| Frequently
Asked Questions |
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1.What
is the difference between an Insurance
Broker and an Insurance Agent? |
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There
is a key and important difference between
the two: |
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An Agent acts on behalf of one
insurer only and can only sell what that
particular insurer has to offer.
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contrast, an Insurance Broker acts on
behalf of its client. An Insurance Broker
is not tied to any particular insurer
and can arrange the best insurance protection
for you, that too at a competitive price,
with any insurer.
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In
fact, a combination of different insurers
may be used by the Insurance Broker for
addressing the insurance requirements
of the same insured based on the expertise
and claim settlement history of the various
insurers. The same is not the case with
the Agent, who will not be able to offer
the same range of insurers. |
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2.Can
all Insurance Brokers be rated on the
same scale? |
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All
Brokers licensed by Insurance Regulatory
and Development Authority (IRDA), India
will have had to demonstrate technical
and professional competency and the adoption
of ethical procedures. However, there
are still important differences even among
licensed Insurance Brokers. The following
factors would form an important part of
selection process of an Insurance Broker:
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Experience
is important but only if it is across
a wide range of risk profiles and includes
experience in dealing with a broad portfolio
of insurers.
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Technical
competence is essential. Senior staff
should be able to demonstrate the same.
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The
insurance market tends to place importance
on personal relationships because, like
any business relationship, there is a
significant element of trust involved
in the negotiation process. A Broker should
be able to demonstrate that a broad range
of insurers has confidence in the Broker’s
professionalism.
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Office work
practices are important. Documentation
should be timely; filing systems should
be orderly; the Insurance Broker should
have clear policies about protection of
confidentiality and privacy; and access
is important, including after-hours. The
Insurance Broker should also be able to
operate effectively in an internet environment
and use a wide range of computer-based
technologies.
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3.
In case a client is entitled to Special
Discount, which is indicated on the face
of the policy, how are Insurance Brokers
paid for their services?
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In the above
scenario, the Insurance Company does not
give any brokerage to the Insurance Broker
as it has already given discount to the
client directly by way of reduction in
premium as permitted under regulations.However,
for the services rendered to the client,
the Insurance Broker may charge some Consultancy
Fee. In most of these cases, the benefits
derived by the client and the quantum
of discount obtained from the Insurance
Company far exceed the Consultancy Fee
paid by the client to the Insurance Broker.
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4.Why
should a client approach an Insurance
Broker? |
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Without
a broker, a client has to ultimately rely
on his/her own expertise and knowledge
of insurance and the insurance market.
By contrast, an Insurance Broker has got
a plethora of professional knowledge.
The Client is entitled to look to the
Insurance Broker for expertise and innovation
in respect of identifying insurable risks
and for placing those risks effectively.
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While the size of a client’s business
may well give them some buying power,
it cannot match the leverage that an Insurance
Broker has from placing the business of
a group of clients.
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Another
important point is that the insurance
market is dynamic in nature. Coverage,
policy wordings and pricing trends are
always changing. Newer products are always
introduced in the market. The insurance
market is ever developing.
Thus one can think of utilizing a broker
in much the same way, as one would go
to an accountant, a doctor or a lawyer
for a specialist advice.
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5.
How does an Insurance Broker get remunerated? |
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The insurance
company with whom an Insurance Broker
places the business, pays the Insurance
Broker a standard percentage of the net
premium, commonly known as ‘brokerage’.
The overall cost of using the broker as
far as any client is concerned, therefore,
remains the same had the client insured
directly with the insurer. In fact, it
may be cheaper to avail services of an
Insurance Broker as the client would be
spared the likely cost that he/she would
incur in trying to analyse various types
of insurance.
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Even
the insurer would be spared most of the
costs of acquiring new business as the
Insurance Broker undertakes most of the
administrative tasks that the insurer
would otherwise have had to do. |
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“Insurance
is the subject matter of solicitation”
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