What is an insurance broker?

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If you’ve ever come across the term ‘insurance broker’ while managing your insurance policies, you may wonder about the differences between brokers and agents. Insurance can be complicated, but in some cases a broker may be useful when determining your coverage needs and which carriers are best for your purposes. So what is an insurance broker? Simply put, brokers represent the needs of their clients, unlike agents, who generally represent one or more carriers. To help you understand when working with a broker might be a good choice for you, Bankrate’s insurance editorial team did the research to create this guide to brokerages in insurance.

What is an insurance broker?

Brokers for auto, home or life insurance are professional intermediaries who help individuals, businesses and organizations secure insurance coverage. They work independently, meaning they don’t represent any specific insurance company. Instead, they act on behalf of their clients, using their vast knowledge and experience to find the best insurance policies that meet their clients’ unique needs and budgets.

A good auto insurance broker, home insurance broker or life insurance broker not only helps you identify the right coverage but can also assist you in understanding the terms, conditions and benefits of various insurance policies.

What are the different types of insurance brokers?

Insurance brokers can be categorized by the type of insurance they cover. Some, for example, work primarily in the retail insurance space, helping individual clients to purchase health, home, auto or life insurance or other types of policies. Other brokers specialize in helping businesses to purchase the right commercial insurance to suit their needs. 

Less common are the types of brokers who work behind the scenes in the insurance industry. For example, reinsurance brokers may help insurance companies to purchase reinsurance, which is basically insurance for insurers. Surplus lines brokers, meanwhile, often specialize in high-risk policies for those in unusual situations, such as insurance for offshore oil rigs, or coverage for an amusement park.

Insurance brokers vs insurance agents

While both insurance brokers and insurance agents help you get insurance, there’s a significant difference in who brokers vs. agents represent. Not all states have brokers, and in some states, a broker can also be an insurance agent. In those states, the words broker and agent may be used interchangeably.

To further complicate things, there are different types of agents. A captive insurance agent works exclusively with one insurer, selling only that company’s products (e.g., a State Farm agent who solely sells State Farm insurance policies). An independent agent is similar to a captive agent, except they work with more than one insurance company. Both legally represent the insurance company to the client, can bind insurance policies and can usually help with at least some aspects of an insurance claim.

On the other hand, an insurance broker works independently, representing the client to multiple insurance companies. They can explore a broad range of policies from different insurers to find the best fit for their client’s needs. Brokers often sell various lines of insurance products, too, which allows policyholders the freedom to potentially purchase policies from multiple carriers while working with just one agent. However, brokers are not legal representatives of the insurance companies; they are an intermediary and cannot bind insurance policies.

When should I use an insurance broker?

In some cases, brokers charge a fee. That said, in many cases, the broker may be able to find better policies for cheaper prices, ultimately helping you save money overall.

With a fee on the table, you probably don’t want (or need) to use a broker if your insurance needs are relatively simple. You can probably get quotes online or work with an agent because your policy options — and the price of those policies — are going to be pretty straightforward.

But as your needs get more complex, looping in an insurance pro who’s on your side can help you find the coverage you need at a good price.

Some examples of more complex insurance scenarios include:

• Owning a business
• Owning or renting multiple residences
• Owning or leasing multiple cars
• Needing excess liability (for instance, if you own an aggressive breed dog or have a swimming pool)

All said, even if your coverage needs are simple, you might want to use a home, life or car insurance broker if you’re tired of feeling like you don’t really understand what you’re getting when you pay your insurance premiums. Or, if you feel like you might be able to get a better policy but you don’t want to do the research yourself, an insurance broker might help.

What are the drawbacks of hiring an insurance broker?

While insurance brokers can provide indispensable help in getting the right insurance, there can be some drawbacks. For instance, brokers might not have access to every insurer on the market, potentially limiting your options. They may also charge a fee for their services, which might not be cost-effective if your insurance needs are relatively straightforward.

Furthermore, since brokers are not legal representatives of the insurance company, they can accept payment and submit your insurance application, but coverage is not bound until the carrier approves it. If a claim arises, you must work with your insurance company rather than your broker to resolve it.

Lastly, a broker’s effectiveness is closely tied to their experience, knowledge and network, which can be a double-edged sword. Working with an experienced and reputable broker can be extremely beneficial to policyholders with several lines of insurance or complex financial needs. However, an inexperienced broker with limited knowledge could potentially leave policyholders in a financially unstable situation.

Do insurance brokers charge a fee?

Insurance brokers typically earn money in two primary ways: through commissions and broker fees.

Commissions

Commissions are the most common form of income for insurance brokers. When a broker sells an insurance policy, they receive a commission from the insurance company. This commission is usually a percentage of the premium cost of the policy. The rate can vary depending on the type of insurance and the specific insurer.

Broker fees

Sometimes, brokers may charge a fee directly to their clients for their services. This usually happens when the broker provides additional services, like risk management consultations or ongoing policy management. However, not all brokers charge fees, and those that do must disclose them to clients up front.

How else can I buy insurance?

If you want to skip the broker fee, you have a few other options for buying coverage:

• Going straight to the insurance company: Almost all large-scale insurance providers offer online quote forms. You can start the process there to compare policies and pricing. Once you select the best company for you, you may even be able to purchase the policy online. If not, an agent can help you finalize the policy by phone or in person.
• Working with an independent insurance agent: Independent agents can compare policies from multiple insurance providers for you. Remember, though — they represent those companies, not you. It’s up to you to protect your interests.
• Working with a captive insurance agent: If you know you want to work with a specific insurance provider (for example, if you already have a policy with them and want to bundle a new policy with it), you can work with a captive agent to buy coverage.

Frequently asked questions

• Is it better to get insurance through a broker?
  

  It depends on your needs. If you look purely at insurance broker vs. agent costs, you might pay more in fees with a broker. But you also get someone who’s committed to serving you, not the insurance company. Generally, as your insurance needs get more complex, hiring a broker — and paying their fee — makes more sense.

• Will I save money by buying insurance through a broker?
  

  There is no guarantee you will save money by buying insurance through a broker. Brokers can accept payment and submit the insurance application to the insurance company but do not control pricing or underwriting criteria. However, since they work with multiple providers, they may be able to package different insurance types together, which can potentially save you money. For example, some policyholders save more money by having auto and home insurance with two different carriers than would by bundling their auto and home policies with the same insurer.

• What information will an insurance broker need from me?
  

  An insurance broker will need the same information as any insurance professional, including info about the insurance products you need and your personal details. So if you’re looking for the best car insurance company, for example, the broker will ask about your car, annual mileage and driving history, along with things like where you park the vehicle and which coverage types are important to you. Working with a broker gives you the opportunity to ask questions and talk about any concerns you have, so you might want to take advantage of that as they’re gathering information from you.

• What are the disadvantages of using an insurance broker?
  

  There are a few potential disadvantages of insurance brokers you may want to be aware of. An insurance broker typically doesn’t know all the policy details for every policy type and insurance company. There could be policy exclusions, terms and conditions they may not be aware of when suggesting an insurance company or specific policy. Although you’re paying an insurance broker for a service, you could find out they don’t deliver on the best policy for your personal or business needs, simply because they don’t know all the details that an insurance agent might know.

• Do insurance brokers handle claims?
  

  No, insurance brokers do not handle claims. Insurance brokers don’t work for the insurance company like agents do. When you file a claim, you do it directly with the insurance company, which handles the claims process from start to finish. Insurance brokers work with you to find the right insurance policy and can answer questions you have about coverage and risk, but they don’t handle any other part of the process — unless they are also an insurance agent.