Purchasing an insurance policy
There are 3 ways to purchase an insurance policy:
1. Purchase directly at an insurance company
2. Purchase through an insurance agent
3. Purchase through an insurance broker
An insurance company is the one who drafts the policy and pays for the claims. This brings about a conflict of interest. Although the insurance company will send a surveyor or loss adjuster (as a middle man) to inspect a claim, in practice those middle man tend to work on behalf of the insurance company not the insured. The insurance company is a “seller” of insurance policies, whereas the insured is a “buyer”. The benefits of both parties are typically in conflict. The general rule of business and legal activities is:
“Let the buyer beware.”
Buying an insurance policy especially requires extra attention. We can see a defect with our eyes before we buy normal goods. However, buying an insurance policy is like buying a future event. We only see a defect of a policy only when there is a claim, of which we cannot do anything to fix it. Most importantly, buying a policy is like buying a text, which is not tangible like other normal goods.
An insurance agent is also considered a seller: He or she offers the product or the policy of an insurance company he represents for general people to buy. An insurance broker is “the representative of the insured” and thus equal to a “policy buyer”, not a seller. This is because when a broker receives an order to arrange a policy, it will search the market for the best policy from one out of numerous insurance companies in the market for its client. As a result, roles, responsibilities and principles of an insurance agent and an insurance broker are completely different.
Moreover, an insurance broker can be either an individual or a company. An insurance broker company is more reliable, efficient and secure because it has a team that shares responsibilities and works collaboratively.
There are 2 types of casualty insurance broker companies: in-house or captive brokers and independent or professional brokers. The insured can be sure of their maximum benefit when they buy a policy through independent brokers.