A person or business seeking insurance typically contacts an insurance producer, which is a broad term for an insurance agent, insurance broker, or other insurance representative who is authorized to sell insurance. Often, the terms are used interchangeably, but there are crucial differences between an insurance agent and an insurance broker. Whether a person or business seeking insurance contacts an insurance agent or contacts an insurance broker, the process of obtaining insurance begins with the prospective insured submitting an application for insurance. However, an insurance agent represents the insurance companies—or looks for clients who will buy insurance products—while an insurance broker looks for insurance products that will meet their clients needs.
The insurance agent assists the potential insured in filling out the application and then submits the application, on behalf of the applicant to one or more insurers. The insurance company or companies will then submit a proposal or offer of insurance to the agent, who then explains the difference in the proposals to the applicant. Often, a proposal might begin with disclaimers or disclosures highlighting the terms and conditions of the coverage offered, however, it is not meant to be all inclusive. The insurance agent is licensed by the state or states in which he, she, or it does business and may be authorized by a carrier or multiple carriers to transact or bind a client to a policy. The agent in return is paid by the insurer from a percentage of the premium—anywhere between 5 and 15 percent.
An insurance broker offers, negotiates, and sells policies to a person or business seeking insurance. The broker acts as an intermediary between insurers and customers but has a duty to act on behalf of and in the interest of customers—not the insurer—though a broker may have relationships with one or multiple carriers. The broker’s duty is solely to the applicant to apply for and negotiate the best possible insurance for the applicant, the broker’s client. The broker submits the client’s application to various insurance markets and then will organize those proposals received and present the options to the client. The broker has a responsibility to indicate the terms and conditions included, and those that are not included. Then it is up to the applicant to choose which proposed policy best meets his or her needs. In return, the broker will expect to receive a fee from the applicant and may also receive commission paid by the insurance company.