Overview
Insurance products are sold through a range of distribution channels, of which the channel of insurance intermediaries is a very important one. In a number of Member States, the intermediary channel is by far the most important. The other channel includes direct sales by insurance companies.
According to the Insurance Mediation Directive (IMD) the activities undertaken by an insurance intermediary include the “introducing, proposing or carrying out other preparatory work to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim”. The IMD does not to the traditional distinction between agents and brokers, and adopts an activity-based approach. However, some Member States have retained the traditional distinction while others have adopted the IMD approach. A wide variety of legal definitions exists across the EU. In general terms, however, they reflect the following:
For example, the business insurance brokerage sector is divided into four major sub-sectors (see table 1):
- The global and multinational business insurance brokers, which serve major multinational and domestic firms, and provide a wide range of services to these clients in addition to the traditional brokerage services.
- The major domestic brokers that provide services to larger and medium-sized companies. Such brokers are likely to be present throughout the country.
- Medium-size brokers serving both some of the larger companies and the smaller businesses
- Small private brokers which focus mainly on serving the “small” end of the business spectrum and occasionally larger companies on a relationship basis.
Some of the brokers which fall into the latter two categories belong to international networks. These arrangements allow smaller brokers to offer products to their clients in several countries.
A clear illustration of the pyramidal structure of the insurance agents and brokers sector is provided by the French sector (see figure 1) in which and very small and small businesses being by far the most common among agents and brokers.
The exact structure of the insurance intermediation sector will vary somewhat from Member State to Member State. But, we expect that each will show a broadly similar pyramidal form.
From a legal perspective, the Directive on Insurance Mediation clearly takes an activity-based approach and the defines insurance intermediaries all those undertakings involved in “introducing, proposing or carrying out other preparatory work to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim”.
In essence, all undertakings involved in the distribution of insurance products other than the insurance companies and their employees are insurance intermediaries. This includes agents, brokers, bancassurance and other distribution channels such as the post office, etc.
The contractual arrangements between the intermediaries and insurance companies can take many different forms and the intermediary may undertake some activities for or on behalf an insurance company provided the client of the intermediary is clearly informed that this is the case (article 12 of Directive on Insurance Mediation). For example, intermediaries may assist insurers with claims-related services and policy administration services.
In contrast to a number of other financial sector products and services, clients have a choice of whether or not to use an insurance intermediary as very often insurance companies also engage in direct distribution.
Insurance intermediaries bring value to clients by helping clients to
- Identify the risks clients face;
- Ensure that clients take informed decisions about the risk they wish to ensure;
- Design new and innovative solutions;
- Reduce clients’ search costs;
- Put their knowledge at the service of the clients;
- Assist clients with claims related services and policy administration services.
Insurance Agents
Insurance agents, are, in general intermediaries who conduct business on behalf of one or more insurance companies with whom they have an “agency agreement”. The insurer-agent relationship can take a number of different forms (multiple, tied, ....)
Insurance Brokers
Insurance brokers work for the policyholder in the insurance process and act on behalf of the client. Brokers assist clients in the choice of their insurance by presenting them with alternatives in terms of insurers and products. Acting as “agent” for the buyer, brokers usually work with multiple companies to place coverage for their clients. Brokers obtain quotes from various insurers and guide clients in determining the adequate policy from a range of products.
While most, if not all, brokers are active in commercial lines, some are also insurance intermediaries for personal lines policies. There are also distinctions between “retail brokers”, who negotiate insurance contracts directly with consumers, and “wholesale brokers”, who negotiate insurance contracts with retail brokers and agents, but not directly with consumers.
Reinsurance brokers solicit, negotiate and place reinsurance cessions and retrocessions on behalf of ceding insurers seeking coverage with reinsurers. Reinsurance brokers can also be involved in a reinsurer’s retrocession of parts of its risk.
Bancassurance
In this case, banking institutions act as insurance intermediaries, selling a range of insurance products alongside a variety of other financial products and services.
