When are you an insurance agent vs. broker?

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Insurance agent vs. broker: How to classify yourself at Arrowhead

Insurance agent vs. broker should be a no-brainer question, right?  The answer should be cut-and-dried: Are you an insurance broker or an insurance agent?

After all, brokers typically represent several insurers, so they can offer a wider range of products to their clients. On the other hand, an agent is often identified as a captive agent – one that works directly for one insurer, selling that company’s products. But a captive agent can at times act as a broker, selling on behalf of other insurers, when their initial carrier doesn’t offer that particular product (usually something a bit more specialized, such as coverage for residential earthquake or vintage boats).

Then there’s the independent agent who, like a broker, represents multiple insurance companies. In most states, the main difference is the broker’s license: all brokers must have them – which usually means they’re more experienced, knowledgeable and credentialed.

…and then there’s California.

In California, this isn’t just a simple “Who am I” or “Who’s on first” kind of question typically asked by a novice producer – but can be a murky question to answer, depending on the insurance product(s) you’re selling. California Department of Insurance licensing combines all property/casualty producers as a property or casualty “broker-agent.” Let’s dive in and see if we can clarify further – because we get asked this question on “insurance agent vs. broker” at least a weekly basis by new producers as they sign up to work with Arrowhead.

A casualty insurance agent is “a person authorized, by and on behalf of an insurer, to transact all classes of insurance other than life insurance,” says Section 31 of the CA Insurance Code. On the other hand, a broker is “a person who, for compensation and on behalf of another person, transacts insurance other than life with, but not on behalf of, an insurer,” says Section 33.

Furthermore, a property broker-agent is “authorized to act as an insurance agent, broker or solicitor,” says Section 1625(b)(1) of the code.

Related: Year-end tax strategies for insurance producers.

So in a nutshell, agents transact on the insurer’s behalf, with a primary allegiance to the carrier, while brokers’ allegiance is to the insureds that they represent. Just like you learned in Insurance 101. (For ideas on how to explain to your clients, check out CDI’s consumer page.)

So where does it get sticky?

When captive agents who are appointed with us want to sell a product we offer that their company does not, such as residential earthquake. In such a case, IF the California producer has the $10,000 broker bond on file with his/her license at the DOI and has signed up with us to sell residential earthquake coverage as a broker, then – in this particular instance – the producer is a broker and can charge broker fees. If the producer does not have the broker bond required in the state of California, then that producer is deemed an agent, and cannot charge additional fees.

The CA Department of Insurance holds that if the producer has an agent appointment on file with the carrier, (s)he is considered an agent of the appointing insurer; if the producer does not have an agent appointment on file, the DOI or reviewing court may examine all the circumstances to determine if the producer is acting as an agent or broker.

Related: Insurance fraud: Red flags to help agents spot potential fraudsters

So, producers, it’s a good idea to review your all producer contracts – not just those with Arrowhead – to ensure that the contract language clearly delineates whether you are actually representing the interest of the insured or the insurer.

That’s the simple answer. Of course, there are always a few tricky exceptions and caveats, so if you have additional questions on whether you’re an insurance agent vs. broker, you’ll want to check with our Marketing Operations team.

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