Role of Insurance Intermediaries
Insurance intermediaries are also known as agents, brokers or producers. They connect the insurance company offering policies with individuals, families and businesses in need of the products being offered. They can be affiliated with single insurance companies, represent a brokerage firm for many companies or be independent contractors. The insurance intermediary holds a unique position in today's marketplace for several reasons.
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Role of the Intermediary
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The intermediary's job is to collect information about potential customers for review by an insurance company and to advise the customer as to what the company is willing to offer for the quoted premium. By researching and comparing various insurance products available, the intermediary can find the best match for both the customer (buyer) and the company (seller).
Benefits
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The insurance industry works by sharing information between the buyer and the seller so both can agree upon the nature of the contract being sold. Without this mutual exchange of information, a customer may not receive the type of protection he needs while a company might collect an inappropriate premium. The intermediary ensures that a fair premium is collected for proper protection.
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Complex Insurance Products
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Many insurance products are complex, offering custom-made coverage for large businesses with unique risk exposures. Intermediaries are especially needed for these products since incorrect information shared between the buyer and seller could lead to devastating financial consequences for both parties, including market collapse.
Licensing
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Intermediaries must be licensed to transact insurance in the states in which they do business due to the legal and economic nature of their job. Businesses can be ruined by improper intermediary work, so the insurance industry is one of the most highly regulated industries in existence. Intermediaries are often required to carry professional liability insurance as well, similar to malpractice insurance.
Compensation
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Intermediaries can be paid in at least three different ways. The most common compensation is by straight commission, where the insurance company pays a percentage of the overall premium to the broker when a policy is issued. Contingent commissions are additional payments sometimes granted for policies requiring a great amount of information to process, providing an incentive to get the most accurate risk assessment possible. Intermediaries can also charge a fee directly to the customer.
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References
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