An insurance broker (agent)
sources (brokes) contracts of insurance on behalf of their customers.
Insurance brokerage in the UK
The term Insurance Broker
became a regulated term under the Insurance Brokers (Registration) Act 1977
which was designed to thwart the bogus practices of firms holding themselves as brokers but in fact acting as representative of one or more favoured insurance companies. The term now has no legal definition following the repeal of the 1977 Act. The sale of General Insurance has been regulated by the Financial Services Authority
since 14 January 2005. Any person broking insurance can now call themselves an insurance broker.
Insurance brokerage is largely associated with general insurance (car, house etc.) rather than life insurance, although some brokers continued to provide investment and life insurance brokerage until the onset of more onerous Financial Services Authority regulation in 2001.
Insurance broking is carried out today by many types of organisations including traditional brokerages, Independent Financial Advisers (IFAs) and telephone or web-based firms.
Insurance brokerage in the United States
Insurance brokerage in the United States is also a regulated industry, with almost all states individually issuing brokerage licenses. Most states have reciprocity agreements whereby brokers from one state can become easily licensed in another. There are exceptions to this, most notably in the case of Hawaii
, where all licensed brokers must live on the island.
Because of industry regulation, smaller brokerage firms can easily compete with larger ones, who are forbidden by law from providing their customers with rebates or other discounts on the policy prices of insurance companies. For this reason, the United States is home to many different notable insurance brokerage firms.
Brokers play a significant role in helping companies and individuals find property and casualty (liability); life and health insurance. For example, research shows that brokers play a significant role in helping small employers find health insurance, particularly in more competitive markets. Average small group commissions range from 2 percent to 8 percent of premiums. Brokers provide services beyond insurance sales, such as assisting with employee enrollment and helping to resolve benefits issues.
Insurance broker vs. agent in the United States
Though not an absolute separation; an agent is an insurance company's representative by way of agent-principal legal custom. The agent's primary alliance is with the insurance carrier, not the insurance buyer. A broker generally has no contractual agreements with insurance carriers and relies on common or direct methods of perfecting business transactions with insurance carriers. This can have a significant beneficial impact on insurance negotiations obtained through a broker.