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 South Dakota, insurance agents and brokers are both involved in the sale of insurance policies, but they have distinct roles and responsibilities. An insurance agent acts as a representative of one or more insurance companies, promoting and selling their products to consumers. These agents are often referred to as 'captive agents' if they represent a single insurer, or 'independent agents' if they represent multiple insurers. On the other hand, an insurance broker represents the insurance buyer and is tasked with finding the most suitable insurance policy for their client from the available options in the market. Brokers are not tied to any specific insurance company and are expected to provide impartial advice to their clients. In South Dakota, both agents and brokers must be licensed by the South Dakota Division of Insurance. Brokers are required to disclose their commission, which is included in the premium payments, to their clients before the purchase of an insurance policy is completed. This ensures transparency and allows clients to understand the cost of the brokerage services they are receiving.