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An insurance broker is an
intermediary An intermediary (or go-between) is a third party that offers intermediation services between two parties, which involves conveying messages between principals in a dispute, preventing direct contact and potential escalation of the issue. In law ...
who sells, solicits, or negotiates
insurance Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, evaluation, and prioritization of risk In simple terms, risk is the possibility of something bad happening. ...

insurance
on behalf of a client for compensation. An insurance broker is distinct from an
insurance agent Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, evaluation, and prioritization of risk In simple terms, risk is the possibility of something bad happening. R ...

insurance agent
in that a broker typically acts on behalf of a client by negotiating with multiple insurers, while an agent represents one or more specific insurers under a contract. As of 2019, the largest insurance brokers in the world by revenue are
Marsh & McLennan Marsh McLennan (formerly known as Marsh & McLennan Companies) is a global professional services firm, headquartered in New York City with businesses in insurance brokerage, risk management, reinsurance services, talent management, investment advis ...
,
Aon plc Aon plc () is a Multinational corporation, multinational British professional services firm that sells a range of financial risk-mitigation products, including insurance, pension administration, and health-insurance plans. Aon has approximately ...
, Willis Towers Watson, Arthur J. Gallagher and
Hub International HUB International Limited is an insurance Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss. An entity which provides insu ...
.


In Canada

In Canada, insurance brokers are regulated on a provincial and territorial basis. Insurance brokers and insurance agents are licensed and regulated by the same entity in most of Canada; either an arms-length organization, such as the General Insurance Council of
Saskatchewan ("From Many Peoples Strength") , image_map = Saskatchewan in Canada 2.svg , Label_map = yes , coordinates = , official_lang = English language, English , capital = Regina, S ...
, or directly by a government body. In some provinces, such as
Ontario ("Loyal she began, loyal she remains") , Label_map = yes , image_map = Ontario in Canada 2.svg , map_alt = Map showing Ontario's location east/central of Canada. , coordinates = , cap ...

Ontario
, insurance brokers have self-governing bodies responsible for licensing and regulation.


In the United Kingdom

''Insurance broker'' became a regulated term under the Insurance Brokers (Registration) Act 1977, which was designed to prevent firms holding themselves as brokers but in fact acting as representative of one or more favoured insurance companies. The term has no legal definition following the repeal of the 1977 Act. The sale of general insurance was regulated by the
Financial Services Authority The Financial Services Authority (FSA) was a quasi-judicial body A quasi-judicial body is a non-judicial body which can interpret law. It is an entity such as an Arbitration panel or tribunal board, that can be a public administrative agency but ...
from 14 January 2005 until 31 March 2013 and by the
Financial Conduct Authority The Financial Conduct Authority (FCA) is a financial regulatory body in the United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Tel ...
since 1 April 2013. Any person or firm authorized by the Authority can now call themselves an insurance broker. Insurance brokerage is largely associated with
general insurance Non-life insurance premia written in 2005 General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance is typically defi ...
(car, house etc.) rather than
life insurance Life insurance (or life assurance, especially in the Commonwealth of Nations The Commonwealth of Nations, generally known simply as the Commonwealth, is a political association of 54 member states, almost all of which are former territorie ...
, although some brokers continued to provide
investment Investment is the dedication of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance Finance is the study of financial institution ...

investment
and life insurance brokerage until the onset of new regulation in 2001. This drove a more transparent regime, based predominantly on upfront negotiation of a fee for the provision of advice and/or services. This saw the splitting of intermediaries into two groups: general insurance intermediaries/brokers and
independent financial advisers Independent financial advisers (IFAs) are professionals who offer independent financial advice, advice on financial matters to their clients and recommend suitable financial products from the ''whole of the market''. The term was developed to refle ...
(IFAs) for life insurance, investments and
pension A pension (, from Latin Latin (, or , ) is a classical language A classical language is a language A language is a structured system of communication Communication (from Latin ''communicare'', meaning "to share" or "to be ...

pension
s. General insurance brokering is carried out today by many types of authorized organisations including traditional
high street #REDIRECT High Street High Street is a common street name for the primary business Business is the activity of making one's living or making money by producing or buying and selling Product (business), products (such as goods and services) ...
brokers and telephone or web-based firms. The British Insurance Brokers' Association is a representative organisation for brokers in the UK. It has over 1800 members.


In the United States

In the United States, insurance brokers are regulated by individual states. Most states require anyone who sells, solicits, or negotiates insurance in that state to obtain an insurance broker license, with certain limited exceptions. This includes a business entity, the business entity's officers or directors (the "sublicensees" through whom the business entity operates), and individual employees. In order to obtain a broker's license, a person typically must take pre-licensing courses and pass an examination. An insurance broker also must submit an application (with an application fee) to the state insurance regulator in the state in which the applicant wishes to do business, who will determine whether the insurance broker has met all the state requirements and will typically do a
background check A background check is a process a person or company uses to verify that an individual is who they claim to be, and this provides an opportunity to check and confirm the validity of someone's criminal record A criminal record, police record, or ...
to determine whether the applicant is considered trustworthy and competent. A criminal conviction, for example, may result in a state determining that the applicant is untrustworthy or incompetent. Some states also require applicants to submit fingerprints. Once licensed, an insurance broker generally must take
continuing education Continuing education (similar to further education in the United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Brit ...
courses when their licenses reach a renewal date. For example, the state of
California California is a state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspaper), a daily newspaper i ...

California
requires license renewals every 2 years, which is accomplished by completing continuing education courses. Most states have reciprocity agreements whereby brokers from one state can become easily licensed in another state. As a result of the federal Gramm-Leach-Bliley Act, most states have adopted uniform licensing laws, with 47 states being deemed reciprocal by the
National Association of Insurance Commissioners The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states The United States, United States of Americ ...

National Association of Insurance Commissioners
. A state may revoke, suspend, or refuse to renew an insurance broker's license if at any time the state determines (typically after notice and a hearing) that the broker has engaged in any activity that makes him untrustworthy or incompetent. Because of industry regulation, smaller brokerage firms can easily compete with larger ones, and in most states, all insurance brokers generally are forbidden by law from providing their customers with rebates or inducements. Insurance brokers play a significant role in helping companies and individuals procure property and casualty (liability) insurance,
life insurance Life insurance (or life assurance, especially in the Commonwealth of Nations The Commonwealth of Nations, generally known simply as the Commonwealth, is a political association of 54 member states, almost all of which are former territorie ...
and
annuities An annuity is a series of payments made at equal intervals.Kellison, Stephen G. (1970). ''The Theory of Interest''. Homewood, Illinois: Richard D. Irwin, Inc. p. 45 Examples of annuities are regular deposits to a savings account, monthly home mortga ...
, and accident and
health insurance Health insurance or medical insurance (also known as medical aid in South Africa) is a type of insurance Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, ev ...
. For example, research shows that brokers play a significant role in helping small employers find health insurance, particularly in more competitive markets. Average small group commissions range from two percent to eight percent of premiums. Brokers provide services beyond procuring insurance, such as providing risk assessments, insurance consulting services, insurance-related regulatory and legislative updates, claims assistance services, assisting with employee enrollment, and helping to resolve benefit issues. However, some states consider the provision of services that are unrelated to the insurance procured through the broker to be an impermissible rebate or inducement.
Negligence Negligence (Lat. ''negligentia'') is a failure to exercise appropriate and/or ethical ruled care expected to be exercised amongst specified circumstances. The area of tort A tort, in common law In law, common law (also known as judicial ...

Negligence
on the part of insurance brokers can have severe effects upon clients when they discover their insurance coverage is worthless. In one case, Near North Entertainment Insurance Services provided
alternative rock Alternative rock (also called alternative music, alt-rock, or simply alternative) is a category of rock music that emerged from the independent music underground of the 1970s and became widely popular in the 1990s. "Alternative" refers to th ...
band
Third Eye Blind Third Eye Blind is an American Rock music, rock band formed in San Francisco, California, in 1993. After years of lineup changes in the early and mid-1990s, the songwriting duo of Stephan Jenkins and Kevin Cadogan signed the band's first major- ...
with a commercial general liability (CGL) insurance policy that excluded coverage for the "entertainment business". After insurance coverage for a lawsuit was denied because Third Eye Blind was and is, after all, in the entertainment business, the
California Court of Appeal The California Courts of Appeal are the state intermediate appellate courts in the U.S. state of California California is a U.S. state, state in the Western United States. With over 39.3million residents across a total area of approximat ...
ruled in a published opinion that the broker had a duty to advise the band it needed something more than a basic CGL policy.


Spitzer investigations

In 2004,
Eliot Spitzer Eliot Laurence Spitzer (born June 10, 1959) is an American politician, attorney, educator and real estate developer. A member of the Democratic PartyDemocratic Party most often refers to: *Democratic Party (United States) Democratic Party and ...

Eliot Spitzer
found apparent cases of bid-rigging by the major brokers, where the brokers arranged with insurers to provide "fake" quotes in exchange for providing favorable risks amidst contingent commission arrangements. In 2008,
AIG American International Group, Inc., also known as AIG, is an American multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions. , AIG companies employed 49,600 people.New York New York most commonly refers to: * New York City, the most populous city in the United States, located in the state of New York * New York (state), a state in the northeastern United States New York may also refer to: Film and television * New ...
, a regulation ("Regulation 194") was adopted in 2011 which required disclosure. Brokers or agents may decide to reveal their commission upon request. In most states, agents cannot charge a fee in addition to their commission, although
Texas Texas (, ; Spanish Spanish may refer to: * Items from or related to Spain: **Spaniards, a nation and ethnic group indigenous to Spain **Spanish language **Spanish cuisine Other places * Spanish, Ontario, Canada * Spanish River (disambigu ...

Texas
is one of the exceptions.


Broker vs. agent

Though not an absolute separation; an
insurance agent Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, evaluation, and prioritization of risk In simple terms, risk is the possibility of something bad happening. R ...

insurance agent
is an insurance company's representative by way of ''agent-principal'' legal custom. The agent's primary alliance is with the insurance carrier, not the insurance buyer. In contrast, an insurance broker represents the insured, generally has no contractual agreements with insurance carriers, and relies on common or direct methods of perfecting business transactions with insurance carriers. This can have a significant beneficial impact on insurance negotiations obtained through a broker (vs. those obtained from an agent). Any person acting as an insurance agent or broker must be licensed to do so by the state or jurisdiction that the person is operating in. Whereas states previously would issue separate licenses for agents and brokers, most states now issue a single producer license regardless if the person is acting on behalf of the insured or insurer. The term insurance producers is used to reference both insurance agents and brokers.


In Australia

In Australia, all insurance brokers are required under the Financial Services Reform Act 2001 to be licensed by the federal government's
Australian Securities and Investments Commission The Australian Securities and Investments Commission (ASIC) is an independent commission of the Australian Government tasked as the national corporate regulator. ASIC's role is to regulate company and financial services and enforce laws to pro ...
(ASIC). Reputable and experienced insurance brokers in Australia will generally also hold additional qualifications such as a certificate or diploma in
financial services Financial services are the economic services provided by the finance Finance is a term for the management, creation, and study of money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contra ...
which requires the completion of in depth studies in a specific area, the most common being general insurance or insurance brokering. Within Australia there are also a number of industry bodies that issue professional accreditations to members that comply with best standards of professional practice and integrity and maintain up to date skills and knowledge. The two main accreditations are the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) Certified Insurance Professional (CIP) and National Insurance Brokers Association (NIBA) Qualified Practicing Insurance Broker (QPIB) qualifications. Dealing with an insurance broker as opposed to directly with an insurer is something many customers (particularly businesses) choose to do in Australia for reasons including: the ease of having the "shopping around done for them"; having the opportunity for premium funding which allows for larger insurance policies to be paid in installments rather than all at once; dealing with one broker for all policies from the car insurance to professional indemnity insurance rather than dealing directly with several insurers; and, the ease of having claims managed by the broker who deals directly with the insurer on the client's behalf.


Disintermediation

As in many industries, there is a trend towards
disintermediation Disintermediation is the removal of intermediaries An intermediary (or go-between) is a third party that offers intermediation services between two parties, which involves conveying messages between principals in a dispute, preventing direct ...
where consumers buy direct from the insurer without an intermediary.


See also

*
Financial adviser A financial adviser or financial advisor is a professional who provides financial services Financial services are the economic services provided by the finance Finance is a term for the management, creation, and study of money In ...
*
Loss-control consultantA loss control consultant (also LCC or loss control representative) is someone who possess a demonstrable knowledge and / or education in arts and science of safety engineering and risk management Risk management is the identification, evaluatio ...
* List of Acts of Parliament of the United Kingdom Parliament, 1960-1979 *
Economics of climate change Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of plant life and a bran ...


References

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