What Does an Insurance Agent Do?
The way people buy insurance is changing. More and more, people do their own research online and make purchasing decisions without consulting a professional. This is happening in every area of life, and the insurance industry is no exception. For many people, however, insurance remains a complex and complicated area, and they want guidance when it comes to understanding insurance terminology and learning which companies and which plans offer the best fit for their needs. Much like most people still rely on real estate agents and brokers when buying or selling or house, it is still quite common to seek out an insurance agent or broker when buying an insurance policy, whether for health, life, long-term disability, or other types of policies.
Read on to learn more about what insurance agents do, the difference between insurance agents and brokers, and facts about agent and broker negligence or malpractice.
Insurance Agents Sell Insurance
If you get health, life or disability insurance through your employer, then all you do is sign up with whatever group plan your company has chosen, and it’s up to you (or your company’s HR department) to read and understand your policy. If you are buying insurance on your own, there is a lot more to consider. You probably know about deductibles, but do you know the difference between terms like co-pay and coinsurance? What about stop loss or lifetime maximums? Which company offers the best customer experience? What plan is right for you?
Insurance agents know the answers to all of these questions because they sell insurance policies for a living. An insurance agent should be able to answer any questions you have regarding insurance in general or a specific type of policy.
Independent or Captive Agents
Be aware when looking for an insurance agent that there are two kinds of agents generally: independent agents who have their own business, and agents who work for a particular insurance company. These latter agents are known in the industry as captive agents; they work for one company and only sell products offered by that one company. An independent insurance agent, on the other hand, can sell you an insurance policy from several different types of companies.
You might immediately think you’ll get a better policy from an independent agent because they are not beholden to a particular agency, but there are a couple of things you should know. One is that even independent agents only work for a select number of companies. The other is that independent agents, just like captive agents, get paid by the insurance company on commission for every policy they sell. Your options are a little broader with an independent agent than a captive one, but the structure of the relationship between the agent and the insurer, and the relationship between the agent and you, are basically the same.
There are advantages to using either independent or captive agents. An independent agent will be familiar with more companies but might have less knowledge about individual plans since they deal with so many. A captive agent will know everything there is to know about the policies provided by the company they work for. If your research leads you to a reputable company you trust and want to use, then using an agent from that company can be useful in getting the right policy that meets your needs.
What Is the Difference Between an Agent and a Broker?
You might think agent and broker are two terms for the same thing, but that’s not the case at all. Agents sell insurance policies. Whether they represent one company or several, they have contractual arrangements with these companies to sell certain products, and they receive a commission every time they sell a policy. Never forget the agent represents the insurer. They might explain different policies to you, but it is really not their place to advise you on what you need or what plan you should purchase. This is a gray area for consumers, who often feel like the agent is working for them, and that they can and should rely on the agent for advice.
A broker, on the other hand, does work for the consumer. The broker’s job is to help consumers find the policy they need. The broker can and should advise you on your options and steer you toward a plan that meets your needs; that is their job, and they have a duty to be loyal to you and act in your best interests. However, the broker, like the agent, is also paid a commission from the insurance company when the broker sells a policy. Sound like a potential conflict of interest? This is another gray for consumers; if they wind up with the wrong policy, they might wonder whose interests the broker was looking out for.
Another difference between agents and brokers is that agents handle the whole process of taking your application and completing the transaction, known in the industry as binding coverage. A broker cannot bind coverage. They can get quotes and find you the best price for the coverage you need, but it’s up to the insurer and insured to complete the transaction without the broker’s involvement.
Agent and Broker Negligence
Agents and brokers are both licensed professionals who can be held liable for negligence and even be sued for professional malpractice.
Under general principles of negligence, agents and brokers must use reasonable care, diligence and judgment when helping consumers get an insurance policy. If an agent fails to turn your application in to the company to bind coverage, or binds the wrong type of coverage than you were expecting, they could be liable to you for any damage, such as if you experienced an event that should have been covered but wasn’t because your coverage wasn’t active or was wrong.
California law also prohibits agents and brokers from making misrepresentations to the consumer. For instance, they can be liable if they misrepresent the nature or scope of coverage you are getting, and they must disclose all material facts about the policy. Brokers might have additional duties as well if they hold themselves out as experts or having specialized expertise in the particular area of insurance you are looking for.
Keep in mind that an individual might be both an insurance agent and a broker, depending on the situation, and some businesses operate as both insurance agencies and insurance brokerages. This can be especially confusing to the consumer who is unsure what role the professional is playing and whether they can rely on the person for advice.
If you were denied coverage you applied for, if your policy was canceled or rescinded, or if you got the wrong coverage, you might have a negligence claim against the agent or broker. If you were steered toward a policy that wasn’t in your interest, then you might have a malpractice claim against the agent or broker. It might also be the insurance company itself acting in bad faith in denying your claim and not the fault of the agent at all. An experienced insurance law attorney can help you sort out who is at fault and what types of damages you can recover from the responsible party.