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Insurance Broker Versus Insurance Agent

Posted on Jun 26th, 2018 | Topic: Insurance

Working in sales is a unique career path for ambitious and persuasive individuals who enjoy helping others. If the potential to protect people against financial devastation is calling your name, plus if you are persistent and have baseline technical knowledge, you may find yourself right at home working in the insurance field.

As an insurance salesperson, you will be able to present policies to the public and offer your clients incredible value, protecting their families and possessions, and preventing high financial loss. You can do this by getting your license to become either an insurance agent or an insurance broker.

Now, you may be wondering which of the two will be the best route for your career aspirations. Is there that significant of a difference between insurance agents and brokers? What exactly is an insurance broker, and what is an independent insurance agent?

While there are similarities in how agents and brokers operate and the goals they achieve, there are also crucial differences you'll want to take into consideration.

Insurance Agent and Broker Careers: How Are They Similar?

It's true that upon first glance, insurance agents and brokers appear to have the same responsibilities. To make sure we understand the terms, here are some basic definitions of these two job titles:

  • What is an insurance agent? Classified as either captive or independent insurance agents, these salespeople provide insurance policies ranging from life and health to property and casualty insurance. Insurance agent acts as a mediator between an insurer and policy owners.
  • What is an insurance broker? Slightly different, an insurance broker negotiates insurance products for more desirable prices, helping find the best policies among a large variety that will suit their clients' needs in exchange for compensation.

At first, it may seem as though these aren't very different. They both primarily focus on selling insurance policies to consumers, and agents and brokers have other notable similarities, such as:

  • Both serve as an intermediary between insurance providers and insurance purchasers.
  • Both require adhering to state laws and regulations for insurance sales.
  • Both have a legal responsibility to help provide customers with valuable coverage at a fair price.
  • Both are, typically, paid commission for approved policies.
  • Both require obtaining and maintaining a state-regulated license for the type of insurance they are looking to sell. This process includes completing pre-license training hours and other insurance licensing requirements, depending on the licensing authority, and staying up to date with continuing education for license renewal.

These characteristics comprise the main parallels between how insurance agents and brokers operate.

Yet, there are distinctions between the two, which can have a significant effect on your daily practices and responsibilities as a salesperson.

Insurance Agent and Broker Careers: How Are They Different?

Let's dive further into the differences between insurance agents and brokers to make sure you make the most well-informed decision about your new career opportunity.

Representation: Who Do Agents and Brokers Answer To?

Agents and brokers differ in which party they are most accountable to during the negotiation and sales process.

Insurance agents answer to the insurance company under what is called an appointment, while brokers have a greater focus on representing the insurance buyer.

Agents

Captive agents are bound to represent only one insurance company, while independent insurance agents can be appointed by other companies as well. Agents who are under appointment are authorized to sell products in the name of the insurer. As an intermediary between the company and the buyer, the agent is responsible for giving accurate information to the purchaser and writing policies. The company helps manage and approves new accounts, but the direct communication between the company and the buyer is minimal, as the agent is an extension of the insurer.

Brokers

Conversely, brokers don't work for insurance companies. They aren't appointed by insurance providers to sell their products but instead operate on the buyer's behalf. Brokers submit applications to various insurance companies to receive quotes. Once they have discovered a vast assortment of policy options from these insurers, they discuss coverages and premiums with their clients to make the best choice. As they don't have a contract with insurance companies, brokers work entirely independently to accrue satisfactory policies for the buyer.

Because an insurance broker hasn't been appointed and doesn't have the authority to write business between the two parties, there's an extra step in the implementation of a policy, which agents can bypass.

After brokers negotiate a policy, they obtain a document called a binder from the insurance company. This binder must be signed and validated by the insurance provider, serving as a temporary policy placeholder for a period of 30 to 60 days. Once this transition period ends, a policy will be issued to replace the binder.

Products and Services: What Agents and Brokers Promote and Sell

Because of this fundamental difference in who they represent, agents and brokers offer different kinds of information and they have separate access to insurance products.

Agents are company-specific, which has its advantages in being much more straightforward to master. Brokers have to know about a long list of insurance providers to find buyers their best coverage.

Agents

As insurance agents typically only work for one company, the amount of training and product information they receive is much more condensed than that of a broker. Because they just have to learn the ins and outs of their sole provider, they tend to provide depth over breadth about their company's products, often giving them an expert air in discussing individual policies. Their specific expertise also sets them up for more pinpointed service in their long-term relationships with policyholders as policy changes develop.

What's more, because of their relationship with an insurance company, agents will sometimes have access to exclusive products and policies that are not available for brokers to offer.

Brokers

Brokers require a much more comprehensive and wide-spread knowledge of the insurance market, which can be an initial challenge to stay on top of but hold a unique professional vantage point.

Brokers also need to be well versed in assessing business needs to determine what the best insurance-coverage fit.Because of the high number of unique financial situations, this can require some extensive experience in seeing what works and what doesn't work, in addition to all of the knowledge about insurance products out there.

This comprehensive expertise comes at a higher price for insurance buyers. Brokers are prone to charge additional administrative fees or higher premiums than what the insurance company asks, all meant to cover the cost of their broad market scope and expertise.

Compensation Plan: Who Pays Agent and Broker Commissions?

Most of an insurance salesperson's pay depends on commission earned from selling policies. How premiums on sales translate into an agent or broker's paycheck can look very different.

For starters, there is a difference between base commissions and contingent commissions, and both are available to agents and brokers alike depending on the agreement with the insurance provider:

  • Base commission: This is the standard percentage of premium rates that an insurance salesperson can expect to be paid upon the completion of a policy sale. The amount will vary by the insurance type sold, such as a term-life insurance policy or workers compensation, where the agent or broker is promised 10 percent commission of monthly premium payments.
  • Contingent commission: Also called incentive commissions, these are extra commissions rewarded to an agent or broker who achieves predetermined volume growth or retention goals laid out by an insurance company. Contingent commissions can be controversial. They could incentivize a salesperson to manipulate insurances presentations, making applicable policies look more appealing to the buyer. Contingent commissions can also encourage fee collection by a broker without being forthright with the client. Some people believe it is unethical for brokers to accept contingent commissions, as brokers, in particular, are meant to focus on representing the buyer.

For an agent to receive a paycheck, the insurance buyer will pay the insurer, who then provides the agent with the appropriate compensation. A broker, on the other hand, is paid the full premium amounts by their client, extracts their commission and then forwards the remainder to the insurance company.

Here are a few other noteworthy differences between how agents and brokers are paid:

Agent

An agent's commission is solely dependent on the company they have been appointed by. Within the appointment contract, the insurance company will list the products the agent is authorized to sell, along with the commission the agent will receive upon writing business for each of these products.

There is some stability in working with a single compensation plan that is clearly laid out. Some captive insurance agents are even salaried for extra financial security.

Broker

Since brokers bring customers to a variety of insurance companies, they will experience more variation in commission amounts depending on buyer purchase amounts and sales types. As long as the products fit the buyer's needs, a broker has the flexibility to intentionally seek out business for companies that offer higher commission rates.

Often, brokers require payment on top of the quote determined by the insurance provider. This results in what may look like higher premiums for their clients. However, the broker keeps these added amounts and sends the actual premium payment to the insurance company.

The best broker customer service will provide a disclosure statement to clients, so they remain informed on what they buy and how it affects their broker's actual compensation.

Insurance Agent versus Insurance Broker: Which Career Should You Pursue?

After reviewing the differences in responsibilities, products and compensation plans, which of the two routes sounds more appealing to you?

Would you enjoy the stability and quicker learning curve offered to insurance agents? Or would you prefer to work independently to create the best, fully-customized insurance array for your clients?

Restrictions on agents may limit their ability to offer a variety of products and overall flexibility in presenting these products. However, having a small set of insurance presentations and a single compensation plan may actually be liberating for some.

Brokers have to face many more unique obstacles and are responsible for acquiring a significant amount of information. Yet it's precisely this that makes for a thoroughly dynamic work experience, one that's highly rewarding when done right.

Both routes offer considerable advantages and disadvantages, and depending on the type of buyer, one will be better suited than the other to adequately address what the client needs. Overall, they both offer career opportunity with high financial potential and schedule flexibility. But before you can take care of buyers and distribute insurance coverage, you need to make the right preparations.

The Licensing Process: What Getting an Insurance License Looks Like for Agents and Brokers

Getting the ball rolling on your insurance career starts with receiving the proper license. Here's a quick look at the licensing process and what you may want to keep in mind for license renewal and continuing education down the line.

Depending on the state, line of authority and insurance license type, your licensing process may begin with completing some pre-examination insurance industry training, followed by taking a written exam and waiting for your license to be approved. In different states, the processing times for all three of these steps can vary. While your license is processing, some states and insurance companies will still enable you to do business. However, chances are you will not be able to receive compensation until your license is fully approved.

Insurance brokers and agents alike can receive any of the different insurance license types provided they fulfill the state requirements, including fire and casualty, life and health, and automobile. The insurance products for each of these licenses vary greatly in function, premium amounts and relevant expertise, so choose the license type that is best suited for your personal aspirations within the broad realms of insurance.

Each type requires different insurance licensing training, which StateCE can help you complete conveniently and at your own pace.

Continuing Education: What StateCE Online School Can Do for Your Career

Because of the way the insurance world evolves, it can be a challenge to stay up to date with the complexities of financial products and what consumers expect from them. Attaining and maintaining the specialized expertise in these subjects is part of the role insurance salespeople play, and subsequently, the state requirements for keeping a license can be strict.

Fortunately, you can ensure you provide the best products and services to your clients by keeping up with those continuing education credits, which will also make license renewal a much smoother process. For convenient access to materials and up-to-date insurance-license curriculum, look no further than StateCE for relevant, in-depth and flexible online continuing education insurance courses.

StateCE programs are written by industry experts. These courses fit comfortably into your busy work schedule and can be completed wherever you have internet access. Study at your own pace as you prepare for your state's licensing exam. Browse our course catalog to get started today!

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