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Direct vs Agent vs Broker for Your Insurance Needs: Same Same or Different?

As an insurance industry professional for more than 30 years, I have worked in several countries and the most frequent question I get isIs there a difference between an insurance agent and an insurance broker?

The short answer is that, whilst both are intermediaries, they are certainly not the same – there are distinct and important differences between the two. Now, I need to declare possible unconscious bias here because I am a career insurance broker, but I am determined to examine the differences in a fair and objective manner.

Let’s start with referring to the definitions from a reputable and independent source, the International Risk Management Institute.  

“Agent – a person or organization who/that is authorized to act on behalf of another. An insurance agent is a person or organization who/that solicits, negotiates, or instigates insurance contracts on behalf of an insurer and can be independent or an employee of the insurer. Insurance agents are the legal representatives of insurers, rather than policyholders, with the right to perform certain acts on behalf of the insurers they represent, such as to bind coverage.

Broker: an insurance intermediary who/that represents the insured rather than the insurer. Since they are not the legal representatives of insurers, brokers, unlike independent agents, often do not have the right to act on behalf of insurers, such as to bind coverage. While some brokers do have agency contracts with some insurers, they usually remain obligated to represent the interests of insureds rather than insurers. For example, some state insurance codes impose a fiduciary responsibility to act on behalf of their customers or provide full disclosure of all their compensation from all sources”.

These are two excellent definitions which immediately serve to highlight some of the key differences between agents and brokers in the insurance context. 

Role of an Agent

A common perception of agents is that they are independent intermediaries but as defined above, an insurance agent represents and is the legal agent of an insurance company(ies). Their primary function is to channel business to the insurers who they represent, and they receive commission on the policies that they sell for their insurer(s). This is an important distinction to understand. An agent is essentially an extension of the insurer(s) that they represent and as such, it cannot be argued that agents provide truly independent advice. Furthermore, they usually only promote the insurance products that their insurer(s) offer – which may not necessarily be the best match for what the buyer needs.

Types of Agents in Singapore

The Insurance Act 1966 regulates the distribution of insurance. Section 1A of the Act sets out the interpretation of insurance agents. Agents must also be registered with the Agents’ Registration Board (ARB) through the principal insurers that they wish to represent.

The General Insurance Association of Singapore (GIA) lists the following types of agents:

  • Individual Agent – a person
  • Corporate Agent – a business entity i.e. sole proprietorship, partnership or company registered with ACRA, society/cooperative society registered with Registrar of Societies.
  • Trade Specific Agent (TSA) – a business entity that is engaged in a business where insurance is not its core business. It can act for its principal insurers to sell specific insurance products relating to its core business only.
  • Nominee Agents – a person who acts for the above types of agents. Corporate agents and TSAs must have at least 1 nominee agent at all times.

In Singapore, there are Captive agents (representing just one insurer exclusively) and Independent agents (who can represent up to a maximum of 3 insurers.

The GIA website lists the activities that agents can engage in. This includes:

  • Receive proposals for, or issuing, policies
  • Collect or receive premiums on policies
  • Arrange contracts of insurance
  • Earn a commission or fee that is tied to the value of the premium transacted; or
  • Provide insurance sales or product advice.

Agents receive product training from the insurers that they represent as well as other forms of technical and operational support. Every agent is of course different and in my career, I have met countless extremely capable and dedicated agents and many who are far less so. The comparison table below will go more into detail on the pros and cons of using an agent as compared to a broker, but for me, the major limitation for agents remains who they ultimately (and legally) represent, and it is not the policyholder.

Role of a Broker

As highlighted by the IRMI definition above, brokers are independent intermediaries who are engaged by their clients as their legal representative for insurance matters. Insurance brokers do not have any agency agreement with any insurer. This means that:

(a) brokers can provide truly independent and objective advice

(b) brokers are free to source products and solutions from the entire insurance market rather than from just a few represented insurers.

A broker’s role is to guide and support their client through the whole insurance process. That includes assessing needs, determining the optimal insurance solution, devising a go-to-market strategy to secure the most competitive cover and pricing and ensuring that cover is placed with contract certainty. It does not end there. After the policy is placed, the broker’s role is to service the client throughout the policy period, helping with endorsements and claims and then negotiating the renewal of the policy.

About Brokers

As with agents, every broker is different, and their skills and capabilities can vary considerably. Being independent, brokers cannot just rely on the technical support of insurers like agents tend to do, so they must acquire and develop the necessary technical knowledge in-house in order to competently advise their clients.

When selecting a broker, the insured can choose from large international “mega brokers’, large national brokers, specialist “boutique” brokers and the smaller SME-sized brokers. The larger brokers (international, national and boutique) tend to have substantial in-house capabilities extending beyond just placement of insurance (e.g. risk consulting, reinsurance, claims consultancy, captive management etc), thus positioning themselves as risk advisers and not just insurance brokers.

A business which has a complex risk profile, substantial assets, multiple overseas locations and/or a sizeable workforce would generally benefit from the insights and solutions offered by a recognised insurance broker rather than trying to navigate these risks alone. Most sizeable and boutique insurance brokers now have areas of specialty – where they have developed in-depth knowledge of industries, technologies, and the associated risks.

Comparing Agents vs Brokers

What appears in the comparison table below is based on my personal views drawn from my career experience.

CAPABILITY / SERVICE AGENT BROKER COMMENT
Ultimate liability With insurer With broker  
Regulated by (Singapore) Insurance Act Insurance Act  
Buy Errors and Omissions insurance * Unlikely Usually * Covers professional negligence
Legal duty to represent. Insurer(s) Client  
How remunerated? Commission from insurers Fee from Client * * Some brokers do earn Commission
Market Access 1-3 insurers Unlimited – entire market * * Ensures best cover and prices
Strong Corporate Governance Less likely Yes * * Yes – for larger / publicly listed 
Independent advice No Yes  
Advice on policy cover and benefits Yes Yes  
Simple claims- support Varies * Yes * Most let insurer handle
Complex claims – support No Yes  
Receive premiums on behalf of insurers Yes Yes * * Some insurers require direct payment
Can transact reinsurance No Yes (if licenced) Reinsurance access is important for large risks
Risk advisory / consulting No Yes  
Sophisticated insights / thought leadership No Yes * * Large / boutique brokers
Able to handle multinational placements No Yes * * Small brokers – Not unless part of a broker network.
Employ industry specialists No Yes * * Larger / Boutique brokers
Able to handle large and complex risks No Yes * * Larger / Boutique brokers
Insurer relationships Yes * Yes * Only with principal insurers
Broad market Influence No Yes * * larger brokers control substantial premiums and do have influence with insurers
Use Service Agreement Unlikely Yes * * Most brokers do
Personal Service Likely * Varies # * Being smaller, agents can often offer highly personalised service.   # One critique of large corporate brokers is they may struggle to deliver truly personal service.

 

Consult Us Today

Of course, there is still another option to using an intermediary agent or broker and that is liaising directly with the insurer and not having to engage an intermediary at all.  Dealing directly allows you to talk straight to the party with whom you will be entering into a contract of insurance. That may have its appeal but, unless you have a deep understanding of insurance and insurance terminology, this can be daunting. Plus, you would have to repeat these conversations with several insurers to be able to make your own comparison of cover and pricing, and that is time consuming. 

My advice? Leave it to the experts. For legal and accounting matters, businesses engage qualified legal and accounting professionals – the approach to risk and insurance should be no different.

Consult our team at Expat Insurance to see how we can help you get started with your corporate plan needs in Singapore. From employee benefits plans to business protection designed for SMES, get in touch with us to discover the best solutions for your company today. 

Authored By John Ntatsopoulos

CEO

Over the course of his 34 years career, our CEO, John, have worked predominately in the area of insurance and financial services across major APAC…

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