An insurance buyer in today's market has many choices, with online sales being marketed directly through social media, to the traditional independent agent in a local area, to the market-savvy broker service operating on a broad, perhaps national, basis. With so many options it is difficult for the buyer to know which is the best one to go to for seeking coverage and getting the best customer service.
All of these services are important to the insurance industry, but many buyers do not know the difference between an insurance agent, a broker and a producer. Each of these play different roles and offer different services.
A licensed insurance agent is also referred to as a producer, usually dependent upon how they are identified in the state of operation. An agent is someone who sells insurance on behalf of an insurance company. The insurance agent can be either a captive, or select agent (meaning the company they represent prohibits them from selling insurance from any other company), or an independent insurance agent (meaning the agent can represent more than one company and can sell from multiple insurers). Insurance agents work for the insurance companies they represent, and they sell products that the insurer(s) is licensed and authorized to sell in their state. Some companies may allow their captive agents to contract with other companies to sell non-competing lines of insurance that the company may not offer.
An agent may be referred to as a producer, but there really is no difference other than the term used; both are agents for the company(ies) and their job is to sell insurance coverage for the company(ies) they represent. As the name implies, a producer is responsible for "producing" sales for agencies, or for himself if he is self-employed. There are several different types of insurance producers, including agents. However, not all licensed insurance agents are necessarily producers. Most states require producers to pass an examination and meet any other educational and ethical requirements, which vary by state. Insurance producers may be agents or brokers, both of which usually consist of a separate set of licensing requirements. Some agents may work as producers whose primary role is to solicit new policyholders and help the agency grow. Others may work as customer service representatives (CSRs), who provide assistance to existing policyholders. Depending on specific state laws, CSRs may be required to obtain an agent's license since they engage in insurance transactions with policyholders.
A licensed agent, or producer, is the intermediary between the insurance buyer or policyholder and the company. Some agents offer extensive arrays of service in addition to placing insurance coverage and refer to themselves as representing the buyer rather than the insurer. Agents who pledge to represent the best interests of their consumers should be held to that promise.
Insurance coverage can be bound one of two ways: coverage can be bound through the insurance company issuing the policy or by the verbal or written commitment (called a "binder") of an authorized representative of the company, such as an agent. A verbal or written binder is generally used to address the time period between the effective date of coverage and when the policy or endorsement is issued by the insurance company. An agent may have authority by the insurance company to bind coverage within certain parameters.
A broker operates similar to an independent agent in that they can sell insurance from multiple carriers. However, unlike insurance agents, brokers are not hired representatives of an insurance company. A broker works on behalf of the individual consumer. The consumer hires the broker and the broker searches through the many available insurance options to provide the consumer with the best available option to fit the consumer's insurance needs.
While an insurance agent can sometimes bind coverage, an insurance broker typically cannot. Once a broker finds coverage for a consumer, a producing agent must complete the binding transaction.Brokers typically have specialized knowledge in various subjects. Some insurance brokers specialize in casualty insurance, for example. They might have extra connections within the industry that could pave the way for a good deal.
An agent or broker is the first point of contact and an intermediary between the consumer and the insurance company. In addition to marketing and selling insurance, an agent or broker continues to be the intermediary between the policyholder and the insurer throughout the life of a policy, or beyond if long-term claims are involved. An agent may inspect property on behalf of the carrier, monitor insurance claims and assist the policyholder in claims settlement and in fulfilling the terms of the policy. For these reasons, it is imperative that the agent or broker have a good relationship with both the insurance buyer and the carriers they represent.
Depending on which way premiums are headed and how quickly and effectively claims are being handled, insurance buyers always seem to either love or hate their agents or brokers.
This perhaps is caused, at least to some extent, by the fact that most insurance buyers don't have a choice about using an agent or broker. Businesses typically cannot approach insurance companies directly, primarily because of state licensing requirements. They usually have to use an intermediary who is licensed to do business in their home state to market, place, and manage the insurance products they use.
Most insurance buyers (and risk managers) agree that market knowledge is of critical importance, and intermediaries who understand the insurance marketplace—including alternative facilities and arrangements—are extremely important considerations in the buying process.
Knowing which market is the best option for broad coverage at reasonable rates, plus the ability to help the buyer move into risk-sharing arrangements when appropriate, can be worth its weight in gold. That is why many agents and brokers are looking into risk management alternatives such as captive arrangements and parametric insurance to fill the gap in covering future pandemic and catastrophic flood, hurricane, and fire losses. If buyers didn't appreciate the value of a market-savvy intermediary before the pandemic, they are certainly looking for those who can provide more education and alternative options now.
A good intermediary, be it agent or broker, may provide a variety of services, such as helping with risk assessments, interpreting coverage, analyzing losses and developing loss projections, facilitating claim adjustments, researching technical exposure questions, and overseeing loss control and safety services. The savvy insurance buyer looks for intermediaries who offer a higher skill level in these areas and those who can provide expertise in certain areas. When the buyer's internal resources are constrained, the value in having a broker take over some of these risk management duties may increase dramatically. It may be more cost effective to pay a broker to handle these duties than to increase internal staffing levels.