Explain the role of an insurance broker.

Insurance Broker

Brokers are people who legally represent the insured. The customer is the principal of the broker who provides the broker with limited authority. The brokers have to find a suitable insurer according to the principal’s needs. They cannot act on the insured behalf but are given commission for their work.

Brokers can also be insurance agents so that they can connect the insurers and insureds. A broker may seem similar to an agent but there is a significant difference. When a principal gives details regarding the risks to the agent, all the facts and documents related to it is passed on to the agent. But if the principal of a broker gives information about the risks no such facts or documents are given to the broker. This is where the limitation in the broker’s authority appears.

There are clearly defined laws which list the responsibilities of a broker and a principal. The insured gives the commission to a broker according to the premium charged to the insured by the insurer. The broker in turn should give priority to the principal’s risks and requirements. They have to design the insurance programs in such a way that the principal gets a maximum benefit from it.

The role of the broker in property and liability insurances is more in life and health insurances. Nowadays, there are well established brokerage firms which have a specialised broker for different types of insurances.