Many people wonder what in the world is the difference between an insurance agent and an insurance broker. Some people say, “Use a broker,” others say, “Trust your agent!” Who’s right and what is the difference between them?
While the terms are thrown around to people like they’re the same thing, they aren’t. The differences, while small, are important to know.
An agent is a term used when a person can legally represent an insurance company, and sells or services insurance policies for the company. There are two basic types of agents-captive agents and independent agents.
This term is usually used when an insurance agent represents one insurance company. Even though the captive agent represents one company, that company might have lots of other companies.
For example, State Farm Insurance(R) has several different companies and they all have the “State Farm” name as a part of their name. This is not always true; a company can have many companies under it and not share the same name at all.
Another example is Farmers Insurance (R). They sell insurance under many different names, including Farmers Group Inc., Fire Underwriters Assoc., Fire Insurance Exchange and Mid-Century Insurance Company. The name “Farmers” isn’t even a part of some of their names.
This agent has contracts with multiple insurance companies, not just one (or perhaps two). Many times an independent agent is referred to as a broker because they do represent more than one company so they can “shop around” for the best deal on insurance coverages.
Using the Chubb Group of Insurance Companies, they have many different insurance companies under their control. Here are just two to give you an example: Federal Insurance Company and Great Northern Insurance Company. None of these has “Chubb” in their name, but they’re all part of the Chubb Group.
Independent agents usually deal with many different insurance companies to give you the most bang for your buck! But, it’s equally important to remember that while independent agents can represent many different companies, few if any represent all insurance companies!
Another person in the insurance marketplace is a broker. According to dictionary.com, a broker can be defined as, “a person who functions as an intermediary between two or more parties in negotiating agreements, bargains, or the like.”
If it sounds familiar, that’s because it’s very close to the definition of an independent agent, as listed above. Many people use the terms “broker” and “independent agent” interchangeably and that’s ok.
Brokers also work with very large companies, such as those on the Fortune 500 list. They can usually approach any insurance company to find out about insuring that very, very large company. Instead of being paid a commission, they may simply charge a fee for their services. But this isn’t practical for the average company.
Regardless of whether you buy insurance from an agent, captive agent, independent agent, or broker, that person is paid a commission based upon your policy. Now you know the difference between agents and brokers! When you’re shopping around for insurance, you can ask which companies someone represents so that you are sure to get quotes from several different sources when looking for coverage.
Farmers Insurance: www.farmers.com
State Farm Insurance: www.statefarm.com
The Chubb Group of Insurance Companies: www.chubb.com