Many people have the feeling that insurance is like giving money away. Of course this is not really the case because insurance companies are assuming risk on your behalf so they are, in fact, giving you something in return for your insurance premiums. Nevertheless, it can be extremely frustrating and infuriating when you do have a claim and insurance companies attempt to deny or limit your coverage. It usually is never a simple matter when filing a claim. The insurance companies have their team of lawyers, experts and investigators securing their investments against all claims, fraudulent or not. In some sense, their job is to pay out as little as possible to settle a given claim.
There are many different types of insurance and various ways to obtain policies. Is there a difference between an insurance agent and an insurance broker? There definitely is and sometimes we may not be aware of this fact or realize how it affects us. Their responsibilities are similar but there are a few key differences between their services that both come with advantages and disadvantages.
A registered insurance broker in Ontario is the “middle man” between prospective/existing clients and insurance companies and is governed by the Registered Insurance Broker Act. An insurance broker uses their expertise in the insurance field and their administrative skills (efficiently and timely processing of paperwork, premiums, etc) to formulate and create tailored plans for their clients. They are legally bound to be practical and non-biased in their duties to ensure adequate and appropriate information and advice is given to the insured. Upon renewal, policies should be re-evaluated as clients’ circumstances may change and advice on suitable coverage must be reassessed.
A few advantages of working with an independent insurance broker:
- These brokers can work with a number of different carriers and don’t place their loyalty with a single insurance company
- Because they are able to work freely with any carrier, they stand a better chance of getting you competitive prices
- Brokers also are required to have a license which gives them an educational advantage over their counterpart agents
A few disadvantages are:
- Although not limited to, brokers tend to work with two to three carriers
- Insurance is a vast empire with many products and services. The sheer amount of information can overwhelm brokers and lead to instances where they may not fully understand the range and impact of their products
- Independent brokers may not have access to technical specialized support
An insurance agent can be one of two types; captive or independent. A captive agent, by definition, is one who works primarily with one insurance company. An independent agent can work with many different insurance companies, selling their services and products.
A few advantages of choosing captive agents are:
- A more centralized knowledge of the company’s products
- In many cases, agents have access to strong back office support
- Agents can build and have a solid relationship with underwriters (the individuals who asses the compatibility and requirements for prospective and existing clients)
Some disadvantages of using captive agents are:
- A higher premium may be paid based on the fact that their portfolio is limited
- Quotas and commissions may be the driving factors behind their recommendations versus the best deal for the client.
There have been instances where clients have sued brokers in cases where they feel that they have been misled or the broker failed to inform them of key information about the policy that they purchased. In a case only a few years ago, this issue came into play. In a tragic crime of passion, a man murdered his wife, set fire to her home and committed suicide. Her son who was also executor of her estate filed a claim for the loss of the property which the insurer declined initially to uphold based on the fact that it was a deliberated act performed by one of the named policy holders which was a clear violation under the contract. They gave a partial payment on the claim, refusing to pay in full. After careful consideration of the facts at hand, the judge awarded the plaintiff the required amount requested, based on the fact that the Insurer’s employee/representative was negligent in assessing the client’s policy when it was last renewed. Of course the crime was unforeseeable by all involved, but the married couple was separated and certain allowances and changes in her policy should have been made based on the changes in her life that the broker was informed about.
When deciding to file suit against a broker, a few key factors should be assessed.
Coverage: Was the client covered at all for the specific loss or inadequately covered. A broker’s sole responsibility it to ascertain their client’s needs, then assign an appropriate policy based on their needs, ensuring they are aware of what their coverage limitations are.
Relationship: There needs to be an established relationship between client and broker in order to go beyond the scope of this/her responsibilities. Essentially, a broker can claim that they gave exactly what the client asked for, but they do bear some responsibility if there are obviously known factors that would affect a client’s claim. For example, if a client lives in an area prone to floods, and his/her broker fails to even suggest the appropriate insurance, they can be held responsible for their oversight and inadequacy.
Human error is inescapable. Buying the right insurance to safeguard against unforeseeable events is important and being able to be guided correctly by those representing the insurance firms is something that you should not have to worry about. Just like with personal injury, when you are hurt your focus should be on your recovery, not fighting with those who bear responsibility.