What Is An Insurance Broker?

An insurance broker is a licensed professional who helps consumers determine their insurance needs and compare policies from multiple companies. Unlike insurance agents, who typically represent one insurer, brokers work on behalf of the buyer, not the insurance company, to find the best coverage and pricing available. 

Whether you’re shopping for auto, home, life or business insurance, a broker can simplify the process by offering expert advice and access to a wider range of options. Understanding what an insurance broker does can help you make more informed decisions when selecting the right agent and policy for your needs.

What is an insurance broker?

Insurance brokers are professional intermediaries who help those in need to secure insurance coverage. They work independently, meaning they don’t represent any specific insurance company. 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, among 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.

Differences between insurance brokers and agents

Here’s a comparison of insurance brokers, independent agents and captive agents to help you understand the differences and the benefits and drawbacks of working with each.

How does binding authority differ between brokers and agents?

Binding authority means the ability to finalize and activate an insurance policy on the spot. Insurance agents usually have binding authority, which means they can approve and issue coverage right away on behalf of the insurance company they represent.

Insurance brokers, on the other hand, usually do not have binding authority. Instead, they help you shop around and apply for coverage, but the actual insurance company has to review and approve the policy before it goes into effect.

Agents can often say “you’re covered” immediately, while brokers help you find the best policy but can’t make it official without the insurer’s (or an authorized representative’s) approval.

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. Instead, you can 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 want help identifying the best coverage for your needs and the companies that can offer you that coverage at the best price. Or, if you feel like you might be able to get a better policy but you don’t want to do the research yourself or don’t know where to start, working with a brokerage firm might help.

What are the drawbacks of hiring an insurance broker?

Brokers can provide indispensable help in getting the right insurance, but there are some disadvantages of insurance brokers to consider. 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 simple.

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. And if a claim arises, you must work with your insurance company rather than your broker to resolve it.

Lastly, a broker’s value largely depends on their experience, expertise, industry connections and understanding. A skilled, reputable broker can be a major asset, especially for clients with complex or multiple insurance needs. But working with an inexperienced broker may lead to gaps in coverage or poor policy choices that could leave you financially exposed.

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. Buyers don’t typically pay this commission out of pocket, so it shouldn’t affect your premium.

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 insurance customers upfront.

How else can I buy insurance?

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

• Go straight to the insurance company
• Work with an independent insurance agent
• Word with a captive insurance agent

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 they 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.