Insurance Broker FAQ

Following are some questions we hear asked of and about insurance brokers along with our answers. Not everyone wants you to know these things!

Is there a contractual difference between a broker and an agent?
Yes, but not much. In Washington State, the Office of the Insurance Commissioner describes an agent as “working for the insurance company” and a broker as “working for their client.”  Brokers could charge fees and agents couldn't. However, after July 1, 2009, the licensing distinction between the two has been eliminated in favor of the term "Producer."

Can I pick any insurance broker firm to represent me or my organization?
Yes, as long as they are properly licensed in your state, you can hire and fire a benefits broker at-will. In fact if you are responsible for choosing an employee benefits broker, odds are very good you are also a plan “fiduciary” as defined by federal law (ERISA). You have an obligation to manage your benefit plan(s) in the best interests of your employees, and we believe that means partnering with an experienced advisor and broker.

Personal relationships are still very important in choosing to keep or replace a consulting broker, but the sheer cost and complexity of modern benefit plans tends to favor hiring the most competent and cost effective advisor. 

Do I have to wait for my insurance policy or plan to renew before changing brokers?
No. For any group insurance and individual policies for which you pay a monthly premium, you can change with a simple Broker of Record (BOR) letter effective on the first day of any month you choose. However, there are some exclusive broker arrangements with certain products, collective bargaining units, trusts and associations that may preclude you or your organization from selecting its own broker.

If I change brokers, does it also change my policies or benefit plans?
No, not unless you want to change benefits at the same time. In the long run, the whole point of changing your consulting broker is to advance in a new direction, but changing brokers normally does not require you to make any changes to your policies or plans.

Why do I always seem to get my health plan renewal late?
Because late deliveries of renewal proposals typically favor the incumbent broker. It is often in their interest to delay the delivery to you and limit the amount of information you receive. Sometimes employers invite multiple agents or brokers to get health insurance and other quotes at their renewal time. We call this “speculative bidding.” Unfortunately, this is like asking multiple attorneys to try your case at the same time.  This brings the process to a crawl as the insurers have to match up different censuses and quote requests on behalf of the same employer group.  Negotiating becomes more difficult and the incumbent broker often has the advantage when things stagnate.

Will I pay more or less in commissions and fees if I change brokers?
It depends. If you are purchasing a small group or individual policy or plan (small may be defined differently by each insurer), your premiums may not change at all. If you are changing brokers on a larger group benefit plan, the commission may not change until your next renewal. Broker fees on larger group plans, however, are usually negotiable immediately.

If you now have a name-brand broker, it would be highly improbable EmSpring would ask to increase your commissions or advisor fees. EmSpring routinely signs disclosure statements with clients that reduce gross commissions and fees by as much as 50%. Often, this is the first time our new clients have ever seen such a disclosure.

Do national and international brokers, banks and consulting firms have any advantages over regional independents like EmSpring?
Yes, they do. They have a “name brand” and a large diversity of personalities on staff from which to build solid client relationships in many communities. Prior to web-enabling service applications, they also had a technology advantage, the perception of which still lingers in the marketplace. Most national “name brand” firms have very good people who work for them somewhere in their food chain.

Generally, these large “chain” brokers are supremely profitable organizations that earn substantial bonuses and commission overrides, sponsor events and make charitable contributions that are beyond the capacity of independent brokers like EmSpring.

Does EmSpring have any advantages over large national consulting firms?
Yes, that’s why we are growing. It is often very easy for us to prove we can under charge and out perform our competitors. If we had to pick only one advantage, it would be cost. We are not publicly-traded, have no retired partners, no expensive office leases, no prior or pending lawsuits, very little advertising and promotional expenses, no proprietary software to maintain, and no exposure to the property and casualty markets. As such, our commissions and fees are often substantially less than the national firms. We also maintain significant service advantages that, of course, you will have to experience for yourself first hand.

Can I work direct with an insurer and save commissions?
Maybe. Some medical insurers allow direct applications without an agent or broker, but it’s highly unlikely to save you on your premiums.

For example, individual medical insurers and virtually all “community-rated” group policies have their premiums registered with the Insurance Commissioner in each state. These policies are registered with commissions included. In these circumstances, there is no savings in working direct with an insurer.  For larger employer plans, you will pay dearly to sign a non-negotiated renewal with an insurer or third party administrator.

Can my insurer(s) and/or plan vendors choose not to recognize a new broker?
Yes. Insurance producers must be “appointed” by each insurer to be legal. Some insurers and third party administrators do “black-list” certain producers and firms for various reasons. Other producers may be in trouble with the Office of the Insurance Commissioner and have licenses suspended or revoked. We encourage you to check the website of the Insurance Commissioner in your State.

Some associations, captive or direct-write insurers may not recognize independent brokers or advisors. For instance, you must use a State Farm or a Northwestern Mutual agent to purchase an auto or life policy from those companies. The Association of Washington Cities and BIAW Trust plans are examples of exclusive broker agreements. Unlike property and casualty insurance markets, however, there are few captives or exclusives in employee benefits.

My Property & Casualty broker has exclusive deals with insurers. Does this also apply to employee benefits?
No, it does not. P&C markets, licensing, regulation, underwriting and compensation are entirely different than health and group benefit insurance. The biggest reason is that the federal fiduciary requirements of ERISA do not apply to the Property & Casualty markets. Confusing experts from these two markets can be very costly to employers.

Why do many broker firms shy away from self-funded ERISA health plans?
In our opinion, there are three reasons that most self-funded health plans in the Northwest are managed by relatively few brokers like EmSpring.

First, self-funding is a specialty that requires a different skill set and experience level than fully-insured benefits. It is not easy to get this experience and can be intimidating to many agents. Second, self-funded plans have more stringent disclosure requirements that make it more difficult to hide or inflate commissions and fees. Last, a fully-insured medical plan is usually more lucrative and less work for a broker than the equivalent sized self-funded plan.

Why do many producers (agents and brokers) shy away from Health Savings Accounts?
While HSAs are not for everyone, the premium savings can be substantial. Again, in our own opinion, we can think of only one reason some agents and brokers may not enthusiastically recommend HSAs to their clients – lower premiums mean lower commissions. It’s unfortunate, but our industry is still full of people who base recommendations on their own compensation goals.

What happens if we hire EmSpring and then find out the arrangement is not favorable?
You can replace us as soon as you make this determination. We can be fired as easily as we can be hired. We just don't plan on giving our clients any reason to do so!