There are a number of ways to research and buy new insurance: you can use an agent, go directly to the insurance company or use a broker. If you know exactly what type of coverage you need, it is often best to deal directly with the insurance company. If, however, you are unsure of what coverage you need or have questions, an agent or broker is probably your best option. While agents and brokers do essentially the same thing, there are subtle differences.
Insurance agents have contracted with an insurance company or, in some cases, multiple insurance companies to sell insurance for them. Agents are independent contractors who are not direct employees of the company they're representing. Agents are separate business entities. They legally represent the company, and the company, in turn, is required to provide insurance and honor contracts the agent enters into.
Agents and Agencies
Insurance agents can represent a single insurance company or numerous companies. Agents that sell for more than one insurance company are often referred to as independent agents. Insurance agents can be a single agent selling out of the home or part of a large agency that has many employees and represents a large number of insurance companies. An agency that contracts with more than one insurance company is referred to as a non-exclusive agency while one that contracts with a single company is an exclusive agent.
A broker works in the insurance industry but is not affiliated with any insurance company. They are independent and represent their customers, both consumers and businesses. They solicit quotes from numerous insurance companies in order to find the best insurance at the best price for their clients. Once they have solicited numerous quotes, they consult with their client to make a final decision. Brokers cannot write or bind insurance policies; the insurance company will provide the policy when a coverage decision has been made.
Who Pays a Broker?
A broker is paid by the insurance company that writes the policy. Fees or commissions are added to the insurance premium. These fees must be disclosed to the client by law. The client must give his permission for the broker to collect these fees or commissions.
Agents and brokers must both pass a Property Casualty licensing exam. They must pass this test in the state where they sell insurance. These exams vary by state, but most of the concepts and knowledge being tested is common among states. These test are comprehensive and require a thorough understanding of the insurance industry and the various insurance products offered.