Wednesday, February 22, 2017

Must know: Agent versus broker

The world of insurance runs on agents and brokers. Know about them for a better understanding

By OLM Desk

For decades insurance agents have been at the forefront of championing the need for insurance. However, these days, agents are perceived to be some sort of middlemen out there to rip you, which may not be the case. Insurance agents are people who represent the insurer. They are hired and trained by insurance companies so that they understand basic insurance concepts and all products that are offered by the company to be better equipped to sell them to prospective policyholders.

Insurance agents are somewhat similar to sales executives at car showrooms or at an apparel store; they are there to sell products and would know everything about what they are selling. They would also go that far to suggest what may work for you. But unlike the salesman who won’t sell you a size 40 shirt when 42 is what works for you, agents may get pushy to sell you something which may not necessarily be your fit. Remember that the best salesman is one who can convince a bald man into buying a comb as much as they can sell sand to a hot dessert resident.

Although agents are trained and licensed as per the rules stipulated by the regulator IRDAI and can only represent one insurer from a sector. This means an agent can sell products of one life insurer or one general insurer and one health insurance company. An extension of the individual agent is the corporate agent – entities like banks and in some cases divisions within an insurance company that function like the individual agent does. Corporate agents can sell policies of up to three insurers in the same line of business, which means they have a wider choice of products that they can pitch to you.

Insurance brokers

Unlike agents who represent insurance companies, brokers work in your interest. Ideally, an insurance broker must have tie-ups with multiple insurance companies and still have a fiduciary responsibility towards you. They should be accountable to products they recommend you. A broker evaluates your insurance needs and based on this evaluation lists out the amount of insurance you need before suggesting policies from insurance companies that meet your needs. They are mandated to share with you more than one insurer’s product and price before zeroing on a product for you.

It does not mean that agents have no accountability. Insurance companies appointing agents are responsible towards the acts and omissions of the agents. In fact the Insurance Amendment Act of 2015 says that insurers will be responsible for all the acts and omissions of their agents and that they shall be liable to a penalty of up to Rs 1 crore for such acts and omissions of their agents. However, this is not applicable in case of corporate agents, who are directly regulated by the IRDAI.

The other difference between agents and brokers is the commission that earn on sale of a policy. The commission for agents is normally higher than what brokers earn. As brokers can charge you a fee for the advice of zeroing on the best policy that meets your needs, they have a window to make up for any loss that they may have on earnings from the commission an insurer pays on sale of policies through this option. These days insurance brokers, especially those handling life and health insurance, which are in the interest of individuals act through the online mode. So, every time you visit a website like Policybazaar, InsuringIndia or CoverFox, you are actually using the services a broker. It is a different matter that once you register at any of these portals, chances of being inundated with calls to purchase a policy can be irritating, but more of that in a different piece. 

 

olmdesk@outlookindia.com

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