When you start the process of buying insurance, you’ll likely have to decide whether to work with an insurance agent or a broker. But you might hesitate to choose one over the other because you want to get the best deal, coverage, and customer service with your policy. Generally speaking, agents work as salespeople on behalf of specific insurance companies, while brokers offer more generalized insurance services to consumers, in relation to agents, insurers, and underwriters.
To help you feel confident in choosing the best fit for your needs, we’ll go over the differences between these two types of insurance professionals.
What's the Difference Between Agents and Brokers?
|Insurance Agent||Insurance Broker|
|Client||Sells policies direct to consumers on behalf of insurance companies||Acts as liaison between consumers and insurers, agents, or underwriters, with loyalties to each|
|Payment||Receives sales commission from insurers (and sometimes contingent commissions)||Receives commission from insurers and brokerage fees from consumers|
|Scope||Works with specific companies||Broad access to full insurance marketplace|
Insurance agents are salespeople who help consumers find and buy the insurance products they need, including auto, home, life, or other insurance policies. Agents are appointed by insurance companies to sell insurance products and perform services for both insurers and their policyholders.
Insurance agents who work exclusively for one company are known as “captive agents," while those who work for multiple insurers are called "independent" agents. In general, captive agents sell more personal lines, like home and auto insurance, than independent agents, who focus more on commercial insurance. One of the biggest differences between captive and independent agents is that the latter have legal ownership of access to policy renewals. Captive insurance agents may not, and are usually employees of an insurance company or independent contractors.
Insurance brokers function more as liaisons between the consumer and the insurer. They represent you in dealings with the insurance provider or underwriter, and may provide additional services depending on your needs. The broker’s responsibility is to find the insurance coverages you need for the best policy premiums, terms, and conditions. They may work through other brokers or agents, or directly with an insurance company to find a policy that suits your needs and budget.
Compensation and Commission
Insurance brokers may receive compensation for their services through commissions paid by the insurers or reinsurers they work with (typically 7% to 15% of the total premium) and through broker fees charged to consumers for services provided.
Insurance agents may also receive similar sales commissions from the insurers they represent. But they are more likely to get additional compensation, called "contingent commissions," by meeting specific criteria (similar to a performance bonus). Insurance brokers used to receive contingent commissions as well, but it's no longer common practice.
Contingent commissions aren’t tied to specific policies, and agents don’t know how much they’ll get—if anything—until the underwriting year closes.
Scope of Services
Traditionally, insurance agents represent the insurer, and brokers represent the client. What an agent can offer you depends on the coverages provided by the companies they work with, whereas an insurance broker can consider many insurers to find the best policy for your needs.
Insurance brokers also have greater access to the wider insurance marketplace, since they aren’t committed to working with specific providers and products. They may be experts in certain sectors, industries, or risk types. Brokers not only assess the insurer’s product but the insurer as a whole, looking at its financial stability, customer service, claims-paying record, and more.
Roles and Functions
However, the lines between the roles of insurance agents and brokers aren’t always so distinct, and many consumers see both agents and brokers as their representatives. Indeed, brokers sometimes have agreements with insurance companies.
Both types of professionals assess risk, offer policy coverage suggestions, provide a selection of choices, are involved in the claims process, and act as your representative in dealings with the insurer. Consequently, consumers typically see agents and brokers as intermediaries between their need to transfer risk (such as potential car accident expenses) and insurers accepting that risk.
The commonalities that exist between the functions of agents and brokers may be why some states assign agents and brokers the same “producer” license, as opposed to separate “broker” and “agent” licenses. Both types of insurance professionals must be licensed in the state where they do business and meet the state rules and regulations overseeing their activities.
Insurance brokers can ask for quotes and policies from insurers and submit applications on your behalf, but they can’t bind your coverage or provide an insurance binder on behalf of the insurance company since they aren’t an insurer.
Which Is Right for You?
An insurance agent may be a better fit if you already have a policy directly with an insurer and want to bundle your coverage with other types of insurance. You may also prefer an agent over a broker if you want to compare quotes by yourself and speak with an agent to answer questions or complete your policy purchase. An agent might be more helpful as well in instances when you're looking to be matched with coverage available from a particular insurer or group of insurers.
Insurance brokers are suitable if you want to compare coverages and prices throughout the insurance marketplace, and are looking for impartial recommendations on the best insurance policy for you based on your needs and desires. If you are having trouble finding a specific type of insurance, such as home insurance for high-risk homes, brokers may have greater ability to scan a wide range of options. Keep in mind that while agents won't charge additional fees, you'll potentially be paying a broker's fee for the extra services you receive.
The Bottom Line
In general, insurance agents represent the insurance company, and insurance brokers represent you. You may not notice much of a difference when speaking with a broker or agent, as both provide similar services, such as evaluating coverage options or helping you file claims. One notable difference in how each operates, however, is that insurance agents work with one or more specific insurers to match you with the coverage, while insurance brokers comb through relevant insurance companies on the market, screen them, and present the ones that are the best match for your needs. (For this extra work, brokers may charge you a fee.) Both agents and brokers are licensed and regulated by state laws, and receive commissions from insurance companies.