Have you ever heard the phrase, “It’s as easy as ABC”? Well, in the insurance industry ABC it’s actually quite difficult to understand; and that’s not by accident. This article addresses the little known secrets behind our industry’s ABC’s (Agents, Brokers & Carriers) so you can make informed decisions about how to best protect yourself, your family, your business, etc.
Like most industries, there are two sides to insurance; the “wholesale” and the “retail” sides. To keep matters simple, the wholesale side is the manufacture of the product called insurance, while the retail side is the distribution channels to take the product to the general public. This is where the ABC’s of insurance, and how this impacts you, come into play. So before we begin, here are three questions to keep in mind as you read this article.
Question #1 - “How do I want to be considered?”
Question #2 - “Do I want to be professionally represented?”
Question #3 - “Do I need more than just an insurance policy?”
It is important to note that, while there are different kinds of Insurance Professionals, all are required to have a valid Insurance License for the state they are working in. This means all Insurance Professionals have to: a) received formal training in the field of insurance, b) passed a stringent FBI and State background check, and c) pass the State Examination. Once the State Department of Insurance approves and issues the license the Insurance Professionals are officially able to legally representative either an insurance Carrier or a Client. This is where the ABC’s gets interesting.
Addressing Q1 - “How do I want to be considered?”
According to the American Heritage Dictionary a “customer” is someone who buys goods or services from a store or business. While the world “client”, which can also mean “customer”, contextually does not flow in the same direction. The actual definition of word “client” is reserved to someone who has engaged in a professional relationship with an advisor, receives professional advice and services, and who is in a less transactional relationship than that of a “customer”.
Addressing Q2 - “Do I need to be professionally represented?” (ABC’s - Agent, Broker, Carrier)
“A” - Agent – Insurance Agents are considered to be on the Retail side of the industry. Typically, an Insurance Agent functions as a hired representative of an Insurance Carrier in order to sell insurance to customers. Insurance Agent usually obtain jobs with a Carrier straight out of insurance school. The Carriers usually train Insurance Agents on their product-lines, teach them how to write business, and service customers. Insurance Agents enter the market ready to sell the Carrier’s products while climbing the ladder of success to become an Agency Owners. There are two types of Insurance Agents - “Captives”, who are hired by only one Insurance Carriers and “Non-Captive” who can be hired / represent more than one Insurance Carrier. There are many benefits to using an Insurance Agent, with the biggest being a high uniform level of service. The key things to remember when dealing with Insurance Agents are: a) They tend to compete on insurance premium price, b) they represent and work for the Insurance Carrier(s), c) tend have good customer service. One of the biggest issues to working with an Insurance Agent is that they tend to have limitations for solutions.
“B” - Broker - Like Insurance Agents, Insurance Brokers are also on the Retail side of the industry but most of them have chosen to be brokers because they are also Advisors to their client. Insurance Brokers and Insurance Agents differ in many ways. To be an insurance broker requires success in the insurance industry determined by the Carriers. Carriers do not hand out Broker Status fresh out of school, nor can you usually buy into a Broker Position. Agents have to earn Broker Status by having usually 5+ years of experience and a significant book of business. While Insurance Brokers have Broker Contract with Insurance Carriers they usually are not under any sales-quotas like their Captive / Non-Captive Agent counterparts. Usually Insurance Brokers have access to significantly more Insurance Carriers than Insurance Agents and tend to specialize in certain types of insurance. Brokers tend to custom design policies to meet a client’s need, then they shop that design for the best price. The key thing to remember is that Insurance Brokers represent Clients.
“C” - Carrier - Carriers are on the wholesale side of the insurance industry. They want you to believe you can save money by buying directly from them and bypassing Insurance Agents or Insurance Brokers. This is where “cutting out the middle man” does not always save you money but rather can put you in liability situation you may not realize until it’s too late. Where Insurance Agents represents carriers and Insurance Brokers represent clients, both are interacting with the end users in at least one way. Insurance Agents and Insurance Brokers are designing the policy on behalf of the customer or client. Too often when you buy directly from the Insurance Carrier, you are the one designing your own policy. This can be very dangerous if you do not know what you are doing. If you insist on doing it yourself, my suggestions is to at least have an Insurance Agent or Insurance Broker look it over before you implement any policy.
Addressing Q3 - “Do I need more than just an insurance policy?”
I consider myself to be a Professional Insurance Advisor with over 20,000 hours of business consulting experience. Needless to say, I am a fan of insurance considering I am the Founder and Principal Partner of an Insurance Advisory firm and brokerage. All this to say that I am also the first to tell my clients that Insurance is never the answer but rather that Risk Management is the answer. Most business owners have the mentality that, "I have insurance, so I'm good." This is a dangerous mentality because insurance policies are not dynamic. However, if an owners approach is Risk Management, which is dynamic, the odds of them having a stagnate policy is reduced significantly because they are constantly paying attention to it. Consider working with insurance professionals skilled in the craft of Risk Management and you will position yourself better
Here are the TOP 5 Reasons to use an Insurance Broker.
#5 - Best in Personal Relationship - Traditionally, this is the #1 reason clients start to work with Professional Independent Insurance Brokers. The understanding a broker has on your insurance needs are phenomenal. Believe it or not, the reason personal relationships fall to #5 is because once clients experiences the real reasons with working with Insurance Brokers, this is the last reason on their mind.
#4 - Best in Quality of Service - This has a lot to do with how Insurance Brokers function in general, as opposed to Insurance Agents. Insurance Agents tend to be more transactional in that they represent an Insurance Carrier and sell product to customers. Insurance Brokers, on the other hand are more relational as they have clients vs. customers. Insurance Brokers tend to have several Carriers they work with and they tend to select those Carriers on several factors including quality of products, underwriting, as well as Client Services. By having quality carriers, Brokers are able to concentrate on making sure their clients are cared for.
#3 - Best in Client Satisfaction - Client Satisfaction is purely based on whether a client is happy at the end of a situation. The worst situation a client can be in is when a claim occurs and the client processes the claim. It should come as no surprise that the way you buy insurance is the same way you process your claims. In other words, if you purchase insurance by way of using a computer mouse, the likelihood, is that you will have to process your claim in the same way. This is where both Insurance Agents and Insurance Brokers have the distinct opportunity to share in the advantage. However, again Insurance Brokers dominate this section. The reason is simple. Insurance Brokers have a vested interest in keeping a client at their firm regardless of the carrier. You are apt to get better Claim Service knowing the Insurance Broker wants to keep business.
#2 - Best in Cost - (For this section I differ to an article I read recently about a consumer based study on this topic. Written by Adam Bishop, February 25, 2010 it illustrated the results of an IT, Risk Management, and Insurance Software development company’s interview of their client base. Here is their findings when they researched the matter of cost.) “The reason for this (better cost) seems to be principally due to insurers providing different rates to brokers, in order that premiums are lower. Why would insurers provide special broker pricing? Simple: because the risk is lower for the insurer. Brokers are professionally trained to choose the right policy for their customers, and not to under insure, therefore avoiding unnecessary claims while maintaining the correct premium income. ‘Cutting out the middle man’ it seems, does not save money this time. On the contrary!
#1 - Best in Consultation - It all comes down to prioritization. If your priority is to be serviced and taken care of, using an Insurance Broker is your best option and in your best interest. If your priority is in branding or product loyalty, then an Insurance Agent is a better fit. If your priority is more of a DIY then Click-It is a good place to start. Ultimately, the Consumer makes the decisions here because the Consumer holds all the liability at first. That being said, an Insurance broker is ideal regarding the 4 Cs that we have discussed in a previous blog. - Coverage, Carrier, Content, and finally cost in that order.
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SL & Associates
Private Client Insurance Advisory Firm