Let’s say you are looking for a small business insurance policy and you are wondering what differentiates an insurance company and an insurance agency. Tomato, tomahto — potato, potahto, right? Well, not exactly.
The main difference between an insurance company and an agency is that an insurance company underwrites insurance policies and pays claims. In contrast, an agency is an intermediary that connects with the buyer to sell them insurance on behalf of an insurance company, collecting a portion of the premium as their sales commission.
You have two paths to find the right coverage for your needs, and there are some significant differences to consider when choosing an insurance agency or an insurance company. We define the terms and discuss their differences to help you make the right choice.
How does an insurance company work?
On one hand, you could go to a direct writer insurance company and purchase a policy with no agent intermediary). A direct writer is a single organization that sells, underwrites, pays out, and carries the risk of all insurance policies they issue. They can be policyholder-owned mutual companies or shareholder-owned corporations. The federal government regulates insurance companies to verify they have the financial resources to cover their fiduciary responsibilities to policyholders.
When purchasing a policy directly from an insurance company, you will reach out to a representative, pick your plan, and pay your premium all through one entity. While this process may be direct and streamlined, it is the consumer’s responsibility to shop for and select the best plan.
How does an insurance agency work?
On the other hand, you could work with a licensed insurance agent to shop for and compare policy offerings from multiple carriers. Their service is typically paid for through commissions stated as a percentage of your total premium. While a licensed agent can recommend coverage for you, the agency does not own or underwrite the policy, and you have the responsibility of choosing which option to bind.
An insurance agency is a single agent or group of agents authorized to sell insurance policies on a carrier’s behalf. Independent agents can represent multiple carriers, while exclusive agents only sell a single carrier’s policies. Unlike insurance companies, agencies do not underwrite policies or payout claims. Instead, they connect consumers to the best coverage for their needs, comparing and explaining policy details. State governments regulate insurance agencies to ensure best practices.
When purchasing a policy utilizing a licensed insurance agent, that agent will help your small business compare and select the best plan. Once you choose a plan, you will pay your premium through the carrier.
What are the pros and cons of both?
Now you know how an insurance company and an agency work. But, what are the pros and cons of both? Here are the main points to consider.
Direct writer Insurance company pros and cons:
- Pro: You only have to work with one company at a time (if you don’t want optional quotes)
- Pro: Buying direct can be fast and efficient if you know your needs and don’t need many optional coverages
- Con: You have to compare and find the best plan on your own
- Con: An direct writer insurance carrier may not take the time to explain complicated terms
Insurance agency pros and cons:
- Pro: Insurance agents compare and explain plans, sometimes from multiple insurance companies, helping you find the best coverage for your needs
- Pro: Insurance agents can act as an advocate for you should questions or issues arise after purchasing coverage
- Con: Some agencies may have slower response times
- Con: Some agents only represent one or a few carriers
- Con: Your premiums may be higher to account for agent commissions
What is an insurance agent vs. an insurance broker?
Insurance agents and brokers both work to help customers find the best insurance coverage for their needs. However, there are a few key differences in their processes.
An insurance agent works on behalf of insurance carriers to connect customers with policies. An agent may work with one or multiple carriers. Insurance companies pay agents a commission on their sales. While an agent doesn’t have the power to underwrite a policy, they can complete the policy sale on behalf of the client.
An insurance broker also connects customers with the best policies. However, a broker works on behalf of the customer rather than the insurance carrier. So, an insurance broker has access to a number of carriers they can select policies from, which benefits the consumer. Unlike an agent, a broker may charge their clients a fee.
There’s another way to buy insurance
Between carriers, agents and brokers, choosing how to purchase insurance can be more complicated than choosing what policy to buy! Busy small business owners who don’t have time to navigate the insurance world can turn to Thimble, where we do insurance differently.
Thimble works similarly to an insurance agency. We are an insurance services provider that gives customers control of their coverage, allowing small businesses to purchase policies by the job, month, or year and modify, cancel, or pause anytime. With the Thimble app, you can discover and buy the best policy for your needs in minutes. And if you’re already working with a broker for your insurance needs, ask them about Thimble!
We are quick-thinking insurance for fast-moving businesses. As the first insurance services provider to put customers in control, we allow you to select coverage by job, month, or year and upgrade when your business really takes off.
Find the right policy for your small business in minutes. (You’ll be covered before the other guys even call you back.) Simply click “Get a Quote” or download the Thimble mobile app, answer a quick set of questions, and get covered.
