If you purchase group health, dental or vision coverage for your company from an agent or a broker, you’re aware of the wide range of services they offer. Are you also familiar with the terms used in the insurance industry and what each entity does?
Many of the terms — agency, broker, insurance company/carrier — seem interchangeable, but their meanings are different. It helps to understand what they do so you can understand what they offer to you and your employees. Here is a quick primer:
Agent/Broker
The terms agent and broker often are used interchangeably, but there are a few differences. An insurance agent has an ongoing contractual relationship with one or more insurance companies. Some agents, called captive agents, agree to sell only that company’s products and their primary duty is to the company. In comparison, a broker’s primary duty is to the client. They can be “appointed” to sell products from a variety of insurance companies and can obtain price quotes and look for the plans that best meet their clients’ budgets and needs. Insurance companies pay both agents and brokers commissions based on their sales. Brokers may also charge fees for their work on behalf of a client. That’s where the differences end. Both agents and brokers need to have a thorough knowledge of the plans they offer so they can give recommendations on what plans best fit their clients’ needs and budget. While it could be tempting to simply go with the cheapest option, agents and brokers take your needs into consideration when recommending a plan.
They will talk to you about your financial resources, show you policy options, customize a plan to meet your needs, keep your plan current on ever-changing regulations and handle policy renewals. Agents and brokers must meet the licensing requirements of the states where they sell products. Those requirements generally include successfully completing a written exam, meeting educational requirements and obtaining licenses for each line of insurance they sell. Both agents and brokers must take continuing education courses annually to maintain their licenses. Most people assume that people who sell insurance are agents, so don’t be surprised if your agent actually is a broker.
Agencies and Brokerages
This can get a little muddy. Remember that agents owe their primary duty to the insurance company or companies they represent and brokers owe their primary duty to their clients. Therefore, a firm that calls itself an agency is technically transacting business as a representative of the company or companies it does business with. In reality, “agencies” often act as brokers (with their primary duty to the client) as well as agents of certain companies. Many agencies consider it their primary duty to always make the client’s interest paramount regardless of their legal status as agents of certain insurance companies. Sometimes it’s just a matter of branding. The business may have started out as an agency but later developed brokerage relationships and didn’t change its name.
Insurance Company/Carrier
The insurance company is the financial resource for the entire process. In return for charging a specified premium, the insurance company promises to pay certain claims for insured members. The insurance company, also known as an insurance carrier, issues the policy, charges and collects the premium and is responsible for paying claims. While they make money if a client has a healthy year, they can lose money when a client needs more health care coverage than the carrier estimated. Insurance agents, underwriters, customer service representatives, claims adjusters, marketers and financial experts all work for the carrier. Carriers also are called insurance providers, insurers or insurance companies.
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