Most people think of an insurance agent as the person who sells insurance. That’s a decent insurance agent definition, but it’s important to note that an agent signs a contract to represent an insurance carrier. As a representative of a carrier, an insurance agent has the authority to sell its policies and bind the coverage – essentially confirm it’s in force. In return, the carrier gives the agent a sales quota and pays them a commission
Perhaps the best way to think of an insurance agent is as an extension of the insurance carrier. The insurance agent’s purpose is to drive business to the insurance carrier they represent.
There are actually two types of insurance agents: captive and independent. A captive agent works for just one insurance company as either a full-time employee or an independent contractor. Captive agents usually get administrative and sales support from the carrier that hires them, but they can’t sell policies from other carriers. In fact, they also don’t even have access to other carriers’ information so they can’t give their clients quotes to compare.
Independent insurance agents can work with more than one insurance carrier. Like captive agents, independents sign contracts with carriers, so they also act on behalf of the insurance companies and not the consumer. Because they usually contract with multiple carriers, independent agents are better able to offer their clients a choice between policies with different coverage benefits and premiums.
If you’re shopping for insurance, you may have also come across insurance brokers. They’re also intermediaries between consumers and carriers, but the difference between insurance agents and brokers is who they work for. While agents work on behalf of the insurance carriers they contract with, brokers represent the consumer or business seeking insurance. In fact, brokers owe a fiduciary duty to their clients.
Even independent agents who can contract with several carriers work on behalf of the insurance carrier. Brokers, on the other hand, look for the best policy on the market to fit the needs of the consumer. Because they don’t represent an insurance carrier, brokers can’t bind an insurance policy. Instead, they locate the best policy and then submit an application to the insurance carrier for approval.
Both insurance agents and brokers make a living by earning commissions on the policies they sell. Unfortunately, this drives up the costs of the insurance. Think about the commission paid to an agent. It might be anywhere from six to 12 percent or more from the carrier which factors that cost into the premium it charges.
Rather than going through an agent or broker, consumers can buy insurance directly with many carriers. And there’s a good reason to do so: cost-savings. Insurance carriers don’t have to pay commissions when you buy directly from them, and sometimes they pass that savings on to you.
Saving money is certainly the biggest plus to buying policies directly from an insurance carrier. But there are other benefits to consider as well, including:
Direct-to-consumer options can save you money on your homeowners insurance, but you still want to work with a quality carrier with representatives that can make sure you’re getting the appropriate coverage.