Complexity of insurance policy contracts
Insurance policies can be complex and some policyholders may not understand all the fees and coverages included in a policy. As a result, people may buy policies on unfavorable terms. In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold.
For example, most insurance policies in the English language today have been carefully drafted in plain English; the industry learned the hard way that many courts will not enforce policies against insureds when the judges themselves cannot understand what the policies are saying. Typically, courts construe ambiguities in insurance policies against the insurance company and in favor of coverage under the policy.
Many institutional insurance purchasers buy insurance through an insurance broker. While on the surface it appears the broker represents the buyer (not the insurance company), and typically counsels the buyer on appropriate coverage and policy limitations, in the vast majority of cases a broker's compensation comes in the form of a commission as a percentage of the insurance premium, creating a conflict of interest in that the broker's financial interest is tilted towards encouraging an insured to purchase more insurance than might be necessary at a higher price. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible.
Insurance may also be purchased through an agent. A tied agent, working exclusively with one insurer, represents the insurance company from whom the policyholder buys (while a free agent sells policies of various insurance companies). Just as there is a potential conflict of interest with a broker, an agent has a different type of conflict. Because agents work directly for the insurance company, if there is a claim the agent may advise the client to the benefit of the insurance company. Agents generally cannot offer as broad a range of selection compared to an insurance broker.
An independent insurance consultant advises insureds on a fee-for-service retainer, similar to an attorney, and thus offers completely independent advice, free of the financial conflict of interest of brokers and/or agents. However, such a consultant must still work through brokers and/or agents in order to secure coverage for their clients.
Plans can be complex and some customers may not comprehend all the fees and insurance coverages included in a plan. As a result, people may buy plans on undesirable terms. In reaction to these issues, many countries have introduced detailed governmental and regulating routines guiding every aspect of the plan business, including minimum requirements for plans and the ways in which they may be offered and sold.
For example, most insurance plans in the British language today have been carefully selected in plain English; the industry learned the hard way that many legal courts will not use plans against insureds when the idol judges themselves cannot know what the plans are saying. Usually, legal courts construe ambiguities in insurance plans against the plan provider and in favor of protection under the plan.
Many institutional insurance customers buy insurance through an broker. While on the surface it appears the broker symbolizes the client (not the plan company), and frequently counsels the client on appropriate protection and plan restrictions, it should be mentioned that in many cases a broker's compensation comes in the form of a commission as a percentage of the plan top quality, creating a issue of attention in that the broker's economical attention is straight towards inspiring an covered to purchase more insurance than might be necessary at a high price. A broker generally holds agreements with many providers, thereby allowing the broker to "shop" the market for the best rates and protection possible.
Insurance may also be purchased through an broker. As opposed to a broker, who symbolizes the insurance holder, an broker symbolizes the plan provider from whom the insurance holder purchases. Just as there is a potential issue of attention with a broker, an broker has a different type of issue. Because providers perform directly for the plan provider, if there is a claim the broker may advise the client to the benefit of the plan provider. It should also be mentioned that providers generally can not offer as wide a range of selection compared to an broker.
An separate insurance advisor suggests insureds on a fee-for-service retainer, similar to an attorney, and thus offers completely separate advice, free of the economical issue of attention of companies and/or providers. However, such a advisor must still perform through companies and/or providers in order to secure protection for their clients.
