Auto Insurance Brokers: How Much Do They Earn?

Auto insurance brokers are professionals who act as intermediaries between consumers and insurance companies, helping consumers find the best policies for their needs. They are paid either by commission or a broker fee, or sometimes both. The commission is typically calculated as a percentage of the premium, ranging from 2% to 8% depending on state regulations. In some cases, brokers may also charge additional fees for services such as initiating changes or helping to file claims. While using a broker may come with a fee, it could still save you money overall if they can find you a cheaper policy.

Auto insurance brokers' average salary

The average salary for an auto insurance broker varies depending on factors such as their level of experience, the type of insurance they sell, and their location. According to the US Bureau of Labor Statistics, the average yearly salary for an insurance agent is just over $50,000, with the lowest-paid 10% of earners in the industry making less than $29,970, and the highest-paid 10% earning more than $126,510 per year.

Auto insurance agents typically make around 10%-15% in commission, which can be influenced by the insurance company, the type of policy, and the specific terms of their contract. Commissions are usually a set percentage of the premiums sold by the agent and can change. Some brokers may also charge a broker fee on top of their commission.

According to Payscale, as of July 17, 2022, a mid-level insurance broker's median salary is approximately $75,000 a year, but this amount often rises as a broker gains experience and gathers clients.

How auto insurance brokers get paid

Auto insurance brokers get paid in two main ways: through broker fees paid by the client and/or commissions paid by the insurance company.

Broker fees are usually reasonable and tend to be disclosed upfront, with some states even imposing a cap on the amount a broker can charge. Commissions, on the other hand, are typically calculated as a percentage of the premium, with brokers receiving a larger commission on the first policy compared to renewals. While commissions do not affect the amount the client pays, they do result in the insurance company making less money on the policy.

In some cases, auto insurance brokers may receive both a commission and a broker fee. However, it is important for clients to be aware of potential conflicts of interest and ensure that the broker is not recommending unnecessary coverage to increase their commission.

Overall, while using an auto insurance broker may result in additional fees, it can also save the client time and money by finding the most suitable policy for their needs.

Broker fees vs. commissions

Insurance brokers can be paid in two ways: through a commission or a broker fee. They may charge both or just a commission. A commission is a percentage of the policy's total annual premium, varying from 2% to 8% depending on the policy, insurer, and state regulations. The commission is included in the monthly premium, paid directly to the broker from the carrier. Fees, on the other hand, are charged for extra services and are paid directly to the broker by the client.

Captive and independent agents rely entirely on commission, while insurance brokers may represent the individual seeking insurance and charge a broker fee. This removes any financial bias and ensures the broker is working in the client's best interest. The broker fee must be reasonable, clearly disclosed, and typically accepted with a signature.

Some argue that the commission model creates a conflict of interest, as brokers are incentivized to sell more coverage and may not act in the client's best interest. As a result, clients may seek alternative ways to buy insurance that give them more confidence and power.

One alternative is a fee-for-service model, where clients pay a flat fee for the broker's services instead of a commission. This empowers clients to make decisions about their insurance coverage and allows brokers to become trusted advisors. Charging fees also allows brokers to customize a service plan for each client.

It is important to understand how brokers are paid to protect yourself from a broker who cares more about making money than placing you with the right policy. Most states require brokers to disclose commission rates and fees upfront, so be sure to ask about any charges beyond premiums.

Captive vs. independent agents

There are two types of insurance agents: captive agents and independent agents. Here is a detailed comparison between the two:

Captive Agents

Captive insurance agents work for and represent a single insurance company, also known as the parent company, and sell only that company's policies. They are typically under contract with the insurance carrier and are provided with a regular salary, commission, benefits, and support. The parent company may set them up with an office, administrative staff, and marketing strategies. Captive agents receive carrier support, which includes 24/7 customer service, claims handling, and ongoing training opportunities. They benefit from instant brand name recognition and the trust associated with the parent company. However, captive agents have lower commissions, limited insurance product selections, and less autonomy in making business decisions as they must follow the rules set by the parent company.

Independent Agents

Independent insurance agents, on the other hand, work with multiple insurance companies and can offer their clients policies from various providers. They have greater control over how they run their business and make all the decisions related to its operations. Independent agents can shop around for insurance products and offer their clients a wider range of options to meet their specific needs and budgets. Clients often appreciate the ability to receive custom service from independent agents. However, independent agents have higher startup costs and marketing expenses as they are responsible for their own overhead and business operations. They do not receive the same level of support and referrals from insurance companies as captive agents.

Compensation Differences

Independent agents typically earn a higher percentage of sales, with commissions up to 50% higher than captive agents. However, they are responsible for paying all their overhead costs, including office space and administrative staff. Captive agents, on the other hand, receive a salary and commissions from the insurance company they represent, which covers a significant portion of their overhead expenses. As a result, captive agents may have more stable and consistent income, while independent agents have a higher earnings ceiling.

Advantages and disadvantages of using a broker

Advantages of using a broker:

• They can save you time and money by using their expertise to find a policy that suits your needs.
• They have access to a wide range of insurance companies and can, therefore, find the best insurance for your needs.
• They can explain the legal terms in a policy, allowing you to make an informed decision.
• They can help you identify the coverages you need, ensuring you don't pay for coverage you don't need.
• They can be useful if you have complex insurance needs, such as if you have multiple cars or homes, or need insurance for a business.
• They can save you time by collecting and comparing quotes for you.
• They can be your contact point after buying a policy, allowing you to call them directly if you need to file a claim or make changes to your policy.
• They can recommend local repair shops or help you get a rental car.
• They can compare quotes each year to ensure you still have the best rates.

Disadvantages of using a broker:

• You may have to pay a broker fee for their services.
• They may be sales-driven and favour one particular provider over another.
• They may lack the same deep, expert knowledge that insurance providers' agents have.
• Working with a broker can be more expensive than getting a policy alone, especially if you get a policy from a larger company that offers quotes online.
• You will miss out on the discount some companies offer for buying a policy online.

Frequently asked questions