Insurance Brokerage House: What's The Deal?

An insurance brokerage house acts as an intermediary between insurance shoppers and insurance companies. They are distinct from insurance agents in that they typically act on behalf of a client by negotiating with multiple insurers, while an agent represents one or more specific insurers under a contract. Insurance brokers are usually paid by the insurance company they connect the client with, and they may also charge a broker fee. Using an insurance broker can be helpful if you have an unusual or hard-to-insure property, or if you don't have time to shop around for insurance yourself.

How insurance brokers are paid

Insurance brokers can be paid in a few different ways, depending on the type of insurance and the location. In California, for example, health insurance brokers are paid through commissions, either as a flat fee or a percentage of the monthly premium (typically between 1% and 5%). Some insurance companies also offer periodic bonuses to agents who enrol higher volumes. In other places, brokers may charge a professional services fee in lieu of commission.

Brokers can also receive commissions from "add-on" products such as legal expenses cover or key protection, receive overrider payments in respect of premium finance, and might even receive additional payments from insurers and finance companies for reaching account growth or profitability targets. The commission received can vary depending on the class of business, the insurer, and the amount of administrative work required.

In some cases, brokers may also charge broker fees to their clients. These fees must usually be reasonable, disclosed, and accepted with a signature. They may be charged for new business, renewal business, or service transactions.

It's important to note that insurance brokers have a financial incentive to sell more policies and may receive bonuses or gifts from insurance companies for bringing in new clients. This can create a conflict of interest, as brokers may be more concerned with making a sale than placing a client with the right policy. Therefore, understanding how brokers are paid can help protect consumers from potential upsells or unnecessary coverage.

Pros and cons of using an insurance broker

Insurance brokers are licensed professionals who act as intermediaries between insurance buyers and insurance companies. They can help buyers find the best insurance policies that suit their unique needs. Here are some of the advantages and disadvantages of using an insurance broker:

Pros:

• Expertise and Guidance: Insurance brokers are experts in the insurance market. They can explain policy details, help buyers understand the fine print, and guide them in making well-informed purchasing decisions. This is especially beneficial for those who want to thoroughly understand the ins and outs of their policy, including exclusions and limits.
• Time and Hassle Savings: Brokers save buyers the time and hassle of comparing policies and finding a new insurer by doing the heavy lifting for them. They have access to a wide range of insurance options and can provide buyers with a broader view of what's available in the market.
• Versatility: Brokers work for the buyer, not the insurance company. They are not limited to selling policies from specific insurers and can provide a wider scope of service. They can introduce buyers to smaller, local insurance companies that may offer better rates and customer service.
• Specialist Advice: Brokers can provide specialist advice for unique or complex insurance needs, such as insuring high-value antiques, finding travel insurance with a pre-existing condition, or insuring classic cars or properties in severe-weather-prone areas.
• Customer Satisfaction: Brokers strive for customer satisfaction as they want to retain their clients. They will keep buyers updated about policy changes and new offerings that could save them money or improve their coverage.

Cons:

• Potential Fees: One of the main disadvantages of using an insurance broker is the potential fee charged for their services. These fees vary by broker and state but are typically based on a percentage of the premium policy. Buyers need to weigh the potential savings against any fees incurred to determine if it's worth using a broker.
• Conflict of Interest: While brokers are supposed to work in the buyer's best interest, there is a chance they could steer buyers towards an insurer that offers a higher commission rate. It is essential to vet your broker and ensure they are licensed and able to handle your specific needs.
• Simpler Insurance Needs: If a buyer has simple insurance needs, such as a basic insurance policy, a clean driving record, and no unique requirements, they may not need the services of an insurance broker. In such cases, using comparison websites or dealing directly with insurance companies may be more cost-effective.

When to use an insurance broker

Using an insurance broker isn't necessary for everyone. However, they can be very helpful in certain situations. Here are some reasons when it might be a good idea to use an insurance broker:

You Have Complex or Unusual Circumstances:

Insurance brokers are experts in the insurance market and can help you navigate complex or unusual situations. For example, if you have multiple cars or homes, own a business, or need to insure something unique, like a high-value antique or a classic car. They can find you the best policies suited to your specific needs and ensure you have adequate coverage.

You Want to Save Time and Effort:

Comparing insurance quotes and policies from multiple insurers can be time-consuming and tedious. An insurance broker can do the legwork for you, saving you time and hassle. They have access to a wide range of insurance options and can present you with the best deals that match your requirements.

You Want Expert Guidance:

Insurance policies can be complex, with various terms, exclusions, and limits. Insurance brokers are licensed professionals with expertise in the field. They can explain the fine print, help you understand your coverage needs, and ensure you don't overpay for unnecessary coverage. Their guidance can be especially valuable if you want to thoroughly understand the ins and outs of your policy.

You Want a Personalised Experience:

Insurance brokers work for you, the client, and not the insurance companies. They strive for customer satisfaction and aim to build long-term relationships. They can provide tailored advice, answer your questions, and guide you through the maze of insurance options. With their deep knowledge of the market, they can also negotiate competitive premiums on your behalf.

You're Not Finding Suitable Options:

If you're having trouble finding coverage from major insurance companies or are unable to find suitable options online, an insurance broker can help. They have access to a broader range of insurance providers, including smaller, regional companies that may offer more affordable rates and better customer service.

In summary, insurance brokers can be beneficial when you have complex insurance needs, want expert guidance, or prefer a more personalised and hassle-free experience. While you may have to pay a broker fee, the savings in time and money, as well as the added convenience and peace of mind, can often outweigh the cost.

Insurance brokers vs insurance agents

An insurance brokerage house is a firm that employs insurance brokers, who are professionals that help clients find the best insurance policies for their needs. Insurance brokers are distinct from insurance agents in several ways.

Insurance Agents

Insurance agents represent one or more insurance companies and sell their policies for a commission. They can either work full-time for an insurance company or as independent contractors. Agents have detailed contracts with insurance providers that outline the specific policies they are allowed to sell and how much commission they can earn from selling these policies.

There are two types of insurance agents: captive agents and independent agents. Captive agents work for a single insurance company, while independent agents represent multiple insurance providers. Both types of agents work on commission and can execute an insurance transaction from start to finish. Agents can bind coverage, meaning they can directly enrol clients in an insurance policy.

Insurance agents have specialised knowledge of the products of the companies they represent, allowing them to provide clients with detailed information about policy coverage and terms. This can be beneficial for clients who already know what type of policy they want or which company they plan to purchase from.

Insurance Brokers

Insurance brokers, on the other hand, represent the consumers who are shopping for insurance policies. They are skilled at comparing policies across different providers and helping clients decide on the coverage they need within their budget. Brokers typically work on commission from insurance providers or earn fees from the consumer.

Brokers do not work for any specific insurance company and are not required to sell particular policies, so they have more flexibility in recommending plans that best suit the client's needs. They can offer policies from a variety of insurance carriers, giving clients a wider range of options.

Brokers often play an advisory role, guiding clients through the enrollment process to maximise savings. However, they cannot directly bind coverage. Instead, they must work with an insurance agent or provider to complete the transaction and secure the policy for the client.

Choosing Between an Agent and a Broker

The choice between an insurance agent and a broker depends on the client's specific needs. If a client already knows which policy they want and which company they prefer, an agent can be a good choice as they have in-depth knowledge of their company's offerings.

On the other hand, if a client wants to explore options from multiple companies and compare different plans and quotes, a broker is more suitable. Brokers can help clients shop around, assess their needs and budget, and make informed decisions.

In summary, insurance agents represent insurance companies and can directly enrol clients in policies, while insurance brokers represent the client and provide advisory services to help them choose the best policy for their needs.

How to find a good insurance broker

An insurance brokerage house, or insurance broker, is an intermediary between insurance shoppers and insurance companies. They are distinct from insurance agents in that they represent the insurance consumer, not the insurance company, and cannot bind insurance policies.

• Ask for referrals from friends and family: Word-of-mouth is a great way to find a good insurance broker. Ask your friends and family for recommendations, but make sure they are referring the broker for the right reasons. Ask about their experience dealing with the broker. Were they responsive? Were they able to answer questions clearly? If they had to file a claim, was the broker helpful?
• Interview several prospective brokers: Meet with several brokers and ask them detailed questions to see if they are knowledgeable and a good fit for you. Ask about their experience and how long they have been in business. Ask if they are a "captive" agent, and if not, how many companies they represent. Ask if they will be earning a broker fee plus a commission, and if so, how much.
• Look for a broker with experience and accreditation: Look for brokers with advanced designations such as Chartered Property Casualty Underwriter (CPCU), Certified Insurance Counselor (CIC), Chartered Life Underwriter (CLU) or Accredited Adviser in Insurance (AAI). Also, consider brokers with additional experience in the insurance industry outside of sales, such as in underwriting or claims.
• Check the broker's background and license: Make sure the broker's licensing is up to date and meets state requirements. Check your state's insurance regulator website to verify their license status and check for any complaints or disciplinary action.
• Check testimonials on social media: While face-to-face meetings are one of the best ways to figure out if a broker will take good care of you, Yelp, LinkedIn, Facebook, and other social media tools can also help you gauge good service and quality businesses.

Frequently asked questions