Insurance Company vs. Insurance Carrier: What’s the Difference?

If you’ve shopped for insurance or managed insurance policies, you may have come across the terms “insurance company” and “insurance carrier” used in various contexts. Sometimes they are used interchangeably, while in other cases people distinguish between them. So what exactly is the difference between an insurance company and an insurance carrier?

Below is an explanation of these two common insurance terms and how they compare:

Insurance Company

An insurance company refers to a business that provides insurance policies to individuals or other entities. Some key characteristics of insurance companies include:

• Develop and sell insurance products like auto, home, life, and health insurance.

• Take on financial risk from customers by agreeing to pay claims under certain covered circumstances.

• Set pricing, terms, and conditions for the policies they offer.

• Manage customer accounts, billing, marketing, and other administrative functions.

• Maintain reserves to fund future insurance claims liabilities.

• Partner with agencies and brokers to distribute their insurance products.

• Subject to state regulations governing insurance providers.

Insurance companies come in various forms, including stock companies, mutual companies, reciprocals, risk retention groups, and more. But in general, anyone referring to an “insurance company” is talking about the actual business entity that issues insurance coverage.

Examples of well-known insurance companies include State Farm, Allstate, GEICO, Liberty Mutual, Aetna, Anthem, Progressive, and New York Life.

Insurance Carrier

An insurance carrier is also a company that provides insurance policies to consumers or organizations. It is essentially just another term for an insurance company. Some examples of how it is used:

• An auto insurance policy listing State Farm as the insurance carrier.

• Switching health insurance carriers from Cigna to Aetna.

• Complaints filed against a certain disability insurance carrier.

• Comparing quotes among multiple home insurance carriers.

In all these cases, the terms “carrier” and “insurance company” can be used interchangeably without changing the meaning. They both refer to the actual insurer providing coverage and paying claims.

The only distinction some people point out is that “insurance company” has a broader meaning that could apply to agencies and brokerages, while “insurance carrier” is reserved specifically for the underwriting entity. However, this is a subtle nuance in most cases.

Insurance Agency vs. Insurance Company

Unlike insurance carriers that underwrite policies, an insurance agency refers to a business that sells insurance products on behalf of insurance companies. Key characteristics include:

• Act as intermediaries between insurance carriers and consumers.

• Market and distribute policies underwritten by insurers.

• Provide quotes and facilitate policy sales. Do not actually issue policies.

• Offer consulting and support services for customers.

• Employ licensed insurance agents and brokers.

• Often specialize in certain types of insurance coverage.

• Subject to regulations governing insurance agents, rather than insurers.

Some prominent insurance agencies include Gallagher, Marsh & McLennan, Willis Towers Watson, Brown & Brown, and Arthur J. Gallagher & Co.

So while an insurance company actually provides insurance coverage and pays claims, an agency just acts as a sales channel for policies from one or multiple insurance companies. The agency does not take on risk itself.

Similarities Between Insurance Companies and Agencies

Insurance carriers and agencies share some common characteristics in how they operate within the insurance marketplace:

• Both play important consumer-facing roles in the insurance sales process.

• They must comply with state licensing regulations applicable to insurance providers or agents.

• Their revenues come from commissions or fees related to the insurance policies sold.

• They employ professionals with specialized insurance and risk management knowledge.

• Their success depends on cultivating positive customer experiences to retain and grow business.

• They partner with each other, with carriers relying on agencies as distribution channels.

So insurance carriers and agencies both interact with insurance consumers, facilitate sales, and are subject to insurance department oversight in each state where they do business.

Differences Between Insurance Companies and Agencies

While insurance companies and agencies fill important complementary roles, some key ways they differ include:

• Product development – Insurance companies design insurance products, while agencies just sell them on behalf of carriers.

• Risk assumption – Insurance carriers take on risk from policyholders, whereas agencies do not.

• Policy issuance – Insurance companies are the entities that actually issue insurance policies to consumers after underwriting.

• Reserves – Insurance carriers maintain financial reserves to fund future claims. Agencies do not hold reserves.

• Claims payments – Insurance companies handle and pay policyholder claims. Agencies have no direct role in the claims process.

• Revenue source – Insurance carriers earn income from premiums. Agencies get paid through sales commissions and fees.

In essence, insurance companies create and back insurance policies that agencies distribute and promote to customers. But only the carrier is financially liable for claims.

Specialized Insurance Agencies

While insurance agencies broadly work on behalf of multiple insurance carriers, some agencies specialize in specific market niches. Examples include:

• Independent agency – Works with multiple insurance carriers to meet diverse customer needs.

• Captive agency – Represents products from only one insurance carrier or company.

• Direct insurance writer – Sells policies directly to the public rather than through independent or captive agents.

• MGAs – Managing general agents that take on specialized functions like underwriting or claims.

• Brokers – Large commercial insurance focused agencies that develop more customized solutions.

So while insurance companies focus mainly on insurance product manufacturing and distribution, agencies fill specialized roles interacting with both insurers and policy purchasers.

Insurance Carriers Used by Agencies

Some prominent insurance carriers that insurance agencies and brokers may partner with include:

• Auto insurance – State Farm, GEICO, Progressive, Allstate, Liberty Mutual

• Homeowners insurance – State Farm, Allstate, USAA, Farmers, Travelers

• Renters insurance – State Farm, Allstate, Farmers, Nationwide, American Family

• Life insurance – Northwestern Mutual, New York Life, Pacific Life, Guardian, Lincoln Financial

• Health insurance – UnitedHealthcare, Anthem Blue Cross Blue Shield, Aetna, Cigna, Humana

• Business insurance – The Hartford, Nationwide, Liberty Mutual, Travelers, Chubb

Depending on the types of insurance products they want to make available to customers, agencies appoint with carriers offering coverage for those needs.

Key Takeaways

Understanding the difference between insurance companies and insurance carriers versus insurance agencies is helpful for making sense of the insurance marketplace:

• Insurance carrier and insurance company refer to the insurer providing and backing policies.

• Insurance agencies act as intermediaries selling policies on behalf of insurance carriers.

• Insurance carriers take on risk and pay claims, whereas agencies do not.

• Carriers earn income from policy premiums while agencies get paid commissions for sales.

• Insurance companies design insurance products that agencies distribute to consumers.

So in essence, insurance carriers manufacture the product, while insurance agencies bring it to market. Being able to distinguish between these two very different insurance entities avoids confusion.