When buying insurance, should you use an insurance broker or an insurance agent? While they are both 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 difference between an insurance broker and insurance agent?
- 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 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 the insurance company—agents are basically salespeople.
What is an insurance agent?
An insurance agent represents an insurance company and works to sell their product to insurance buyers (e.g., consumers or businesses needing insurance).
Most insurance sales agents are 'captive' agents, which means they work for one insurance company. You'll talk to an insurance agent if, for instance, you ring up AXA for business insurance or Admiral for car insurance and speak to one of their sales agents on the phone.
Captive insurance sales agents:
- Work for the insurance company (they could be part- or full-time, or an independent contractor)
- Earn money via a combination of salary, commission and/or bonus
- May be incentivised by the insurance company to sell certain products or meet sales quotas
- Should be experts in their company’s products and be able to answer questions easily
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.
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.).
Insurance agents working for an insurance company can earn some combination of salary, commission and/or bonus; but brokers earn money primarily through commissions and also via admin fees for handling changes to an account like a change of address, set up fee or cancellation.
- 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: an insurance agent or broker?
Insurance brokers 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).
- 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
Insurance agents selling policies for only one insurance company 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, agents won't be adept at assessing buyers' risks in the same way as a broker, and they only sell their own company's products. Agents won't recommend alternative products that might be a better fit from elsewhere in the insurance market.
- Lower admin fees
- Selling process can be more efficient
- Time consuming to compare the market using agents (have to contact each insurance company individually)
- Agents only provide prices from one insurer
- May not cater to complex situations
- May not be good value for all circumstances