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What does an insurance broker do?

Fact-checked with HomeInsurance.com

For small business owners, owners of multiple properties and others with special situations, operational costs include insurance. Ideally, insurance policies sit far in the background and maintain relatively uneventful existences. 

And because issues around insurance policies and insurance coverage tend to pop up at the most inconvenient times, the time to verify that a policy is right for you is before you buy the policy.

Navigating the world of insurance to find thorough coverage at a reasonable cost requires guidance. For some, online comparison tools offer a sufficient knowledge base. For others, tapping the services of an insurance broker provides the greatest value. 

What is an insurance broker?

Insurance brokers represent individuals and small businesses to find the best value in terms of cost and coverage. Simply stated, insurance brokers represent the interests of the buyer, not the interests of the seller. 

Insurance brokers offer experience in different types of insurance and risk management, working closely with individuals and companies to establish the scope of their insurance needs. With this understanding, insurance brokers shop a variety of insurance companies to find the best policy fit for their customer.

Whether focused on one particular type of insurance or industry or more generalized across a variety of categories, insurance brokers research coverage, terms, conditions and the price of various policies and then offer a recommendation to their customer. 

While insurance brokers work for insurance buyers, their pay comes predominantly from the commissions they receive on policy premiums. The commissions normally run between 2 percent and 8 percent of the premium as determined under state law. Commonly, insurance companies offer additional commissions to brokers on policy renewals. The additional commissions act as an incentive for brokers to find the best fit for customers from the start.

Difference between an insurance broker and insurance agent

When purchasing insurance, consumers seek guidance from an insurance broker or an insurance agent. While both types of professionals assist consumers in selecting the right policy for them, a couple noteworthy distinctions exist between brokers and agents. 

First, brokers work on behalf of their client. Insurance agents, on the other hand, work on behalf of one or several insurance companies through contract appointments. These contract appointments lay out which products an agent can sell. The contract also spells out the accompanying commission structure. Agents also come in different varieties. Captive agents represent a single insurance company and its products. Independent agents represent several insurance companies and their products. 

Secondly, because agents directly represent one or more insurance companies, agent representatives sell the insurance to consumers in a kind of middle-man role between insurers and consumers. In other words, an agent’s purview includes “binding” coverage through the actual sale of a policy. 

This is different than brokers, who solicit bids from multiple insurers and who seek out the best deal for clients. The role creates a kind of bridge between insurers and consumers, but no stakeholder interest exists in the policy itself.  

Access to productsCommission paymentAllowed to offer “binding” coverage?
BrokerBrokers solicit policy bids for clients from a wide range of insurers without limitation.Insurance companies pay broker commissions based on the policy negotiated on behalf of the broker’s client. No. While a broker plays a pivotal role in finding the right insurance coverage for clients, a broker doesn’t actually sell any policies. 
AgentAgents sell only those products offered by one or a limited number of insurance companies. Insurance companies represented by agents pay commissions based on the structure outlined in the appointment contract. Yes. As insurer representatives, agents offer consumers “binding” coverage. 

When to use an insurance broker

Insurance brokers act as client advocates around the purchase of specific policies. While most consumers work with insurance agents, insurance brokers offer services for those with special needs. For example, brokers assist individuals with multiple homes or cars and families with small businesses in terms of limiting liability. Brokers take the time to thoroughly understand customer situations and their potential risks. 

Consumers who utilize insurance broker services gain the benefit of shopping multiple insurance plans and rates by outsourcing the legwork aspect of the task. Instead of finding and then contacting agents and insurers from a lay point of view, working with a broker hones expertise and provides guidance in comparing policy options. 

How to hire an insurance broker

Individuals and small businesses seeking maximum coverage for potential liabilities at the best price should consider insurance brokers over agents to gain the widest breadth of bids available. Because brokers access multiple insurers, while agents represent only one or a select few insurance companies, brokers deliver access to more information about insurance products. 

To choose the right insurance broker for you:

  • Inquire about the cost of fees or commissions charged to you as well as if you’ll incur any separate fees added to the premium once you purchase the policy.
  • Understand the services offered by the broker and the extent of the broker’s involvement around your insurance needs after you purchase a policy.
  • Consider a broker as an extension of your staff and assess how well the broker interacts with existing staff members. 
  • Contact your state’s insurance commission to verify your broker’s registration and to determine whether the broker received any previous complaints. 
  • Check broker references with current and past clients. 

By establishing expectations on the front end of buying an insurance policy, all parties involved avoid potential future misunderstandings. 

To find an insurance broker in your area:

  • Contact your local chamber of commerce or other associations that focus on the type of insurance you need. 
  • Ask professionals like attorneys or accountants already in your network. 
  • Check with other individuals or business owners to explore their experience with brokers or insurers.
  • Check online for brokers in your area and be sure to read their reviews.

Investing some time and effort to find the right insurance broker for you yields great dividends in terms of getting the appropriate coverage at reasonable costs. 

How to become an insurance broker

Each state regulates insurance brokers working within its borders according to its own laws. State licensing requirements involve specialized coursework and passing an examination, such as a Series 6 or Series 7 exam that’s offered by the Financial Industry Regulatory Authority. Licensing extends to selling insurance for life, personal, property and casualty, 

Once established as a broker, most states require continuing education courses to maintain their license. 

While no requirement for a college degree exists in order to obtain an insurance broker license, university studies focused on business, administration or economics create a solid foundation for the career. Familiarity with finance, accounting, business law and marketing make up the raw essentials in establishing a successful career as an insurance broker. Psychology, sociology, public speaking and communications also offer potentially helpful insights in the industry. 

The takeaway

  • Brokers represent the interest of their client by exploring a wide swath of policy options and pricing.
  • Brokers take the time to understand the intricacies of a client’s needs and seek out insurance options on their behalf. 
  • While brokers find the right insurance policy for customers, they don’t sell the policy to clients. 

Brokers bring business, finance and communication skills to clients seeking to buy insurance policies. Their expertise in the industry and access to a whole range of insurers act as a benefit to clients exploring various options.

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