader spectrum of options.
What Is an Insurance Agent?
Agents are divided into two as tied and independent agents. Essentially, they function the same way but the number of companies they can work with differs.
Tied (or captive) agents work for one company or one group of companies. They cannot sell products of other companies that limit their ability to shop around.
Independent agents can work for several companies as their agents and still can bind policies for all of them. So, independent agents have a wider outreach and can compare prices, policies and even the companies but they still work for those insurance carriers and not for customers.
Agents are sales forces of companies they represent. They may be directly employed by the company or they may be contracted to the insurers and get commission. They are one shop as they can find a suitable policy for a customer and bind the policy there and then by directly accessing the insurer’s underwriting system. They are very knowledgeable about the products they sell and companies they work with/for.
What Is an Insurance Broker?
Brokers are intermediaries who shop for their customers through many companies they have contracts and contacts with but they are not authorised to bind any insurance company to any policy. They need an agent to do that for them. They usually have access to agents working for insurance companies to send cover requests and get confirmation from.
Since brokers are working for their customers, they have to look after their clients’ best interests and not the insurance companies’. They aren’t tied to any company which gives them freedom to shop around. This may allow them to get better prices.
Even though brokers don’t work for any insurance company, they are usually paid commission by them for selling their policies, just like most of the agents. Both agents and brokers usually keep receiving commission from renewals as well that at times insurers may charge slightly more for policies sold through intermediaries.
Key Differences Between Insurance Brokers and Agents
Here are the key differences between insurance agents and brokers;
- Agents work for and represent the companies so they have insurers’ best interest in mind. Brokers don’t have the same connection but have relations with carriers to shop their products. So, their loyalty lies with their customers.
- Agents are authorised to sell products of certain companies and therefore they are limited to those providers. On the other hand, brokers shop for their customers. Once they find the right policy and it is accepted by the client, brokers can facilitate the purchase. However, they are typically free to approach many companies. This makes them a better choice for shopping around for you.
- Agents can bind policies but brokers aren’t authorised to do so. They need to contact an agent of the company to activate an insurance policy.
- Agents may be more knowledgeable about the products they are selling.
Despite their differences, both agents and brokers are licensed and reliable professionals. They are licensed by the state they operate in and therefore they must follow certain rules, comply with regulations and conduct their business in a professional manner, in accordance with the industry standards.
Which One to Choose?
Often people end up with an agent or broker for so many different reasons and stay with them for a long time. However, if you are in the market for an agent or broker you should consider the following points to pick one or the other.
- If you have already determined the coverage you want, shopped around and found the most competitive auto insurance company for your circumstances, you may just want to contact one of their agents near you to bind the policy for you.
- If you need help in choosing a policy and a company and want the best price, you probably need a broker on your side to help you decide.
- If you are normally too busy to do your own shopping at each renewal, you may want a broker to do it for you and advise you to switch when there is a better option.
- If you know the company you want to be insured with for sure, just go with their local agent.
Everyone is different. So, they can decide how they want to buy their vehicle insurance policies and there are plenty of options, including buying directly from insurers’ websites online. Often people’s preferences determine if they want an agent or a broker or like to do it on their own.