I am often asked about the issue of insurance agent allegiance and whether or not an individual is acting as an "agent" for the insurance carrier or as a "broker" for the insured. I have been informed that the term "independent agent" in this regard is really somewhat of a misnomer. The basic rule of thumb is that an agent of a carrier is someone that is appointed by the carrier and can accept an application on behalf of the carrier and has binding authority. On the other hand, a broker is primarily representing an insured in the insurance transaction.
Let's take a look at the standard distinctions between these groups:
Insurance agents are insurance professionals that serve as an intermediary between the insurance company and the insured. As a broad statement of law, an agent’s liability to their customers is administrative. That is, agents are only responsible for the timely and accurate processing of forms, premiums, and paperwork. Agents have no duty to conduct a thorough examination of your business or to make sure you have appropriate coverage. Rather, it is your obligation as an insurance consumer to make sure you have purchased the necessary coverage. This obligation weighs even heavier on representative boards.
Insurance agents can be either:
•Captive – A captive agent is an agent who works for only one company and is a “captive” of that company. A captive agent will sell policies only for that insurer.
•Independent – An independent agent is one who works as an agent for a variety of different insurers. An independent can produce policies from several insurers and offer some comparisons of different insurance policies.
Insurance brokers can be best described as a kind of super-independent agent. Brokers can offer a whole host of insurance products for you to consider. Brokers are required to have a broker’s license which typically means the broker will have more education or experience than an agent.
Brokers also have a higher duty, in most states, to their clients. Brokers have the duty to analyze a business and secure correct and adequate coverage for the business. This is a higher duty than the pure administrative duty of the agent. However, this expertise comes at a price. Brokers typically charge an administrative fee or premium payments are higher when purchased through a broker.
Now that you know the difference between an insurance agent and an insurance broker ask yourself with whom you've been dealing and whether or not your expectations of him or her are truly in line with their function as a broker or an agent.
Special thanks to attorney Joel W. Meskin, Vice President of the Community Association Insurance Department at McGowan Insurance, for enlightening me on the distinction between agent and broker. McGowan has the leading D&O program in the US for community associations. For more information you can visit them at www.mcgowanins.com.