Difference between Underwriter and Broker in Insurance

Raghvendra Sonker

10 Sep, 2022

This article focuses on the different roles of an Underwriter and Broker in Insurance.

Insurance Broker

An insurance broker connects the insurance companies with the general public. An insurance broker represents customers and ensures that they get the best insurance policy that fits their needs. Insurance brokers will try to attract new customers while at the same time meeting the demands of existing customers, such as assisting policyholders with claim filing and settlement.

 An insurance broker can also assist potential customers in determining their specific insurance needs and customises insurance policy as per required demand of a client. An individual must possess a valid license to perform activities of an insurance broker. Insurance Broker has to face legal consequences if found operating without an insurance broker licence.

Types of Insurance Brokers

Based on their working areas Insurance Brokers are divided into majorily five types which are:

1. Direct Broker (Life);
2. Direct Broker (General);
3. Direct Broker (Life & General);
4. Re-insurance Broker; and
5. Composite Broker.

Direct Brokers

A direct broker is an agent who gathers detailed information about the clients interested in insurance products. The Direct Brokers works on Life Insurance, General Insurance Products, and some direct brokers deals and assist both on Life and General insurance policies. The direct broker renders advice on different types of policies available and informs about the benefits of an appropriate insurance policy. The Direct Broker acts per the instructions given by the client, such as helping clients pay policy premiums and help to open e-insurance accounts.

Re-insurance Broker

This type of broker performs similar functions as direct broker. Re-insurance broker manages the re-insurance business and sells products related to re-insurance, such as international insurance to the parities staying aboard. A Reinsurance Broker will negotiate with the Insurance company on behalf of the client and also keep a check on the statistics on the re-insurance market

Composite Broker

A composite broker is an institution that carries out all the functions of a direct broker and a re-insurance broker. Therefore this form of broker carries out the combined role of a direct broker and a re-insurance broker.

Insurance Underwriter

An Insurance underwriter^[1] is a professional that analyses the risk in insuring people and assets of individuals and corporations before finalizing the insurance contract and also helps determine the price of the insurance policies and insurance premiums of policyholders.

The insurance underwriter also analyses the insurance company’s data to evaluate the future risk associated with compensating the insured individuals.

Some of the risk analysis are based on:

• Information showing the details of age of the policy proposer and insured;
• Information related to occupation, salary and source of income;
• Financial underwriting is to check the disproportionate sum assured to the income declared and assess the premium paying capacity of the policyholder for a full term of Insurance.
• Medical underwriting over deteriorating health conditions of the insured and related prospective claims arising out of it.

Insurance underwriters usually specialize their expertise in one specific area of insurance, such as healthcare, life insurance, property, or car insurance. Depending on what area of insurance they work in, underwriters can use certain information about an individual to understand whether insurance services should be offered to the client. It is not necessary for an underwriter to meet the policy proposer as they are equipped to decide on software-based algorithms of various variables. These algorithms have been created through experience in dealings with multiple cases.

Types of Insurance Underwriting

1. Full underwriting
2. Simplified Issue
3. Conditional Guaranteed Issue
4. Contingent Guaranteed Issue
5. Guaranteed Issue

Major Difference between Underwriter and Broker in Insurance

Differences between Underwriter and Broker are stated below:

• Underwriters play an essential role in the profitability of any insurance company. They are directly responsible for underwriting profit or loss. At the same time, an insurance broker is a person who acts as a bridge between a customer and an insurance company, assisting in finding the best policy for their needs.
• Consumers are represented by insurance brokers, unlike Insurance underwriters, as they only work for the insurance companies.
• An Insurance underwriter will review a policy per the latest developments, and an Insurance broker will revaluate the clients’ coverage needs.
•  An underwriter protects the insurance company by enforcing the rules and assessing the risks involved per their understanding. In contrast, Insurance Broker primarily focuses on protecting clients’ interests and arranging the best insurance policy.

Conclusion

The above article gives us a basic understanding of the different roles of Underwriters and Brokers in India. Both Underwriter and Broker in Insurance work on the same products of insurance companies, but their roles vary significantly as they represent and cater to the interest of two different parties, i.e. Insurer and the Insured. 

Read our Article: How to get an Insurance Broker License in India?