Insurance Agents vs. Insurance Brokers
What is the difference between Insurance Agents and Insurance Brokers
The #1 question asked daily, at our agency by people shopping for insurance.
Is using an Insurance Broker a better or smarter way to buy insurance?
1. Can Insurance Brokers save me money?
2. Do Insurance Brokers check rates with multiple insurance companies?
Great Questions, Let's find out...
There are differences you should understand between insurance agents and insurance brokers.
Insurance Brokers and Insurance Agents have the same licensing requirements. Each State(s) in which they transact business requires an insurance producer license.
The big difference is who they work for
An insurance agent is an insurance company’s representative. The agent’s primary alliance is with the insurance carrier (company). Not to the insurance buyer.
An insurance broker, on the other hand, represents the insured (you). Brokers have no contractual requirements with insurance carriers to sell only their products. Insurance brokers are free to assist customers to find the most affordable rates.
Summary - Insurance agents represents one company and is loyal to the company. The insurance broker represents many companies and works for you.
The Insurance Agent Trap
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, 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.
The Insurance Broker Advantage
Insurance brokers have options which are not available to agents.
When you have the freedom to work with multiple companies the customer wins. Many of the company’s insurance 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.
Insurance Brokers represent companies like Progressive, Travelers, Safeco, Hartford, Nationwide and more. These companies don't only have strong personal insurance products, but excellent commercial insurance. Often insurance brokers will represent regional insurance companies located in only one state. These regional carriers understand the local market and can very competitive.
Who has the time to call hundreds of insurance companies for lower rates?
Developments in technology have allowed insurance 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.
Being an insurance 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.
What is the difference between an agent and a broker?
A variation of our initial question of insurance broker vs. Insurance agent. An insurance broker is an independent agent working with many insurance companies. While the other (agent) is exclusive to only one insurance company.
How do insurance brokers make money?
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.
Is there a difference between an independent insurance 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 Insurance Agents vs. Insurance Brokers and how each has a role within the insurance industry.
Insurance Agents vs. Insurance Brokers
As reviewed by Insurance Brokers Group 314-569-1010