Insurance Agents & Insurance Brokers: What You Need to Know

by Ralph Trayfalgar

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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 salesmen". 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 salesmen 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 their typical clients. With this in mind, we now know that, while the insurance agent works for the insurance provider, the insurance broker works in the interests of the buyer. Specifically, the insurance broker is an independent insurance specialist 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.