The terms insurance agent and insurance broker may seem to mean the same thing. The two terms are close, but there is a distinction. Many times, we will use the term insurance agent when referring to agents or brokers for the sake of simplicity.
Insurance agent vs. broker: The difference
The term insurance agent refers to a person who sells insurance for a single company. Usually an agent is bound by contract to sell insurance for that company and no one else. In fact, if an agent sells insurance policies for another company, that agent could lose his or her agency.
An insurance broker is independent. A broker may sell policies from an assortment of companies with which that broker has partnered. A broker might also choose to partner with an independent insurance group, which also provides a selection of insurance companies to work with.
It’s unlikely that a broker will have access to the same companies typically represented by agents. This includes several of the brand name insurance companies we see advertised daily.
As consumers and customers, we expect our agent or broker to represent our needs. You might be an expert in your field. Agents and Brokers are experts at insurance. We trust experts to guide us well, be thorough, and to look out for our best interest. The business model of each creates some advantages and limitations in that regard.
Working exclusively with one company, an insurance agent should know the details of the policies offered inside and out. That agent is selling the same policies all day, every day. Reaching this level of knowledgeability can be more difficult for an insurance broker who offers several brands.
In practice, however, product knowledge is dependent on the agent’s or broker’s desire to be knowledgeable. Many agents make the habit of learning their competitors’ products as well as their own, while some only know enough about their own product to keep making sales.
Insurance Agents: One size fits all?
If you go to an insurance agent for a quote on homeowners insurance, that agent will probably only have one product available for you, and it’s likely that the insurance company he or she represents is a household name. Brands do still matter to some people, and the brand offered might meet your needs adequately.
Some insurers that utilize agents to sell their brand have also begun to offer some outside products or partner with brokers. Selling only one brand has its limitations. Insurers know that other products can present a better value than their offering or address a different market. Rather than change their underwriting criteria or introduce a new product within their brand, some insurers partner with brokers or other companies to offer a broader selection.
Does an insurance broker offer a wider variety?
If you go to an insurance broker while shopping for homeowners insurance, that broker can usually offer several options. However, for a particular type of insurance, it’s likely that you won’t hear about several options. You’ll learn about one or two choices.
In theory, there is a broader selection of insurers when working with a broker. In practice, it would be a very long conversation to discuss every option available. It doesn’t happen often. The conversation will begin with two or three choices and quickly be narrowed down to one. If the rate is high or you don’t qualify for that policy, a broker may have other options for you.
The policy that an independent insurance broker writes for you might be with an insurance company you are unfamiliar with. Insurance is regulated by your state and it isn’t likely that the recommended company will go out of business tomorrow. It’s just a smaller or newer brand.
It’s all about the trust.
There are advantages and disadvantages to working with either an insurance agent or an insurance broker. Insurance agents or brokers are advisors whom we should trust. In fact, one of the major insurers uses a slogan similarly worded.
Unless you have a preference for a brand that is only available through an agent, you’re likely to find that either an agent or a broker has a product that meets your needs well, but that none of the products are as perfect as you’d hoped. When you’re shopping for insurance, contact a few people. They might be agents, brokers, or a mix of both. Find someone you trust to represent your needs and invest your time with that person. Whether they are an agent or broker is of less importance than whether they advocate for your best interest.