Although the terms “insurance agent” and “insurance broker” are sometimes used interchangeably, there is an important distinction between them. Persons with these job titles both work to facilitate the purchase of insurance policies by coordinating between (1) persons and entities who are interested in purchasing insurance policies and (2) insurance companies who are interested in selling insurance policies.

The primary difference between an insurance agent and an insurance broker is who they represent in a transaction—and thus where their loyalties lie. An agent represents one or more insurance companies and a broker represents the insurance buyer—whether an individual or a business.

An agent—sometimes referred to as a captive agent—generally provides information about insurance policies (sometimes called “product”) available from the insurance company or companies the agent represents. In contrast, an insurance broker “goes out into the market” and helps the consumer or business owner find, compare, and acquire the appropriate insurance coverage through one or more insurance policies.

An insurance broker’s compensation for helping a client find, compare, and acquire the appropriate insurance coverage is included in the premium payments made by the client (insured) who purchased the policy or policies. A broker should provide a client with a statement detailing the amount of the premium that will be paid to the broker in commission before the client completes the purchase.

In Alabama, insurance agents and brokers are both involved in the process of helping clients obtain insurance, but they have different roles and represent different parties. An insurance agent represents one or more insurance companies and is responsible for selling the insurance products of those companies to clients. These agents may be 'captive,' meaning they work exclusively for one insurer, or 'independent,' representing multiple insurers. On the other hand, an insurance broker represents the insurance buyer and is tasked with finding the best insurance policy for the client's needs by comparing offerings from various insurance companies. Brokers are compensated through commissions included in the insurance premiums paid by the client, and they are required to disclose the amount of commission they will receive before the client finalizes the purchase of an insurance policy. Both agents and brokers in Alabama must be licensed by the Alabama Department of Insurance, which sets forth regulations and standards for their conduct and the protection of consumers.