Independent insurance agents and brokers If you have ever gone through any kind of insurance process, then I guess you still remember the very first gentleman, who approached you, I must say beaming confidently with a big, notorious and infectious smile and asked if you knew about insurance. But before you even answered, and he was already bubbling away- why insurance was important, how you could get insurance, which company offered the best rates. Yes, exactly that gentleman- the one who was dressed in a well knotted tie, neatly ironed coat over and dark polished shoes. Ok, I see that you now recall clearly the gentleman am talking about!! This is the crazy world of insurance, and to fit in it or even appreciate it, then first you must understand who these people are and what their role in insurance is. So this group of people is categorically referred to as middlemen, or in more professional terms, insurance agents and brokers. They are part-time employees paid on a commission basis by the insurance company in exchange for the clients they bring. You won’t fail to rub shoulders with these independent insurance agents and brokers during the initial stages of insurance. Insurance is one of the most complicated financial products that a consumer or business will ever purchase. Each policy, despite being regulated by State insurance commissions, is still very difficult for most folks to read through (much less understand). It’s even hard for most insurance professionals. First, I would say that there are differences on the service you should expect depending on the type of insurance you are buying. An auto insurance agent, for example, could be an advocate for you if you have an accident. A life insurance agent, assuming your beneficiaries know who it is, could be an important and stabilizing presence for your beneficiaries if you were to die unexpectedly. So let’s now examine if the roles of the independent insurance agents and brokers are still necessary in the world of insurance.
Advantages of independent insurance agents and brokers.
1. So let’s begin by saying that we are all well versed with how high insurance costs can be. So the question is, what more would you pay if this insurance agent was actually paid on full-time basis. It means that your insurer would have to transfer all those costs on you. With in-house employees paid a yearly salary + benefits + employment taxes, would only translate to one thing- increased cost of insurance. So this is where an insurance agent or broker comes in, they are not paid a salary, but a commission from the money that you pay the insurance company.
2. Insurance agents and brokers who have access to multiple insurance carriers are able to help you choose the best policy to fit your needs. Unsurprisingly, insurance policies are not all created equal. A good agent will work to understand your needs and match you with the carrier & insurance policy that provides you the best coverage and value for your dollar.
3. A good agent will also be there to help you in the unfortunate event that you need to make a claim. I say unfortunate, as insurance should never be thought of as an investment. Expecting a “return” on an insurance policy is not something you should do.
4. Your insurance agent should be able to evaluate, educate and advocate….evaluate your exposure to loss, educate you on the potential ways to reduce and finance those exposures and advocate for you if something does go wrong.
5. An independent insurance broker or agent is indeed a service company. They have access to wholesale insurance that the public do not from independent insurance companies. They have buying power so can negotiate competitive rates. They have expertise – and represent your interests to the insurer.
6. As far as domestic insurance goes, it’s mostly about buying power. Agents tend to secure the best deals and run schemes with insurers where they take some of the workload from the insurance company, handle claims under a delegated authority, and save them money – thereby securing even cheaper rates, with wider cover, for their buyers.
7. A good agent is worth their weight on gold. They can help you avoid lawsuits, save unnecessary premiums, protect against unforeseen risk, and provide education on other aspects of your business which touches that product.
8. I must add that sometimes there are mistakes. Where there are people, there are mistakes. Maybe a company could issue the wrong policy, maybe they would deny a claim that should be paid, maybe the courier was late, etc. Agents (GOOD agents) help you deal with this things. You get advice in every step, you get an auditor of the process, and you get the help from a person that has a long relationship with an insurer (which you don’t), knows the players, and knows the game.
Disadvantages of independent insurance agents and brokers
1. Successful agents (those that are more educated, personable, and get more referrals) will tend to be full service agents; less successful agents will be discount brokers. So you will pay less for your coverage, but you will likely get a lesser level of expertise.
2. Discount agents will constantly need new clients, so they will have to spend more money on marketing or time on prospecting, lowering their net income and the time they have to spend helping new clients pick a policy. They would likely start to focus on higher paying (full service) customers rather than discount customers, or some would go out of business in a race to the bottom. Full service agents wouldn’t lose that much business.
3. In addition, insurance companies offer incentives to agents who produce higher volumes. So discount agents would be incentivized to have most of their clients sign with one company, to the detriment of their clients. I know this would happen because there are agents now who are paid the current full commissions and still recommend inferior products to get the extra incentives. It’s already happening and will only get worse with lower commissions.
4. They don’t get you better prices. Rates and insurance premiums are filed with and regulated by your country or state’s department of insurance. Whether you buy directly from the insurer, your local agent or independent agent, you’ll pay the same monthly premium for the same plan.
5. Finally, there is no such requirement on agents as completing a certification, they operate entirely under the authority of the insurer and without regulation beyond the general regulations governing insurers