Captive Agents vs Insurance Brokers
A Compelling Argument For Insurance Brokers
What is an Insurance Broker?
Brokers leverage their expertise to understand their clients’ needs, and help them select the right insurance solutions at the best possible price. Unlike agents, their duty is to act in the buyer’s best interests, rather than the insurance companies’.
Like agents, brokers can operate differently as well. For example, smaller brokers may simply offer a review of the best plans, match you with a solution that best fits your needs – and that’s it. Larger brokers, on the other hand, have the capacity to offer a range of value-added services such as claims assistance and renewal support, often at no extra cost.
Some brokers are also specialists in certain products (e.g. group health insurance), and even offer additional services depending on their area of expertise. HR administrators, in particular, will love a comprehensive insurance broker. From claims analysis, to employee education and orientation, a full-service broker does all the legwork for you, thus saving you time to focus on more worthwhile projects.
More Importantly, brokers are independent of any insurer, and tend to offer a wide range of plans from many different insurers. They will prioritize your interests where there is a conflict with their own interests,
generate impartial recommendations based on your business’ insurance needs, and may even leverage their close partnerships with insurers to negotiate better premiums or specific conditions to be met.
What Are Captive Insurance Agents
A captive agent is an insurance agent who only works for one insurance company. A captive agent is paid by that one company, usually with a combination of salary and commission, plus benefits. They may be a full-time employee or an independent contractor.
Some key features that sets agents apart from brokers include:
An agent is either captive, or independent. Captive agents are those that can only represent one, single insurer, whereas independent agents represent multiple insurers. Agents operate on behalf of insurers, and not the buyer. Their aim is to match you with coverage from the insurers they represent.
Some agents, but not all, can “bind” coverage under certain circumstances. This allows buyers to obtain coverage before the insurance company has finished processing the application and issuing policy documents.
Agents earn a stable commission from the insurers they’re contracted with; sometimes, captive agents are salaried.
American Family Mutual Insurance Company v. Krop
A recent court ruling relating to an insurance coverage spat highlights that there is a stark difference between dealing with a captive insurance agent and with a broker.
In American Family Mutual Insurance Company v. Krop, the defendant customers had changed their insurer to the plaintiff company – the defendant wanted coverage that was equivalent to that provided by its previous insurer. However, the new coverage was narrower, which led to an unexpected denial of the customers’ claim. The new carrier then sued the customers over a declaration that the coverage did not exist.
The defendants argued successfully to the appellate court that that the two-year statute of limitations for its claim that their insurer did not have sufficient coverage should have applied the moment they discovered their injury – around the time the plaintiff carrier denied coverage for the claim.
The Illinois Supreme Court, however, overturned that earlier decision. The court held that the statute of limitations period on the customers’ cause of action against their insurer (and the insurer’s captive agent) for negligent failure to provide insurance began at the time the customers received the policy from the agent.
The Court also added that captive insurance agents, unlike brokers, do not owe their customers a fiduciary duty, but instead owe a duty of ordinary care. Reference: October, 18, 2018 https://courts.illinois.gov/Opinions/SupremeCourt/2018/122556.pdf
When choosing whether to buy insurance through Insurance Brokers or Captive agents, it helps to consider the key advantages of each option. Captive Agents have the ability to “bind” coverage, Expertise in the policies they sell, a direct relationship with insurers and the insurer(s) they represent.
An Insurance Brokers Duty is to to act in their clients’ best interests. They tend to offer additional client support, an expertise in a wide range of policies and insurers and offer impartial advice on matters relating to your insurance needs.
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