When buying insurance, should you use an insurance broker, direct insurer or an insurance agent? While all of them are involved in selling insurance to buyers, they operate very differently—and work with different motivations. Here's what you need to know.
Table of Contents
- What's the big difference between and insurer, an insurance agent and a broker?
- What is a direct insurer?
- What is an insurance agent?
- What is an insurance broker?
- How do insurance brokers and insurance agents make money?
- Are insurance agents or brokers better?
What's the big difference between and insurer, an insurance agent and a broker?
Agents work for the insurance company.
Both insurance agents and brokers act as intermediaries between people buying insurance and insurance companies. But there is one big difference between insurance agents and brokers that everyone should know about—and it has to do with who they're really working for. An insurance broker represents you, the customer. On the other hand, an insurance agent works for one or more insurance companies—agents are basically contracted salespeople.
What is a Direct Insurer?
Direct Insurers (Insurance companies) are a bit like manufacturers—they make the product (policies) and then sell it through brokers and agents. Historically this was the only way to buy insurance but in the last 40 years insurers have also switched to offering their products ‘direct’ to customers with no middle man. So now you can also buy policies directly from the source, from companies like Directline, Hiscox, AXA, and Aviva to name a few.
Typically, direct insurers don't provide all of their available policies in a direct to the public format. Due to the longstanding relationship between brokers and insurers, and the increased complexity of larger business insurance policies, most very large insurance policies are still sold through brokers or agents.
- Don't pay commission or fees to any third parties
- Write and amend their own policies internally
- May not cater to all business types
- Can only provide policies that their own company produces
Direct insurers have in-depth knowledge of the products offered by their company, but they are motivated to sell their products whether or not they are the best option (or best value) available in the market for a particular situation or buyer.
What is an insurance agent?
An insurance agent represents one or more insurance companies and works to sell their product to insurance buyers (e.g., consumers or businesses needing insurance). They are often specialised to a particular field such as farming, or property and highly knowledgeable in their field. Whilst they work for insurers they are not direct employees—typically they are paid commission on the policies they sell.
Most insurance agents are ‘captive’ agents, which means they work for one insurance company, but independent agents exist who have ties to multiple insurance companies. In either case the agent may apply their own branding to the policy you buy, but if you look into the wording you can find sections entitled ‘provided by’ or 'underwritten by' which show the insurer providing the policy.
Captive insurance agents:
- Provide policies from one insurance company
- Are often highly specialised/experts in one field
- May sell relevant insurance alongside their own business products
- Are not directly employed by insurance companies
Like direct insurers, Captive Insurance agents have in-depth knowledge of the products offered by their company, but they are motivated to sell their products whether or not they are the best option (or best value) available in the market for a particular situation or buyer.
- An NFU Mutual agent attends shows, competitions and auctions and is available to other attendees for them to purchase insurance for their farms, animals and equipment. He works for a local agency which only sells NFU mutual policies, but his business is distinct from and has commission contracts with NFU mutual.
- Your mobile phone plan comes with optional insurance cover –the mobile phone company is acting as an agent of AXA, who provide the insurance, but your policy is headed with the mobile phone company name.
Independent insurance Agents:
- May offer a broad range of insurance policies from different insurers
- Are likely to be experts in one particular field and cater to customers in that field
- May still have main business activities aside from insurance sales
- Are not directly employed by insurance companies
Independent Insurance agents will still have in-depth knowledge of the products offered by their insurance company agency agreements, but will be able to pick and choose the right policy to meet customer requirements.
- Estate agents offer their customers discounted home insurance policies with Aviva or AXA as part of their service package for landlords and homebuyers, offering one policy or the other depending on the property location, age and condition.
- Mortgage brokers offer their clients several forms of life insurance from different providers as companion policies to a mortgage; they may source these from several insurers depending on your requirements.
What is an insurance broker?
An insurance broker works for their client (e.g., you), helping the buyer find the right insurance for their needs at the best price. Brokers basically do all the leg work and research for you—like having a personal shopper.
Insurance brokers use their expertise to help clients find suitable insurance coverage for their unique situation. A broker should ask lots of questions to understand the client's insurance requirements. A broker may also ask about existing cover you have to make sure you're not over insuring.
Then a broker researches the market, contacting various different insurance companies for quotes. The broker uses their expertise, knowledge of the market and professional relationships to find suitable and affordable coverage for their clients. Once the broker has found a suitable product (or products) they will present these to the client, making a recommendation based on the needs of the client. Brokers work with the best interests of the client in mind and have access to a wide range of products and insurance companies.
In a sense it is 'free' to use a broker, because the commission they charge is paid by the insurance company—but some brokers charge the client admin fees such as an 'arrangement fee', 'renewal fee' or 'cancellation fee' so be sure to check this before signing up). And brokers can often use their negotiation skills to secure you a lower price than going directly to an insurance company.
- Earn money via commissions from sales and admin fees
- Have access to a wide range of insurance products from many different insurance companies
- Use expertise to help clients find the best product for their situation (including complex cases)
- Might charge admin or cancellation fees (on top of any fees charged by an insurance company)
In particular, brokers shine when it comes to hard-to-insure situations that aren't easily insurable in the (on-line) commoditized insurance market.
- A construction company that works on high-risk projects like hospitals or airports will need specialist broker to help them find the right builders insurance policy.
- A driver having trouble finding affordable car insurance due to a prior conviction from a comparison site and might be better off using a broker with this expertise.
How do insurance brokers and insurance agents make money?
Insurance agents and brokers can both have complicated pay structures. Commissions play a large role in pay, and can be structured as a fixed £ amount per sale or a % of the premium—regardless, they're designed to help motivate certain types of sales. For example, brokers and agents alike might earn more or less on certain product lines or for selling optional add-on extra coverages (e.g., tools insurance, breakdown cover, etc.).
FCA regulations state that brokers and agents must disclose the nature of their remuneration to customers, whether it be a fee paid by customers, a commission of any kind or any other kind of remuneration, but they aren't required to disclose the percentage of premium paid to them as commission ('Admin' or other fees on the other hand, must be listed separately to the policy premium).
Insurance company employees will typically earn a salary with possible bonuses included for hitting customer satisfaction targets or employer metrics. If they receive any form of sales bonus this must also be disclosed to customers under FCA regulations.
- A car insurance agent earns a fixed salary of £20,000 a year; on top of this they earn a % commission of all sales each month bringing their total pay to £27,000 for the year.
- A business insurance broker earns a fixed £50 commission for policies under £100, £75 commission for policies priced £100-250 and £100 commission for policies priced £250+.
Which is better to use?
Represent the client to understand their needs, compare available insurance products, negotiate prices and ultimately recommend the best option for the circumstances.
Consumers or business owners short on time to invest in understanding different types of policies and the nuances of coverage and exclusions can benefit from using a broker. A broker can use their expertise and industry knowledge to find the best cover at the cheapest price to protect against the risks involved, and works on behalf of the client.
However, fees can be higher when using a broker because they're likely to charge administrative fees for setting up a policy, making a change to the account or cancelling a policy. They also might work with a limited selection of insurance companies (e.g., fewer than you'd find on a comparison site).
If you decide to use a broker beware sending multiple applications to multiple brokers; for specialised businesses the pool of available insurers is limited, so brokers will all tend to approach the same insurer for quotes. IF an insurer gets multiple applications for the same business they may even refuse to quote, so pick your favourite broker before sending your application, or ask that each broker tell you which insurers they will approach to prevent overlap and make sure you get the best terms.
- Saves time
- Expert advice
- Access a wide range of products and insurance companies
- Help with complex situations
- Admin fees can be higher
- Won't work with all insurance companies
Selling policies for only one insurance company and will have in-depth knowledge about the products on offer. Agents can also offer excellent customer service as they have the ear of the company and can make the selling process particularly efficient. Long-time customers who have had previous good experiences with a particular insurance company might prefer to work with an agent, especially if they've developed a personal relationship.
However, captive or independent agents still only sell a limited range of policies. If you need something they don’t provide or your business grows or changes outside of what they can cover they may not be able to continue to offer appropriate insurance.
- Lower admin fees
- Selling process can be more efficient
- Binding authority means you can obtain cover very quickly
- Highly specialised product means you can get excellent discounts if you fall into the right category
- Time consuming to compare the market (have to find multiple specialist agents)
- Agents only provide prices from one insurer
- May not cater to complex situations
- May not be good value for all circumstances
Insurance companies selling their own products will have expert knowledge on those products. Compared to a broker who may need to learn hundreds of policy wordings a direct insurer employee may only need to learn six or seven, and can usually address queries directly with reference to underwriters, who write and amend the policies themselves.
If you fall into an insurer’s preferred business type their online or telephone quote and buy process can be quick, easy and inexpensive.
However, direct insurers often operate a ‘fit in or fall out’ model where if your business has even a single activity or element which is not covered, you will not be offered a quote. Like agents, direct insurers can only sell their own policies so if your business grows or changes you may need to change insurers at renewal.
Finally, not all insurers sell directly to the public—many still exclusively operate through broker and agents, and even those with direct sales branches may not provide their full range of covers, opting to use brokers for more complex or larger policies where the end-client can benefit from the broker's advice and access to a wider market.
- Lower admin fees
- Quick and easy selling process if you are their preferred business type
- Policy perks/special terms and conditions for target business
- Able to amend policies very quickly if your activities or needs change
- Time consuming to compare multiple insurers (have to obtain quotes from each company separately)
- Specialised covers not suitable for everyone
- Won't advise you on alternatives like a broker or an agent might.
- Cover options can be limited