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There are several terms in the insurance industry that frequently are misused or confused. For example, the terms broker and agent are consistently used interchangeably; however, the role of each is very different and important.
An agent is someone who is authorized to act on behalf of another. An insurance agent solicits and negotiates insurance contracts on behalf of an insurer. The agent can be independent or an employee of the insurer directly. As the legal representatives of insurers, they have authority to perform certain acts on behalf of the companies they represent, for example, to bind coverage. Agents can only offer services from insurance companies that they are appointed with and are paid directly by those companies. Agents are compensated by receiving a percentage of the premiums they write with the insurance company.
A broker does not work for the insurance carrier, but instead represents the insured. Since they are not the legal representatives of insurers, brokers do not have the right to act on behalf of insurers. Although, in some cases, brokers do have agency contracts with insurers, they have to be careful not to cross the “conflict of interest line” when representing an insured, or buyer of insurance. Brokers quote the rate to the insured and receive a commission from the insurer. Depending on the relationship, they could also charge a fee for service. If the broker is compensated by a fee-for-service arrangement, then that would be billed separately, and not as part of the premium.
While it may seem at first glance that these terms can be interchangeable, clearly they are not. Understanding these terms and having an independent advisor, like The ALS Group, by your side to work directly with the broker or agent, will ensure you enter into the correct relationship with the best possible service provider. We make certain your best interests are protected.
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