An insurance broker is a professional who sells, solicits, or negotiates insurance in exchange for a commission.
Somebody might approach an insurance broker for help searching for car insurance. The broker will analyze the needs of the individual, then recommend specific car insurance policies based on those needs.
Unlike an insurance agent, the insurance broker is not restrained to a specific company. The insurance broker will recommend insurance from multiple companies. An insurance agent is a salaried employee of the insurance company, while an insurance broker is not.
Insurance brokers will receive compensation in the form of commissions. Typically, this commission is bundled into the rate paid by the policyholder. Sometimes, however, the broker will receive payment directly from the insurance company.
There are some cases where an insurance broker will work for a specific insurance company and will only recommend products from that insurance company. In this situation, however, the broker should fully explain the situation to you.
In the United States, most states require insurance brokers to have a broker license. The broker license authorizes the person to sell insurance products to customers.
Why Use an Insurance Broker?
Shopping for car insurance can be overwhelming. Most ordinary people aren’t insurance experts. Every company claims to offer the best insurance at the best prices. But it can be challenging to know which insurance company is the right choice for you.
That’s where insurance brokers can help.
Insurance brokers have access to many different insurance policies. They have in-depth knowledge of the best insurance products for various needs.
One of the biggest advantages of using an insurance broker is that the broker may be able to access special discounted rates. Insurance brokers often have access to group discount rates and similar options. That means the broker can offer policies at a lower price than you would otherwise be able to get on your own.
Sometimes, an insurance broker’s role is straightforward: the broker will recommend a specific car insurance policy for a single person. In other cases, however, the broker analyzes more complex insurance needs, then recommends the best car insurance for those needs. The broker might work with a family with multiple cars, for example, or a company with a fleet of commercial vehicles.
Sometimes, the insurance broker charges a fee. In other cases, the broker only receives payment from the insurance company, which means the customer doesn’t pay anything.
Insurance Brokers Versus Insurance Agents
It’s easy to confuse insurance brokers and insurance agents. They’re both insurance professionals who recommend insurance products to clients. Here’s how each role works:
Insurance Brokers: Insurance brokers do not work for a specific insurance company. Instead, they work with clients to analyze their needs and budget, then recommend the best insurance products for those clients. The broker receives a commission from either the client or the insurance company (or both). The broker can recommend products from any insurance company.
Insurance Agents: Insurance agents are salaried employees of insurance companies. They recommend products from that specific insurance company. They might receive additional commissions or sales bonuses from their employer for selling insurance products.
Both insurance brokers and insurance agents are required to have appropriate licensing in most states. In some states, brokers and agents go through the same regulation system: they get a ‘broker-agent license’, for example, that allows them to work as either a broker or an agent.