Insurance 101

What Is An Insurance Broker? Brokers vs. Agents

Today you’ll learn what an insurance broker is, what they do, and how they can help you.

Insurance Agents vs. Brokers

When it comes to finding the best insurance policy, you can seek help from either an insurance agent or an insurance broker.  

Insurance Broker Insurance Agent
Works directly for you Works for insurance company/companies
Helps research competitive policies for you Has the authority to quote insurance policies
Needs a state license to practice May need state license to practice
Can’t close a deal on a policy for you Can close a deal on a policy for you

What Is An Insurance Broker?

An insurance broker helps you shop around for insurance. The broker does not represent an insurance carrier. Instead, they work directly for you

What that means is that the insurance broker will put your best interest first. In fact, in some states they are legally required to do so. The broker won’t provide you with a quote from an insurance provider that they work for, because they work for you. There is no obligation to sell any particular policies.    

There are three main kinds of brokers:

  • Wholesale Broker: If you’re shopping for insurance, you probably won’t be interacting with a wholesale broker. A wholesale broker usually sells specialized products of insurance. They sell these products to retail brokers and insurance agents. 
  • Retail Broker: A retail broker works closely with you in order to help you find the optimal insurance policy that suits your needs. They don’t typically offer as specialized insurance as wholesale brokers, but they will consult wholesale brokers for more complex needs if necessary.
  • Surplus Lines Broker: A surplus lines broker might be used in rare cases when your insurance coverage needs are so great that they exceed the standard market’s willingness to insure you. Surplus lines brokers need to be specially licensed to access and sell insurance products that are highly specialized and have various risk appetites. 

As you can see, the typical individual or business will likely find the help they need from a retail broker. Retail brokers are highly knowledgeable in the most common forms of coverage and can get you set up for a successful insurance product purchase. 

On the other hand, if you require more specialized insurance coverage and cannot find the right policy that meets your needs, you might need to consult a different kind of insurance broker. Either a surplus lines broker who has access to non-admitted insurers and surplus lines, or a wholesale broker who knows the ins and outs of the specific coverage you’re looking for. 

What Is An Insurance Agent?

An insurance agent typically works for either a single policy provider or multiple providers. That means that while they will help you with securing quotes and binding you to insurance coverage, they don’t technically work for you. 

There are two main types of insurance agents:

  • Captive Agent: A captive agent works for a single insurance company that they either work full-time for or are contracted with. The benefit to speaking with a captive agent is that they will be extremely knowledgeable about the carrier they endorse. However, they might not be as aware of other insurance policies that exist with similar coverage.   
  • Independent Agent: An independent agent will work with numerous insurance carriers. They aren’t tied down to a single company, therefore able to offer a wider range of options to you compared to captive agents.  

If your insurance needs are simple, straightforward, and you have a good idea of which insurance company you want to buy from, then a captive or independent agent might be the optimal insurance advisor to use over brokers. In this case, they will be able to grant you additional insight into the exact policies or insurer you want to know about.   

Also ReadWhat Is An Insurance Carrier? Carrier vs. Agency

What Do Insurance Brokers Do?

Insurance brokers are people who can legally represent a client, be that an individual or a business. The broker will help them find the insurance coverage that they need. 

Brokers have what is called a fiduciary duty to their clients. They are responsible for acting in the best interest of the client they are helping, which may involve recommending the most affordable coverage, the most comprehensive coverage, or whatever coverage the client is seeking. 

After connecting with an insurance broker, they will help you identify what insurance policies might suit you best based on your conversations and situation. 

For commercial insurance, brokers will be able to help a business assess its risks and devise an insurance program that is suitable for that particular company’s risk exposure and vulnerabilities. 

When To Use An Insurance Broker

Shopping for insurance can be tricky. For example, you know you want auto insurance, but there are so many companies that say they have the best coverage that they make you dizzy. Which insurance company should you go with? 

A broker can help you find the best policy across a number of insurance companies. They don’t work for the insurance company. Rather, they work for you – which means you can rest assured that they are working in your best interest. 

You could go to a broker with a detailed understanding of insurance, or you could be completely new to the concept of insurance. A broker will guide you along the way. 

What an insurance broker can’t do is bind you to the coverage that they recommend, because they are not legally able to do so. But they can greatly simplify the insurance buying process for you. 

Commercial risk management 

Many companies have complex needs that aren’t met by the standard insurance market. If your business can’t find the commercial insurance that you need, meeting with a broker can give you not only more insight into your options, but they can also help you access more specialized coverage so that you can get the coverage you need. 

How Insurance Brokers Are Paid

You might be wondering how insurance brokers are paid. While it depends on the specific broker, here are the general ways through which brokers are paid. 

  1. Commissions: An insurance broker might earn a lump sum percentage of the first year premium of policies that they successfully promote. They may also receive an ongoing residual income payment over the entire life of the policy.
  1. Advisory Fees: A broker might make money by providing consultative services to you for a certain amount of money. The broker might charge expenses for initiating changes, helping you with filing claims, and other insurance-related services. Advisory fees are regulated by state laws. In some states, brokers may not be legally allowed to charge fees based on certain criteria.
  1. Bonuses: In some cases, the broker might receive bonuses (or an increased commission) from an insurance carrier for good performance. However, because bonuses can incentivize the broker to promote a certain insurer’s insurance products, this kind of broker payment method is often criticized. 

Simplify your insurance shopping

Our team at Worth Insurance is here to deliver you insurance options with great rates from the top carriers around. Enjoy a simplified and personalized insurance shopping experience. 

If you’re looking for more specialized insurance options, we also offer private client custom solutions so that you can cover your risks, assets, and lifestyle without stress.

To see how Worth can reduce your risk.

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