Who Do Insurance Agents Represent?

[Guest]

I was doing research into my favorite topic, life insurance. Ran across a paper discussing insurance agent's compensation and its lack of transparency.

The paper stated insurance agents represent the insured and as such the insured should be entitled to know what he is paying the agent. Well, it never occurred to me that an insurance agent represented an insured. I always thought the agent represented the company.

Is that correct? Does an insurance agent in fact represent the insured? To me, that way of looking at it opens up a whole new perspective. An agent, in the legal sense of the word, is duty bound to do my bidding and represent me consistent with actions that are in my best interest.

How do insurance agents within the profession see themselves. Who do they deem to represent, the insured or the insurer?

Thanks

 

[J.R.]

Do you have a link to the paper?

 

[Guest]

I was actually looking into overides.

Let me tell you this is not in the U.S., hence my question, but the same principles of law apply as to agency, in the U.S. as are being discussed in the paper.


lets see if this works:

Comments on List of Questions Raised
Question 9: Should the commission structures be simplified and
made more transparent to the consumer? If yes, how would you
suggest that this be achieved?
Response:
The relationship between an insurance broker and his client (the insurance
buyer) is somewhat peculiar. The broker acts as the agent of the insurance
buyer but, more often than not, he is paid by the supplier whose product he
is recommending.
This is one of the core problems of commission-based remuneration.
Given the potential conflict of interest that may arise, and the legal
relationship between the parties, we believe that the broker should always
openly tell his client, in plain simple language, exactly what he being paid
for his services.

I recommend anyone read the whole paper. Some might lose interest on the 2nd or 3rd page, but the rest of the paper after the sports discussion is very interesting.

lets see if I can copy the link.

http://www.ifsra.ie/data/CF_Files/Dandelion - CP9.pdf

May I ask you, how do you view yourself, salpro22? No doubt in my mind you are tring to do right by your clients, but who do you see yourself representing, the insured or the insurance company.

 

[J.R.]

May I ask you, how do you view yourself, salpro22? No doubt in my mind you are tring to do right by your clients, but who do you see yourself representing, the insured or the insurance company

First and foremost, I represent the insurance company. Every contract I have signed with an insurance company illustrated the relationship between the company and me as a field underwriter.

Some of the companies may be more liberal than others regarding their underwriting guidelines, however, it still boils down to what is right for the insurance company and what is right for the client. The ideal fit is to find a product through an insurance company that fits what a client would like to obtain.

The article was interesting, however, I do not agree with the perspective to set commissions at 5%. That negates the basic economics rule of supply and demand and risk/return. Insurance companies take a calculated risk by insuring an individual or family. I also take a risk because I am paid by the insurance company, via the client's premium. If that clients defaults, I get a chargeback and have to give that money back. The insurance company is protected by it's contract with the client, however, I do not have any contract with a client, with the exception of where I sign the application. Perhaps later down the road i might implement a contract to protect my risk, but I do not find the need to at the moment.

That type of system might scare some people away, but I love it. I have been in sales positions where once the deal was closed I was gone. I never enjoyed much satisfication after the deal because I was after the next one. Granted, selling insurance is a lot harder than what I have sold before, but the essence of what I do for a living is ideal for me.

 

[James]

As an agent you reprensent the company you are writing. As in you initial appointment if you read what you sign you'll quickly find out who you represent as far as the Insurance Company is concern. Or look at this way, who pays you?

 

[Crabcake Johnny]

As James stated, you represent who pays you. And your client doesn't pay you. You also represent who you have a contract with. You have a contract with the company, not the client.

In fact, clients routinely lie about their health history and you're "employed" by the insurance company to conduct field underwriting and lessen the company's exposure to claims.

An agent has very few legal obligations to their client - only moral obligations to fully explain the plan and shop for their client to find a product that fits their needs.

Here's a test:

A deal is pending in underwriting. The client calls and says they really need to rush the process because they're having very strange pains in their leg. You:

A: Immediately pull the deal out of underwriting
B: Tell your client to just shut up until it's issued, then see a doctor

Option A protects the company. Option B protects your client.

 

[Guest]

Okay folks, thanks for the answers.

 

[Steve]

I believe I read an article on this subject, although it is not at hand right now... Legally, an agent represents an insurance company and a broker represents the insured.

Can anyone confirm my memory?

 

[STIBROKER]

we represent both.......we are a liaison between the two....with out each other the company would go broke and the client would be uninsured....you have to look out for both sides as an agent....

 

[somarco]

The relationship between the agent (broker, rep, whatever term you choose to use) and the carrier is unique. You are not an employee but rather a contractor. The agreement between the agent & the carrier conveys certain responsibilities and liabilities that are unique to the arrangement.

You can be held personally liable for actions that harm either the carrier or your client. Either the carrier or your client, or both, can sue you if they feel the relationship has been breached.

The carrier pays you, but only after your client pays their premium. So in essence, you are paid by the client via the carrier.

Your carrier can terminate the relationship at any time, with or without cause and without regard to state or local "right to work" laws.

Your client can terminate your relationship at any time without recourse.

As for what you are paid, it is none of your clients business. The premium they pay is the same regardless of whether you are paid or not.

There are exceptions, usually in the area of ERISA plans where full disclosure is required or where securities based products are used. Beyond that there is no compelling reason for your client to know what you are being paid on any particular product.

Clients tend to get bent out of shape when they hear that an agent could be making 90 - 100% on a life case. They think it is excessive and have no clue what it takes to earn that commission.

Of course you may make 100% on a term sale and only 30% on a UL sale (as a percent of the total premium). So what?

Those who call for full disclosure of commissions are full of crap. Many individuals already think they get a better rate by going direct to the carrier, or dealing with a "direct writer" at some online quote mill when in fact they are paying the exact same premium as they would if they bought the identical product from me.

I pick up a couple of AOR letters each month on KP clients. They bought direct, have no idea what they have and can't understand why their rates went up at renewal. After taking a few minutes to explain their coverage and make suggestions for alternate plans, I ask for an AOR letter. I explain their rates will be exactly the same as if they continued with KP direct, the only difference is they have access to me as their agent. I explain that KP has built into their rates a service fee to pay agents like me. If they are not paying an agent that is extra profit for KP.

I usually have no problem taking over the case. It is one of the easiest ways I know to earn a 10 minute commission.