Insurance intermediary is a legal entity that assists on the placement and purchase of insurance. It also provides additional services both to consumers and to insurance companies that complement the process of insurance placement.
Classification of insurance intermediaries
Depending on the manner in which insurance intermediaries function in a marketplace, two main groups of them can be distinguished:
- Insurance agents - they are entitled to lead business transactions on behalf of insurance companies. Insurance agents speak for the insurers during the insurance process and they generally comply with the regulations of an agency agreement with the insurer. Insurance agents can work in different forms:
- independent (cooperating with several companies),
- exclusive (also called captive agents or direct writers, they are cooperating with only one particular insurance company),
- Insurance brokers - they are the entities that usually perform insurance services for policyholders and are independent on the insurers. Brokers support and assist their clients with choosing the most suitable insurance alternative. In order to place coverage for the clients, insurance brokers tend to work with multiple companies.
In some markets, insurance brokers are divided into different groups depending on which type of insurance they are licensed to intermediate, for example property insurance, casualty insurance or life/health coverage. Another division of insurance brokers is the division into retail brokers, who lead insurance transactions directly with the customers, and wholesale brokers, who conduct these transactions not directly with the customers, but with retail agents and brokers.
Role of insurance intermediaries
The main role of insurance intermediaries is to match insurance products or risk management systems to their client's needs. Therefore, insurance agents and brokers should possess a wide knowledge and access to the insurance marketplace. Moreover, brokers’ ability to find the most suitable coverage with the best conditions at competitive fees is crucial during the process of insuring one's businesses and business ventures. Insurance intermediaries assess not only the insurance products, but also the insurers in terms of their solvency or the quality of their customer service and claims-paying record. Furthermore, insurance intermediaries emphasize and support modern risk management services in order to provide their clients with alternative methods of insuring their assets. Another duty of brokers is to speak for the consumer during transactions with the insurance provider or underwriter. Finally, insurance intermediaries provide their clients with additional services, such as claims and risk control services or research end development.
Insurance intermediary compensation
Two main types of insurance intermediary compensation can be distinguished:
- Commissions - this type of compensation is one of the most popular among insurance intermediaries. The amount of the commission paid to the intermediaries by the insurers and reinsurers is usually determined as a percentage of the premium associated with the business placed. One of the types of commissions are contingent commissions which vary by several factors, for instance by carrier, the volume and type of business or the loss experience of business placed with an insurance carrier.
- Fees - insurance intermediaries can be additionally paid fees by their clients, for example for representing them during the process of identification and placement of insurance and also for the additional, insurance-connected services, for instance special risk analysis.
- United Nations Conference on Trade and Development (2007) Trade and Development aspects of insurance services and regulatory frameworks, United Nations, New York and Geneva, p.346
- Beh H., Willis A. (2008) Insurance intermediaries, “Connecticut Insurance Law Journal”, Vol. 15:2, p.574-579
- Insurance Information Institute (2004) Background on Insurance Intermediaries, p.5
- Insurance Information Institute (2004) Background on Insurance Intermediaries, p.7-10
- Beh H., Willis A. (2008) Insurance intermediaries, “Connecticut Insurance Law Journal”, Vol. 15:2,
- Dionne G., Harrington S. (2017), Insurance and Insurance markets
- Insurance Information Institute (2004) Background on Insurance Intermediaries
- Latorre M.A. (2015) Shedding the Light on Insurance Brokers’ Remuneration: the Role of the Fees, "Opción", Vol. 2
- United Nations Conference on Trade and Development (2007) Trade and Development aspects of insurance services and regulatory frameworks, United Nations, New York and Geneva
Author: Marta Łazarz