Like many small business owners, you may have limited knowledge of insurance coverages and their costs. Accordingly, you may need an agent or broker to help you secure the insurance you need at a price you can afford. You may also need the services of an agent or broker when you want to buy policies from an insurance company that doesn't sell its products directly to buyers.
A myriad of agents and brokers sell insurance to small businesses so how do you choose the right one? This article will outline some steps you can take to find an insurance professional who's right for your firm.
Insurance Agent vs. Broker
Before choosing an insurance intermediary, you'll need to decide whether to use an agent or broker. Insurance agents and brokers perform many of the same functions and have similar obligations. For instance, both have a duty to act in good faith and secure the coverages you have requested. If they are unable to obtain the amount or type of insurance you have demanded, they must inform you of that fact. While agents and brokers have many commonalities, they do have some differences.
Insurance agents act as representatives of insurance companies. A captive agent represents one insurer only, while an independent agent represents several insurers. An agent's obligations to an insurer it represents are spelled out in a contract called an agency agreement. The contract outlines the agent's binding authority, meaning their authority to initiate coverage. The agent may be permitted to bind some types of policies but not others. The insurer pays its agents a commission for each policy they sell.
Brokers act as representatives of insurance buyers. They do not sign binding agreements with insurers, so they do not have the authority to bind policies. When a broker wishes to initiate coverage on a customer's behalf, he or she must ask the insurer to issue an insurance binder. Like agents, brokers are paid a commission for each policy they sell.
Most small businesses can obtain the coverages and service level they need from an insurance agent or broker. Businesses that have unique hazards or complex insurance requirements may be better served by an insurance broker.
Finding the Right Intermediary
To find the right agent or broker for your business, the first step is to obtain recommendations from colleagues, business associates, friends, or acquaintances. You can also obtain referrals from trade or professional organizations, insurance company websites, or your state chapter of the Independent Insurance Agents & Brokers of America.
Vet Your Candidates
Once you have identified some potential candidates, you'll need to confirm that they're properly licensed. You can obtain license information by contacting your state insurance department. Ask for verification that the agents have an active license and that they're licensed to sell the type of insurance you want to buy. For example, if you plan to buy a business owners policy, your agent should have a property (or a property and casualty) license.
The insurance department may also be able to tell you whether any complaints or enforcement actions have been filed against the agents. If the department can't provide this information, you can check the consumer information tool provided by the National Association of Insurance Commissioners.
Beware of any agent or broker who's overly pushy, makes rosy promises, or tries to rush your decision.
Interview Your Candidates
Now that you've completed the license and background check, you should interview your candidates. The interview can be in-person or via the telephone. Here are some questions to ask.
- Are you familiar with my industry? The agent should have at least a basic knowledge of your industry and type of business.
- What types of insurance do you sell? The agent should offer the types of coverages your business needs. An agent who handles mostly personal lines coverages is probably not the right choice for a business.
- How long have you worked as an agent? Experience is important so choose an agent who's been in the business for several years.
- What credentials have you received? Many agents have attained insurance credentials like the Chartered Property and Casualty Underwriter (CPCU) or the Certified Insurance Counselor (CIC). If you aren't familiar with the credentials, ask the agent for an explanation.
- What insurers do you represent? Find out what insurance companies the agent represents (or the broker deals with). Check those insurers' financial ratings.
- Can you provide references? Ask the agent to provide the names and contact information for satisfied customers with businesses similar to yours. Call the individuals and ask for their feedback.
- Can you meet my needs? Explain what types of services you are looking for and ask whether he or she can provide them. Some business owners want lots of face-to-face interaction. Others prefer to communicate via email, telephone, or text messages.
Making Your Choice
After you've vetted and interviewed your candidates, you should be ready to make a choice. Remember that a good working relationship takes time to develop. Communication is key. If you aren't happy with the service your agent is providing, speak up. Be clear about what you want. If the agent fails to respond to your requests, and you are still unhappy, find another agent.