How the Difference Between an Insurance Broker and Agent Affects You

Although people tend to confuse insurance agents with brokers, the two are different. The difference isn't just academic; it can have a substantial impact on your car-insurance issues. Here are three major differences between agents and brokers and what the differences mean to you.

What They Do and Who They Represent

Both insurance agents and insurance brokers act as intermediaries between you and the insurance company. However, the agent's duties are mainly administrative. This means the agent is just there to process your insurance papers. In essence, agents (even the independent ones) work for insurers by selling their policies.

The broker also performs the same duties as the agent, but they go a step further to ensure that you have the best coverage for your risks. This means the broker will analyze your business and advise you on the type of coverage you need. The broker isn't just there to process forms; they make sure you have the best level of coverage for your situation. In this sense, brokers work for the insured since they seek the best coverage for you.

Liability They Carry

Due to the difference level of services they offer, agents and brokers also carry different liabilities for their clients. An agent will only be liable for losses that stem from their mishandling of their administrative duties. For example, your agent will be liable for any losses you may suffer if they don't submit your papers to the insurance company in time.

However, a broker has the responsibility of assessing your risks and ensuring that you are fully covered against them. A broker who doesn't do this fails in their duty and becomes responsible for any damages you may suffer as a result of their negligence. For example, if your region experiences frequent floods, it's the broker responsibility to inform you if standard home-insurance coverage doesn't carry flood insurance so you can purchase it separately or add it to your standard coverage. The broker fails in their duty if they don't furnish you with this information.

Level of Training and Knowledge

As you can see from the above discussions, brokers and agents have different levels of responsibilities. Because of this, brokers require specialized training that agents may not require. Brokers also have licensing requirements that they must acquire and maintain if they wish to retain their licenses. This is why brokers tend to have higher levels of insurance knowledge.

Both agents and brokers have their uses. For example, you can use an agent if you know the coverage you want and just want someone to help you buy it. Alternatively, consult a broker if you just know you need insurance coverage but aren't sure on the appropriate level of coverage or type of policy.