Insurance intermediary

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),
  • self-employed,
  • insurer-employed.
• 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.

Fig.1.The role of insurance intermediary

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.

Examples of Insurance intermediary

• Insurance Broker: An insurance broker is an intermediary that works on behalf of the policyholder to find the best coverage for the most competitive price. Brokers are licensed representatives who work with a variety of insurance companies to compare policies and prices for their customers. They provide advice and guidance on selecting the right insurance coverage for the policyholder’s individual needs.
• Insurance Agents: An insurance agent is a licensed representative of an insurance company who helps customers find the right type of coverage and helps them to understand the terms and conditions of the policy. Agents have a fiduciary responsibility to act in the best interests of their clients and provide advice and guidance on selecting the right policy.
• Insurance Consultant: An insurance consultant is a professional who provides independent advice to clients on the selection of insurance products. They are typically not affiliated with any particular insurance company, but rather can provide objective advice on what policies are best suited to their clients’ needs.
• Insurance Advisor: An insurance advisor is an intermediary who works closely with clients to understand their needs and then provides advice on the selection of the best policy. They typically act as a go-between for the insurance company and the policyholder to ensure that the best coverage is selected and that the policyholder understands the terms and conditions of the policy.

Advantages of Insurance intermediary

An insurance intermediary is a legal entity that facilitates the placement and purchase of insurance, and provides additional services to both consumers and insurance companies. There are several advantages to working with an intermediary, including:

• Professional advice and assistance: Working with an intermediary gives you access to a professional who can provide expert advice and assistance in navigating the insurance process. They can help you select the right policy, explain the coverage options, and even negotiate with the insurer on your behalf.
• Cost savings: As an intermediary can often source insurance policies from multiple providers, they can often help you get the best deal for your budget.
• Time savings: Intermediaries can often help you save time by helping you complete the paperwork and submit the application much faster than attempting to do it yourself.
• Flexibility: An intermediary can often work with you to customize the coverage to fit your unique needs, which can make it easier to get the coverage you need without having to pay for extras that you don’t need.
• Access to resources: Insurance intermediaries can often provide access to resources and contacts that you may not have access to on your own. This can make it easier to get the coverage you need quickly.

Limitations of Insurance intermediary

Insurance intermediaries have certain limitations when it comes to assisting with the placement and purchase of insurance. These limitations include:

• Lack of expertise in certain areas: Insurance intermediaries are not necessarily experts in all forms of insurance, so they may not be able to provide advice on certain types of insurance coverage.
• Conflicts of interest: Due to their commission-based structure, insurance intermediaries may not always be impartial in their advice.
• Limited access to certain insurers: Insurance intermediaries may not have the same access to certain insurers or may be restricted in the types of policies they can place.
• Regulatory restrictions: Insurance intermediaries may be subject to various regulatory restrictions and requirements, which could limit their ability to provide certain services.
• Limited geographical reach: Insurance intermediaries may only have access to certain markets and insurers in their local area, which may limit the range of policies they can place.

Other approaches related to Insurance intermediary

An insurance intermediary is a legal entity that facilitates the placement and purchase of insurance, as well as providing additional services to both consumers and insurance companies. Other approaches related to insurance intermediaries include:

• Risk Management: Intermediaries assist in assessing and managing risk, providing advice on how to best manage any risks that may arise.
• Claims Handling: Insurance intermediaries also provide assistance with filing, processing, and settling insurance claims.
• Insurance Brokerage: This involves helping to identify, compare, and select insurance products that best suit the needs of the customer.
• Policy Servicing: Insurance intermediaries assist with policy servicing, such as providing advice on policy renewals, cancellations, and changes.

In summary, an insurance intermediary is a legal entity that facilitates the placement and purchase of insurance, as well as providing additional services to both consumers and insurance companies, such as risk management, claims handling, insurance brokerage, and policy servicing.

Footnotes

Insurance intermediary — recommended articles

Reinsurance broker — Direct writer — Law firm — Export management company — Local agent — Agency Broker — Commercial mortgage broker — Trade house — Mercantile agent

References

• 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