What is the Difference Between a Car Insurance Agent and a Broker
The difference between a car insurance agent and a broker can make the difference between the options available to you when buying insurance. An agent writes insurance for a limited number of car insurance companies, which naturally limits their options (and yours). A broker, however, is not under contract with insurance companies. Brokers often have a deeper understanding of more obscure types of insurance because they work with more companies and insurance products.
The Agent Works for the Insurance Company
It’s important to understand that agents and brokers have different responsibilities to the consumer and the insurance company. Although most consumers see an agent as someone who works for them, the truth is that agents act as extensions of insurance companies. They have a duty to protect the company’s interests, not yours.
Brokers Work for You
Brokers are more independent than agents are. They work on behalf of the insurance buyer. Because the insurance buyer has less power than the insurance company does, and it’s the broker’s job to protect the buyer, many states require brokers to carry licenses before they can do business. Brokers can put together customized insurance packages, a choice not available to agents.
Both agents and brokers can receive commissions for placing insurance policies, but brokers can also collect brokers’ fees from the insurance buyer, something agents can’t always do legally. Most people shopping for car insurance would baulk at the idea of paying a fee to buy car insurance, which is why most brokers work only with commercial insurance policies and businesses. Agents, however, often work with both.
NOTE: There are combination broker-agents as well. These professionals work as agents for some companies, and brokers when they cannot place a client within their network.
Many Businesses Work With Brokers
Brokers are often a valuable choice for small businesses. The fee they charge is well worth the savings a company can realize in premiums. Between the workers’ compensation, commercial auto and other necessary types of insurance businesses must carry, there is a great potential for savings when a great broker is involved.
Brokers are well-educated when it comes to insurance matters, so they can help their clients navigate the market for the best options. Brokers might recommend self-insurance, captive insurance arrangements, commercial policies or a customized mix of these options, depending on the needs of the business.
Agents have less power to help businesses because they are bound by the company-agency agreement. Although going through an agent generates fewer fees, agents just don’t have all the resources of a broker to create the most affordable and effective insurance program for a company.
Most Individuals Work with Agents
It’s unusual for an individual to buy personal car insurance through a broker. This is usually reserved for the very wealthy, who have a good deal of assets to protect. The rest of us do just fine with an agent, even though the agent really works for the insurance company. They are still bound by consumer protection laws, just as the insurance companies are. And because they don’t charge broker fees, they usually have the most to offer individuals when it comes to buying car insurance.