There exists a wide variety of legal definitions of insurance brokers, insurance agents and financial intermediaries across the EU.

Since the European Insurance Mediation Directive (IMD), European rules do no longer refer to the traditional distinction between agents and brokers and adopts an activity-based approach. The Insurance Distribution Directive (IDD - 2016) maintains this approach and adds the concept of insurance distributor to the set of EU definitions (and to the scope of the Directive).

Thanks to disclosure at contract level the insurance-seeker is aware of the capacity in which the insurance intermediary / distributor is acting.

Some EU Member States have however retained the reference to agents and brokers in their laws.

Insurance agents are, in general, intermediaries who conduct business on behalf of one or more insurance companies with whom they have an agency "agreement" or "mandate". The insurer-agent relationship can take a number of different forms (multiple, exclusive, …).

Insurance brokers assist clients in the analysis of their needs and in the choice of their insurance by presenting them with alternatives in terms of insurers and products. What distinguishes them from the agent is in most cases, the absence of a contractual relationship with one insurer or multiple insurers to place business on an exclusive basis.

Financial intermediaries assist their clients in planning their future finances; advising on investment strategy, tax planning and other financial services (including insurance and mortgages). In Europe there are a wide variety of financial intermediaries that offer different services and are known by different terms, such as financial advisers, independent financial intermediaries, patrimonial managers, etc.

There can be more than one intermediary involved in the chain of the intermediation activity for one risk or client. Furthermore, there are reinsurance intermediaries who solicit, negotiate and place reinsurance cessions and retrocessions on behalf of ceding insurers seeking coverage with reinsurers. Reinsurance intermediaries can also be involved in a reinsurer’s retrocession of parts of his risk.

Intermediaries play a key role in the insurance process.

For clients, intermediaries:

• identify the risks clients face;
• ensure that clients take informed decisions about the risks they wish to insure;
• design new and innovative solutions;
• reduce the clients’ search costs;
• put their knowledge at the service of the clients;
• assist their clients with claims related services and policy administration services.

For insurers, intermediaries:

• facilitate entry into the market by new insurance companies, as the latter can reach a wide client base without having to incur the costs of building a distribution network.
• intermediaries assist insurers with claims-related services and policy administration services.

Once the risks of the client are identified and the insurance needs are defined, there are a number of factors determining the recommendation that intermediaries make to their clients when advising them on the choice of a particular insurance or insurer. Apart from the price, these factors include, inter alia:

• the breadth of coverage available (capacity),
• the insurer’s flexibility in agreeing coverage,
• the insurer’s image and reputation, especially in respect of claims service (speed, fairness of settlements, additional benefits to claimants),
• the insurer’s financial security,
• the quality and clarity of documentation provided,
• the insurer’s speed in issuing documentation or in quoting terms,
• timeliness in inviting renewal,
• the technical competence of the insurer’s staff,
• the quality and availability of advice provided to policyholders,
• the quality of the other services provided by the insurer, his locational proximity.

This illustrates very well that price is not the only determining factor in the choice of insurance.

Generally, there are two primary mechanisms by which insurance intermediaries are compensated for their services:

• A fee system under which the client directly pays for the services provided;
• A commission system under which the intermediary is paid a percentage of the premium paid by the client for coverage based upon the intermediary's agreement with the carrier.

Many insurance intermediaries offer the choice to the client (particularly in the business segment) to work either on a commission or a fee basis. When considering the choice between the two, a number of factors need to be considered by both the intermediary and the client in their dialogue. For example: commission is only payable if a contract ensues. In a fee system, clients should consider if they will be able to afford to pay fees based on time spent in the event of a claim. The commission system satisfies a need for services in the future. The transparent co-existence of various remuneration systems is the best guarantee for competitive and dynamic markets.

The remuneration of the intermediary, being in principle commission–based with the possibility to agree fees, has been a major contributing factor to the successful and competitive development of insurance markets all over the world. The decision to work on a fee or commission basis is a decision that should be taken between the parties based upon a transparent dialogue about the various options.