Cummins & Doherty (2006) explained in their research on insurance economics that insurance is a complex product that represents a promise to compensate the policyholders or third parties affected while complying to terms and conditions in the occurrence of an incident or event.
Thus, to simply understand this obligation requires complex language and comprehension. The insured's decisions may also vary with the slightest difference of an insurer's reputation, especially in claim settlements, and financial competence.
It's a rather intimidating task to shoulder by an insurance buyer, with so many aspects to consider along with limited information at hand as well. So, in most cases, the buyers will turn to intermediaries when dealing with these insurance transactions.
PIAM defined intermediaries as organisations with a role in assisting the 'placement and purchase of insurance, as well as provide services to insurance companies and consumers that complement an insurance transaction.'
When it comes down to it, there are two main categories — the agents and the brokers. The two sides perform similar functions, yet, there are specific tasks that separate both the intermediaries apart. Insurance agents acts as representatives of insurers who negotiates and sells insurance contracts while the brokers represents the insurance buyers to procure a contract.
While these distribution channels work towards the same goal, there are several unique benefits and advantages which applies to insurance agents in the market compared to brokers as well.
1) An Extension of Insurers
As a supplementary part of the insurance companies, these agents tend to have a more reputable image as well as capability when dealing with insurance contracts.
Insurance companies, much like any other successful businesses, are invested in the well-being and reputation of their organisation. Thus, these companies will impose stricter requirements and regulations in terms of the services provided by their representative agencies, from ensuring higher qualifications and implementing control mechanisms in their workflow.
Besides that, being an extension of the insurance companies, these agencies have a more stable, loyal and long-lasting relationship with their insurance partners. This greatly benefits buyers, especially those who deal with more complicated or uncommon risks, as the intermediaries would assist to appeal and leverage with the said companies for approvals.
2) Knowledgeable & Direct Information
The agencies will also have more access to variable information and sources directly from the insurance companies which helps to reduce the chances of misinformation along the way when buyers discuss with their respective intermediaries. It also reduces the time taken to gather additional information from the insurers if needed.
Not only that, the agents also have extensive knowledge of the products and the internal organisational system of the insurers, which allows both parties to work hand-in-hand efficiently. As the agencies act as representatives, insurers are more willing to provide help whenever necessary and this hastens the overall decision-making for the buyers.
3) Exclusive Training on Products
Besides that, agents who are tied to insurers will also have access to exclusive training on the range of products the company offers. Insurance companies provide different types of training programs and talks where the topics varies from general practicing rules such as ethics or salesmanship, to technical materials, such as in-depth study of specific classes of insurance.
These training sessions are reserved for their selected representatives only and the agencies may also request for training on specific subjects if they want to learn more on it. While most of the sessions are done in a large group, private training may also be available depending on the insurance companies and their relationship with the agencies as well.
This results in a more detailed and personalized discussion which would greatly improve the agency's knowledge on the product background.
The Bottom Line
While there may be many channels around in the insurance market, there are qualities that may only be applicable to insurance agencies. Besides that, choosing the perfect agency for yourself also involves other aspects such as the relationship between you and your agent, the reliability of the agents in terms of their skills and services, and their organisation's goals or missions.
Many may ask, why not go direct? As insurers are corporate organisations, they tend to lack the personal touch that an agency may provide which affects the service and understanding of the buyer's needs.
Thus, it's always good to take time to research on the company's history, making sure it has a long running background in insurance and a reputable image in the market. It would be even better to meet personally with the individuals who influence and guide the agency as they serve the core values of their company. This way, you'll surely choose a great agency that you can rely on fully.
Reference:
Cummins, J. & Doherty, Neil. (2006). The Economics of Insurance Intermediaries. Journal of Risk & Insurance. 73(3). 359-396. 10.1111/j.1539-6975.2006.00180.x.
Eckardt, Martina, Agent and Broker Intermediaries in Insurance Markets - an Empirical Analysis of Market Outcomes (2002). Thunen-Series of Applied Economic Theory Working Paper No. 34.
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