Legal Guide

Insurance Agents & Insurance Brokers: What You Need to Know

Every business owner should purchase an insurance policy for their businesses to protect the business from losing money from accidents or other untoward incidents that may happen during business operations. Although it is possible for a business owner to purchase an insurance policy directly from an insurance provider, most will typically hire an insurance agent or broker to help them find the insurance policy that best fits their business.

Many people will typically use the terms "insurance agent" and "insurance broker" to mean the same thing. However, there are some distinctions between the two that business owners will want to know about as they are in the market for business insurance. We will explore those distinctions in this article.

What is an Insurance Agent?

An insurance agent sells insurance policies to business owners on behalf of the insurance companies, and act as middlemen that provide information to business owners about the insurance policies being offered by the companies. In this sense, then, insurance agents are a very literal kind of "insurance salesman". They are typically broken down into two types: captive agents and independent agents.

Captive insurance agents are representatives of one insurance provider, and will only offer policies from that specific insurer. These insurance agents may be independent contractors or direct employees of the insurer they represent, and may therefore receive a consistent salary, bonuses, and other work benefits on top of commissions (usually a percentage of the value of the insurance plan) they receive from the insurance policies they have successfully sold. Unlike the other insurance salesmen to be discussed in this article, captive insurance agents will often have more extensive knowledge of the insurance policies being offered by the insurer they represent, which means they can give the buyer early access to information about their policies.

Independent insurance agents, meanwhile, are fully independent insurance salesman that do not work for a single insurer, but sell insurance policies from multiple providers as a third party – as such, their income is primarily derived from commissions. Because of their affiliations with multiple insurance providers, working with an independent insurance provider will give business owners a wider range of insurance policies and plans to choose from, so one has access to more options right off the bat.

What is an Insurance Broker?

The key difference between an insurance agent and an insurance broker is the party that they work on behalf of. With this in mind, we now know that, while the insurance agent works on behalf of the insurance provider, the insurance broker works on behalf of the buyer. Specifically, the insurance broker is an independent insurance specialist like Leading insurance brokers in Perth that legally represents the buyer, helping to look for, negotiate, and secure insurance policies for the buyer.

They can be thought of as third-party insurance consultants, as their services involve assessing the business situation of their client for which they will recommend and secure the insurance policies that best meet the needs of the buyer's business. Because they are a third party to the process of purchasing an insurance policy, insurance brokers are strictly regulated to ensure that they are completely independent and operate in the interests of their clients and not any insurance provider.

Like insurance agents, there are also multiple types of insurance brokers. The retail broker is the most common type that business owners will encounter, as retail brokers are the ones that directly engage with business owners to help them secure a good insurance policy. Retail brokers earn their income from commissions from the insurance providers upon a successful application of an insurance policy, as well as by providing additional services to clients throughout the transaction process.

Some insurance providers may be unwilling to sell an insurance policy to a business owner for one of many reasons, the most common of which being that the business to be covered may be too risky for the insurance provider to cover. In such cases, the retail broker will work with a wholesale broker that provide additional advice to help guide the client to an appropriate insurance policy for their business that insurance providers may not offer at first. These insurance policies can be acquired with the help of a surplus line broker – insurance brokers that specialise in surplus line insurance that covers a larger range of risks that regular insurance providers are unable or unwilling to sell.

Who should you trust?

Business insurance is essential, but still a significant investment. Because of this, business owners have every reason to be wary of who to trust as they shop around for an insurance policy for their business. Unfortunately, the fact of the matter is that there isn't any one person that you should trust – though that does not mean that you shouldn't enlist their help in the first place. Of course, you as the business owner should trust your instincts and do your own research so you can be sure you are getting what you are paying for.

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