“Solicit” means attempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a particular company.“Sell” means to exchange a contract of insurance by any means, for money or its equivalent, on behalf of an insurance company.In the “State Licensing Handbook,” Chapter 5 expands on the activities for which a producer is required to maintain a state license, saying: The NAIC’s Producer Licensing Working Group, which develops guidelines and best practices for state regulators across the nation, puts out a handbook each year compiling its recommendations. “A person shall not sell, solicit or negotiate insurance in this state for any class or classes of insurance, unless the person is licensed for that line of authority in accordance with this Act.” In 2005, the National Association of Insurance Commissioners issued the Producer Licensing Model Act, which combined the functions of an insurance agent with that of insurance brokers, putting both under the banner of “producer.” You read that right, an insurance producer is basically the catch-all term that covers both agents and brokers!Įssentially, Section 3 of the PMLA states: Having someone who already has that training, skillset, and knowledge base working on your behalf to find something that meets your needs could be a very valuable service – and that in essence is exactly why insurance brokers exist. The repercussions to the employees can be daunting, and sometimes learning the language and specifics of the insurance space is its own job. Finding a plan that fits the company budget, employee pool, and any other particulars could be a time-consuming process. If the use of an insurance broker as opposed to an agent is not clear enough yet, consider if you were the head of human resources (likely among other duties) of a small business tasked with finding health insurance for your employees. The agent then binds the coverage, and the client sends a check for both the cost of the policy and their broker’s commission to the carrier, which then splits the check, taking the policy payment and paying the broker their agreed commission. Once a broker has looked amongst a variety of policies available from multiple insurance carriers and has determined the policy that best fits their client’s needs, the broker alerts an insurance agent who is appointed with the carrier. As the linked New York Times piece suggests, this is an area ripe for digital revolution! Clients agree to pay the broker typically based on a flat percentage of the contract premium and have complete transparency on those costs before engaging their service. Insurance brokers’ value in the insurance space comes from the idea that people benefit from having a knowledgeable professional who isn’t just pushing a sale, as evidence shows most people choose poorly when selecting their own insurance contracts – the variety of choices often proves overwhelming. Instead of acting as an insurance agent (or again, salesperson), an insurance broker is expected to act in an advisory capacity, asking questions and helping clients understand and clarify what they are looking for. To ensure they are filling that fiduciary capacity, a broker must take the time to truly understand a client’s needs, overall financial situation, motivations, and personal life before seeking out the policies that might constitute a best fit. Insurance brokers must act in a fiduciary capacity, which is a higher standard of responsibility that requires brokers to put the best interests of their clients first. They are product agnostic and cannot “bind” coverage on behalf of an insurer. Instead of representing carriers, insurance brokers represent clients. Insurance agents are a link between the policyholder and the carrier, and most are held to the “suitability” standard, meaning they must know the client can afford the insurance product the agent is selling to them. Whether independent (meaning one who sells insurance policies provided by several different insurance carriers) or captive (meaning one who only works for one insurance company), they have a role to play that involves both being licensed by their state and, in most states, appointed by the carrier. So what does an insurance agent do then, you ask? Well, “Insurance agent” is synonymous with an insurance salesperson. The role of an agent is well known – agents represent carriers, and carriers pay them to sell insurance products to clients. When discussing insurance professionals, the ones that most readily come to mind are insurance agents. Learn more on our blog: What is an Insurance Agent? Learn the difference between insurance agents, insurance brokers and insurance producers and how AgentSync can help mange licensing and compliance for all three groups.
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