Underwriter or Broker; Who Works For You?

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What is the difference between an Insurance broker and an insurance underwriter? As an Insurance Broker and a consumer representative, that is a question we’re asked by many insureds at the beginning of their search for insurance. We know that many Insurance Underwriters are asked the same thing.

There is no question that the Consumer’s best interest is served when professional and knowledgeable Underwriters and Brokers work together on behalf of the Consumer. But who’s interest does each type of insurance professional represent?

The simple answer to that question is that the Broker works for you. She owes you a legal, fiduciary, and ethical duty and each state that licenses Insurance Brokers requires that they fulfil that duty to you, the consumer. Your Broker is your representative who deals with Underwriters in the insurance market on your behalf. Failure by the Broker to fulfil those duties can result in substantial fines, penalties, loss of license and even incarceration. The fulfilment of those duties to the consumer is heavily regulated and taken very seriously by each state Insurance Commissioner.

The Underwriter works for a single insurance company, and their duty is owed to their employer. Because they work for the insurance company and not the consumer directly, most states do not require that they hold a license. In fact, most states actually disallow direct contact or direct service between Underwriters and consumers in any way without the consumer’s representative (Broker/Producer) physically present or on the phone. At the very least, they must typically have the Broker’s authorization before discussing anything to do with the insurance transaction.

The vast majority of Insurance Underwriters maintain high value and respect for the broker relationship and will always refer, or defer the consumer to their Broker representative for specific support, advisement and service. Other underwriters view the Broker relationship has a hindrance to production efforts and dislike having to deal through a consumer representative and within a regulatory framework designed to protect the consumer. It’s then when the line becomes blurred, and questions like the title of this article arise.

Following are some of the primary differences between an Insurance Broker and an Insurance Underwriter.

The Broker:

First and foremost, your Insurance Broker is your representative. He is the person who answers the phone at 10:00 PM to assist with certificates and claims, she is the person who compares each Underwriter’s quotes and policies to one another, they are the people who answer your questions, find the best product and find the best price across a closed and confusing market on your behalf.
An Insurance Broker represents and owes a LEGAL duty to the consumer.

An Insurance Broker represents and owes a LEGAL duty to the consumer.

An Insurance Broker works independently of the insurance company and is not restricted to a single company, policy or premium structure.

An experienced and knowledgeable Insurance Broker represents the client to many insurance companies and provides many options to the client. Think Transport Risk Management (Your Representative Broker) versus only those products offered by State Farm or Geico for example. Some Brokers may only represent one or two insurance companies, and as a consumer, it’s important to understand if your Broker has wide market access or is limited to a small cross-section of the market. More is better in this case.

A knowledgeable Insurance Broker with wide market access is able to strongly negotiate on behalf of the client and help determine the best insurance carrier and policy for the client. In this case, the knowledge and experience of the Broker can help eliminate the least suitable product and narrow down the most suitable product saving the consumer significant time and money while providing the best product value.

An Insurance Broker is able to seek options if an underwriter declines the policy, declines to offer adequate coverage or charges too much money.

An Insurance Broker is licensed in each state that they transact insurance and are held to high standards of consumer protection.

The Underwriter:

An Insurance Underwriter works for a single insurance company and is restricted to the policy and premium offered by that company.

An Insurance Underwriter represents and owes a fiduciary duty to a single insurance company.

An Insurance Underwriter provides a single option to a client. Think Progressive Insurance or State Farm.

An Insurance Underwriter is only able to negotiate on behalf of the insurance company he or she works for and with limited authority relative to price, breadth and limits of coverage.

An Insurance Underwriter has no other market options if they are unable to quote a policy or is confined to a filed premium rate structure.

An Insurance Underwriter is not typically required to hold an individual license and does not carry a license in each state where they write policies and is typically not allowed to deal direct with consumers under most state insurance regulations.

Insurance Product Customization and Innovation

Insurance brokers strive to provide coverage to people and organizations against the occurrence of loss and exposure to risk. Increases in population, coupled with the emergence of new technologies, gives rise to the demand for innovative insurance solutions across many classes and levels of exposure to risk. Insurance brokers are often the first to recognize that demand and to develop new insurance market solutions through their underwriting partners. Insurance brokers help to take advantage of those expanding insurance markets by linking insurance buyers with policy providers particularly suited to cover the particular exposures of each client while serving an intermediary role facilitating the transaction and placement of insurance business.

Specialty Advice

Aviation and Aerospace Insurance brokers are very knowledgeable in the insurance market. Their years of experience equip them with speciality aviation and aerospace insurance knowledge as well as the capacity to obtain information from insurance providers. Insurance brokers asses this information and explains it to consumers. The insurance buyers are consequently in a position to choose the best insurance policy from among many. Insurance brokers give advice on and recommend insurance coverage specific to the client’s needs and exposures. They strive to satisfy the needs of insurance buyers by guiding them appropriately. Insurance brokers must give accurate insurance advice to ensure that insurance consumers have a strong understand of their exposures and the coverage they need.

Legality and Professionalism

Insurance brokers prepare legal documents. They are expected to do so with integrity and adhere to professional standards. The law binds insurance brokers to operate under legal constraints. For instance, the law in most states requires insurance brokers to maintain strict confidentiality, obtain insurance certifications and licenses. Insurance brokers are members of trade bodies such as the Aviation Insurance Association (AIA), which monitors the actions of independent insurance agents and brokers. The association validates that insurance brokers practice high standards of professionalism. The practice of legality and professionalism provides assurance to consumers.

Simplification

The insurance industry has many complexities, including technical terms and emerging insurance policies and strategies. It can be challenging to consumers to understand all its provisions. Insurance brokers are responsible for relaying the intended and accurate policy information in a manner that is easily understandable by clients. For instance, aerospace insurance brokers explain the terms in the use and pilot standards requirements that are unique to aviation insurance policies. The insurance broker goes further to break down the role of the insurance consumer in the insurance policy including their duties and their responsibilities.

Knowledge Extension

The insurance industry is prone to changes in technology and marketing trends. Insurance brokers equip themselves with fresh knowledge to tackle these changes. They help insurance consumers to cover themselves against risk occurrences through modern insurance trends and expanding exposures. For example, aerospace insurance brokers gather information on industry trends and aviation insurance specific coverages such as incidental medical malpractice and family assistance to clients. Aerospace Insurance brokers help their clients make insurance decisions by offering choices to expand coverage and cut down on insurance costs as necessary to meet the value needs of the consumer.

As is commonly the case with most professional services, when making your insurance purchase decision the first question should be, “Who do you work for and who’s interest to you represent”?

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