Insurance Agents vs Brokers
Insurance Agent vs Brokers and Which One Can Save More Money
It’s always difficult to understand the difference between insurance brokers and agents.
Which is best for you?
What are they offering?
And what do they have in common?
This blog post will answer these questions.
The difference between an insurance broker and an agent is who they represent. An agent represents the insurer, while a broker helps you to get your best deal on coverage from different companies.
Agents are incentivized by commissions for selling policies that may not be in the client’s interests; brokers are paid by commission but can only offer their services if it benefits clients with cheaper rates or more comprehensive packages of protection.
Both insurance agents and brokers are intermediaries in the business of buying insurance.
The primary difference between these two is that an agent represents a specific insurer, while a broker does not represent anyone particular company but those with which they deal use their services to buy policies from multiple companies at once for customers who want more than just one option.
An Insurance Broker represents multiple insurers (insurance companies), meaning that a broker could quote you on an auto policy from Liberty Mutual, but also offer coverage from other leading insurers like Progressive or Nationwide.
That means that if one company has competitive rates or better customer service, your broker can switch you over to them in a matter of minutes with no hassles at all!
The benefit of having an insurance broker is that someone else does the research for you. Your broker can shop around to a variety of different insurers until he or she finds the best policy at a competitive rate.
The other option, which is what most people do, is simply call up one insurer yourself and switch your car insurance from one company to another if you think they have better coverage or lower premiums.
The problem with that is you have to call each insurer separately.
That's where using an auto insurance broker is an advantage because they can shop around for you to all the leading insurers at once until they find the best rate for your vehicle.
Insurance agents represent just a single company. That means that when you call an agent, you are only talking to one insurer and not a wide selection of different companies like a broker would offer.
The benefit of this is that the agent can better understand your needs and requirements. You’re not just another person with an insurance policy, but you become someone who the company values and cares about. (After all, they only have one company.)
there are fewer options available to you as well. If Liberty Mutual doesn’t have competitive rates, or if they don't provide good service, then it might be hard for your insurance agent to change companies on your behalf in order to get you the best deal.
Plus, if your agent isn't open to switching you over to a different company, then you're stuck paying whatever premium that first insurer gives you and there's little chance of changing it.
The bottom line
If you would like to save money on auto insurance or if you've had some bad experiences in the past with an insurer and want someone else to shop around for the best rate on your behalf, then using a good insurance broker will save you time and money.
What type of insurance do you need?
Insurance Agents sell policies, a broker provides options.
You know that feeling when you get a new car, and all of the sudden everything feels new?
You're out there in the world with this fresh, clean slate. It's exciting and it can be kind of scary too!
Well, when you buy insurance for your car or home, what type of agent or broker should you use?
The Insurance Agent Game Explained
Working with an insurance agent can be like a roller coaster.
Every year the insurance rates go up or down, and the agent has NO control to help their customers.
The only two options, captive Insurance agents have.
#1 lowering coverage’s – which is risky. Lowering your liability coverage to save a couple bucks puts you in financial danger.
You may currently have a $100,000 property damage coverage on your auto policy. The agent suggests dropping down to the state minimum of $10,000, or $5,000 in California. Just your luck... You hit a Mercedes Benz to the tune of $25,959. Your policy has a limit of $10k, which mean you personally owe the difference. Yes, that's right $15,959 is now your responsibility, because your agent suggested to save $10 a year.
#2 raise your deductible, which means more money out of your pocket with any claim.
Your old deductible was $500 for collision, but you asked your insurance agent to find a way to get your rate lower. The agent suggests increasing your collision deductible up to $1000, which saved $25 a year.
You have now increased your out of pocket cost if you are involved in an accident that is at-fault. Instead of paying $500 to get your vehicle fixed, it's now $1,000. You would need to be accident free for 20 years to break even based on saving $25/yr.
Or, the insurance agent recommends bumping the comprehensive deductible from $100 to $500. That saves $15 - $25 a year. The next winter freeze the windshield cracks when you turn on the defroster. The cost to replace the windshield is less than the new $500 deductible. You pay the full amount out-of-pocket.
Your typical insurance agent works for State Farm, Allstate, Farmers, Liberty Mutual, etc.
The insurance agent is also known as a "captive agent." Agents are restricted by contract to not suggest another company. Their contracts can put their livelihood at risk to even recommend another company.
Bottom line: There's no options, insurance agents have to lower your rates, which are set by the company. Unless you are willing to give up coverage's and take on more risk.
What does an Insurance Broker do?
Brokers have options which are not available to agents or "captive agents."
When you have the freedom to work with multiple companies the customer wins.
Many of the company’s Brokers have been around a long time. In many cases longer than the companies represented by Insurance agents. Example The Hartford has a 200 year track record which is twice most other companies.
Should I Use A Broker
Brokers represent multiple companies like Progressive, Travelers, Safeco, Hartford, Nationwide and more. These companies don't only have strong personal insurance policies, but excellent commercial insurance.
Often brokers will represent regional insurance companies located in only one state. These regional carriers understand the local market and can very competitive.
For many Americans, insurance is a necessity that they can't live without.
Many people don't know which company to choose for their coverage and often turn to broker representatives in order to find the best deal on insurance policies available.
One of these brokers may represent regional carriers located only within one state who has an understanding of local markets and are very competitive!
So, the question about What does an insurance broker do, they make your life a lot easier to find affordable insurance.
What does an insurance agent Do?
Insurance agents represent the company they work for as an employee.
Because insurance agents are employees that are only able to provide information and quotes on the company products they represent for auto, home, life and business insurance.
If you would like to receive competitive quotes from other insurance companies you'll need to contact them one at a time for quotes.
Benefits of working with a broker
Have you ever heard of insurance brokers? If not, don't worry. They are often confused with agents and there is a difference between the two.
This post will help to clarify this confusion by defining an agent versus a broker.
An agent is someone who sells policies to clients on behalf of a company or organization, while an insurance broker works for themselves and chooses which companies they want to represent in order to offer their services as best as possible.
There are many benefits that come along with being represented by a broker, such as the ability to work with multiple companies at once, and access to exclusive offers that may be available only through brokers.
Developments in technology have allowed brokers to shop several carriers at the same time. Insurance Rating programs give the (broker) ability to shop a lot of companies at one time.
A good example would be the mortgage industry. In the past, you would visit a local bank for a home loan, and the rate they provided was more than likely what you’d take. Today, there are mortgage brokers who work with many banks to find the best rates.
Chances are you’ve seen the ads on T.V. Offering competitive rates for new or refinancing your mortgage. You no longer have to leave the comfort of your home to receive the latest mortgage rates. The same thing applies to the insurance industry.
Working with a broker means more than great rates. They also provide the same service you'd expect from an insurance agent. It starts by communicating with you all your options and explaining your coverage’s.
Taking time to review and make suggestions based on your needs. Having the flexibility to recommend carriers that would best fit you. Whether it's a High Value $1 Million plus dollar home or a starter home. First car or high performance sports cars, insurance brokers have you covered.
How do brokers get paid?
Another common question is how the insurance brokers get paid?
Insurance Brokers earn a commission by the company you buy a policy. Since they are not employees of any company they work for you and depend on your satisfaction.
They are very motivated to make sure you are happy not only with the company, but the service. Having the flexibility to move your insurance to another company if rates go up. The broker will earn a commission as long as you are a customer.
Insurance brokers also compete for the same business with the insurance carriers they represent. Companies like Progressive, The Hartford, Nationwide, Travelers. You can contact these companies directly or have an insurance broker compare rates. It depends on how much free time you have. Remember, you'll have to give the same information over and over each time you call any company to get rates.
What is an independent agent?
An independent insurance agent is the same thing as an insurance broker. People are still more familiar with the term insurance agent. If you are independent (not a captive agent for any company), then you are aka an “insurance broker.”
Conclusion: consumers now have more choices when shopping for insurance. You can contact the traditional insurance agent for a quote. Or an insurance broker for multiple quotes.
We hoped you were able to get a little better understanding about an Insurance Broker and Agent and how each has a role within the insurance industry.
Frequently Asked Questions
An Insurance Broker are a significant help to individuals, families and business to find the best insurance policies for their needs.
Because an insurance broker is independent they are not obligated to direct you to any one company. Rather, there goals are inline and the same as their customers which makes the process a lot less stressful.
insurance Brokers are responsible for gathering information about your insurable interests and comparing your needs and requests with the market for proper coverage. The goal is finding the right coverage for the right premium.
At renewal the insurance broker can re-market or re-shop your insurance policies for better options
For whatever reason you want to drop your current insurance agent you have a few options.
1. request your insurance policies be transferred to another agent representing the same carrier.
2. Re-shop your insurance with another insurance agent or broker. Once you find comparable or better coverage and bind (take the coverage) you can then request the insurance with other agent be canceled.
You will want to provide a written request to cancel your insurance with the effective date and provide the policy number. You can also request the new agent or broker complete a cancellation request for which you would sign and send to the other agent.
Some insurance brokers may charge a fee for complicated insurance such as complex commercial insurance.
In other cases it might be a high risk policy that may not be kept for the entire term of coverage. Generally insurance agents and broker are paid a commission for policies sold and renewed every six months or annually depending on the length of coverage.
If a policy is canceled prior to the expiration date the agent/broker will be charged back for any unearned premium. Because the possibility of being charged back for commission already earned a fee may be charge up front to ensure compensation regardless is policy stays in force or not.
insurance brokers are licensed by the state in which they sell insurance. Some insurance brokers sell insurance in multiple state and others limit their business to their resident state.
Each state has different licensing requirement to obtain an insurance broker license and continuing education will be required as well.
The first step is to interview with a local insurance broker in your area. Once hired you will study for the exam along with training with insurance companies on the products offered.