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Insurance Intermediaries
Insurance intermediaries facilitate the placement and purchase of insurance, and

provide services to insurance companies and consumers that complement the
insurance placement process. Traditionally, insurance intermediaries have been
categorized as either insurance agents or insurance brokers. The distinction
between the two relates to the manner in which they function in the marketplace.
Insurance Agents
Insurance agents are, in general, licensed to conduct business on behalf of
insurance
companies. Agents represent the insurer in the insurance process and usually
operate
under the terms of an agency agreement with the insurer. The insurer-agent
relationship can take a number of different forms. In some markets, agents are
“independent” and work with more than one insurance company (usually a small
number of companies); in others, agents operate exclusively – either representing a
single insurance company in one geographic area or selling a single line of
business for each of several companies. Agents can operate in many different
forms – independent, exclusive, insurer-employed and self-employed.
Insurance Brokers
Insurance brokers typically work for the policyholder in the insurance process and
act independently in relation to insurers. Brokers assist clients in the choice of their
insurance by presenting them with alternatives in terms of insurers and products.
Acting as “agent” for the buyer, brokers usually work with multiple companies to
place coverage for their clients. Brokers obtain quotes from various insurers and
guide clients in determining the adequate policy from a range of products.
In some markets, there are distinctions among brokers depending upon the types of
insurance they are authorized (licensed) to intermediate – all lines of insurance,
property and casualty or life/health coverage. While most, if not all, brokers are
active in commercial lines, some also intermediate personal lines policies. There
are also distinctions between “retail brokers,” who negotiate insurance contracts
directly with consumers, and “wholesale brokers,” who negotiate insurance
contracts with retail brokers and agents, but not directly with consumers.
Reinsurance brokers solicit, negotiate and sell reinsurance cessions and
retrocessions on behalf of ceding insurers seeking coverage with reinsurers.
Reinsurance brokers can also be involved in a reinsurer’s retrocession of parts of
its risk. As a technical matter, a broker’s role may change during an insurance
transaction and over the course of an on-going relationship with a client. Many
brokers sometimes act as an “agent” of the insurer and other times as a “broker” of
the client when assisting a client with insuring its risk exposures through an
insurance contract with a traditional carrier.
The Role of Insurance Intermediaries

As players with both broad knowledge of the insurance marketplace, including
products, prices and providers, and an acute sense of the needs of insurance
purchasers, intermediaries have a unique role – indeed many roles – to play in the
insurance markets in particular and, more generally, in the functioning of national
and international economies.
Intermediary activity benefits the overall economy at both the national and
international levels: The role of insurance in the overall health of the economy is
well-understood. Without the protection from risk that insurance provides,
commercial activities would slow, perhaps grinding to a halt, thus stunting or
eliminating economic growth and the financial benefits to businesses and
individuals that such growth provides. The role of insurance intermediaries in the
overall economy is, essentially, one of making insurance – and other risk
management products – widely available, thereby increasing the positive effects of
insurance generally – risk-taking, investment, provision of basic societal needs and
economic growth. There are several factors that intermediaries bring to the
insurance marketplace that help to increase the availability of insurance generally:
Innovative marketing
Insurance intermediaries bring innovative marketing practices to the insurance
marketplace. This deepens and broadens insurance markets by increasing
consumers’ awareness of the protections offered by insurance, their awareness of
the multitude of insurance options, and their understanding as to how to purchase
the insurance they need.
Dissemination of information to consumers
Intermediaries provide customers with the necessary information required to make
educated purchases/ informed decisions. Intermediaries can explain what a
consumer needs, and what the options are in terms of insurers, policies and prices.
Faced with a knowledgeable client base that has multiple choices, insurers will
offer policies that fit their customers’ needs at competitive prices.
Dissemination of information to the marketplace
Intermediaries gather and evaluate information regarding placements, premiums
and
claims experience. When such knowledge is combined with an intermediary’s
understanding of the needs of its clients, the intermediary is well-positioned to
encourage and assist in the development of new and innovative insurance products
and to create markets where none have existed. In addition, dissemination of
knowledge and expansion of markets within a country and internationally can help
to attract more direct investment for the insurance sector and related industries.
Sound competition
Increased consumer knowledge ultimately helps increase the demand for insurance
and improve insurance take-up rates. Increased utilization of insurance allows
producers of goods and services to make the most of their risk management
budgets and take advantage of a more competitive financial climate, boosting
economic growth.
Spread insurers’ risks
Quality of business is important to all insurers for a number of reasons including
profitability, regulatory compliance, and, ultimately, financial survival. Insurance
companies need to make sure the risks they cover are insurable – and spread these
risks appropriately – so they are not susceptible to catastrophic losses.
Intermediaries help insurers in the difficult task of spreading the risks in their
portfolio. Intermediaries work with multiple insurers, a variety of clients, and, in
many cases, in a broad geographical spread. They help carriers spread the risks in
their portfolios according to industry, geography, volume, line of insurance and
other factors. This helps insurers from becoming over-exposed in a particular
region or a particular type of risk, thus freeing precious resources for use
elsewhere.
Reducing costs
By helping to reduce costs for insurers, broker services also reduce the insurance
costs of all undertakings in a country or economy. Because insurance is an
essential expense for all businesses, a reduction in prices can have a large impact
on the general economy, improving the overall competitive position of the
particular market. Of course, the insurance cycle of “hard” and “soft” markets can
have a significant impact on the benefits – both good and bad – of increased
availability. Generally, however, increased availability benefits the consumer by
leading to product competition, price competition, and improved services. By
reducing insurance costs across markets, intermediaries make an important
contribution to improving the economic conditions in a country.

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Insurance Intermediaries

Insurance intermediaries facilitate the placement and purchase of insurance, and

The Role of Insurance Intermediaries

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