Which statement correctly distinguishes an insurance agent from an insurance broker in California?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
In California, an agent is a producer authorized by the insurer to represent it in soliciting and effecting contracts, so the agent's acts are generally the insurer's acts. A broker is a producer who represents the insured and places coverage with insurers of the customer's choice. In life and health insurance, transactions are conducted by agents rather than brokers, and brokers are used primarily in property-casualty lines. This distinction determines whose interests the producer serves and where the producer's authority comes from, and it affects how premiums and applications are handled.
Why the other options are wrong
- B) This reverses the relationship: agents serve the insurer, while brokers serve the insured.
- C) Brokers are compensated by commissions from insurers or fees from clients; compensation is not prohibited.
- D) Agents place business with the insurers that appoint them; nonadmitted insurers generally cannot be used except under surplus-line rules.
Memory hook
Agent = the insurer's own voice; broker = your hired shopper. Know whose team the producer is on.