Have you ever wondered how an insurance broker makes money?
The simple answer is through commissions and fees. But the story is not that simple. In this article, we will systematically address the topic so that newbies can grasp what happens in these lines of work.
First of all, let’s give an answer to the following question:
What exactly does an insurance broker do?
Insurance brokers are experienced individuals who can help you choose the best deals in the world of insurance policies. They act as intermediate envoys between you, the customer, and the insurance companies.
When you decide you need insurance, your inexperience on the field may slow you down or cost you more than intended. Therefore, the best course of action is explaining your situation to an insurance broker, allowing them to give you the best policies that suit your needs, whether it is health insurance, life insurance, home insurance, accident insurance, car insurance, or any other types.
Insurance brokers are not confined to a single insurance company; instead, they deal with multiple companies and several different policies that suit the needs of different customers. Basically, an insurance broker represents the customer.
Do insurance broker and insurance agents refer to the same thing?
No, they are not the same. Insurance agents are individuals who represent only a single insurance company.
Since they are confined to the policies of a single company, that means they provide fewer options to the customers.
Their main job is increasing the sales of the company that hires them, regardless of the specific needs of the customers.
Another way to put it is that insurance agents are aiming at a maximal profit for the company primarily.
How do insurance brokers get paid?
As we said at the beginning of the article, there are two main ways through which brokers make money: commissions and fees.
To understand what the commissions are, we go through a sequence of events.
First, the customer contacts an insurance broker. He/she explains their needs to the broker, then He or, she finds the best insurance companies and policies tailored for the specific needs of the customer. Once the customer pays the insurance fees, a percentage of that payment goes from the company to the insurance broker. So, in reality, the customer does not pay extra money for dealing with a broker.
This percentage is the commission. It is paid to the insurance broker on various occasions such as pairing customers to the suitable insurance companies and policies, making amendments in the policies chosen before by the customer, and answering questions posed by the customers related to the field of insurance.
The value of the commission depends on the company itself. Usually, it is within the range of 5-20% of the premium. An insurance premium is the sum of money paid by the insured (customer) to the insurance company in exchange for an insurance policy.
Fees, on the other hand, are extra amounts of money that the customer pays to the insurance broker in exchange for certain services.
For example, a customer who needs expert advice on an issue regarding the insurance policies of a certain company may well benefit from the experience of an insurance broker.
Why not just go to the insurance company directly and cut off the middleman?
The insurance broker, the middleman that links the customer to the insurance company, is essential in many many ways. While a customer can deal with the insurers directly, this is not preferred for a myriad of reasons.
For example, when filing a claim, many customers find great difficulty in understanding the terminology used by the companies in describing the procedures and transactions related to the process.
Brokers make the task much easier: they can explain how to file a claim in simple terms that match the educational background of the customers. Even better, they can represent the policyholders and file the claim on their behalf, then deal with the insurers. The insurers even prefer negotiating with the brokers instead of the policyholders since they are familiar with the policies and the rules, thus cutting short a lot of time that would have been wasted on explaining the details to the customers.
Can insurance brokers work with businesses?
Definitely. Brokers work on building long-term trust-based relationships with businesses in order to represent their interests when they need insurance. Most, if not all high-risk businesses, feel safer trusting the insurance matters to well-known insurance instead of going their own way and negotiating with insurers by themselves.
Can the insurance brokers be dishonest when delivering the policies that the insured buys?
Generally speaking, no. The value of the commission is not an important factor when a broker presents the companies suitable for a customer. That is because insurance brokers live upon reputation, so they do not risk it for a higher commission without earning the satisfaction of the customers they work with. As a rule, if an insurance broker had been accused of misconduct before, you are less likely to deal with them than with other brokers who have cleaner history. That is how an insurance broker makes money.