Broker

Reviewed by Stefan Tirschler

Noun

bro·ker | ˈbrōkər

Definition: An independent insurance salesperson who can sell insurance policies on behalf of multiple insurance companies.

Some people prefer to purchase insurance through a broker, rather than from the insurance company directly.

What is an insurance broker?

An insurance broker is a person from whom you can buy insurance. Brokers sell insurance, but they don’t work for insurance companies. Instead, they shop around to multiple insurance companies on behalf of their clients. Some brokers work independently, others work together in brokerage firms.

What does an insurance broker do?

The main job of an insurance broker is to find their clients the best insurance policy at the best price. When you hire a broker, they’ll comb through insurance offerings from many companies to find the right match. Insurance brokers are professionals who must pass exams and keep up regular continuing education in order to hold a license to work in their province.

Upon meeting with a new client, the first thing a broker will do is determine what their client’s insurance needs are. Depending on the type of insurance the client is shopping for, they might ask a few questions, or they might ask for documentation in the form of inspection reports, appraisals, property valuations, and so on.

What does that mean?

Example

Nima is shopping for a new home insurance policy. Her insurance broker, Henrietta, starts the process by asking Nima for information about her home. She wants to know how big the house is, when it was built, and many other details about its construction. She’ll use these details to help locate the best insurance policy for Nima’s needs.

Nima’s house isn’t huge, but she’s got a lot of valuable property inside. Nima collects art, and she’s got some rare pieces that add up to almost $100,000 in value. Not every home insurance provider is willing to insure such things, at least not without enormous premiums. Henrietta asks Nima for documents that demonstrate the artwork’s appraised value. She’ll use that documentation to find an insurance company that’s willing to insure Nima’s home and her works of art, hopefully at a reasonable price.

With that information in hand, the broker starts shopping around. Brokers work with multiple insurance companies—sometimes dozens—so they have quite a few options. Once the broker identifies the right insurance policy and provider, they present the quote to their client who can decide to buy or not to buy. If the client buys, the insurance provider will pay the broker a commission.

Brokers also provide information and support, even after the insurance purchase is complete. On behalf of their customers, brokers help coordinate premium payments, request policy changes, and make recommendations come renewal time. Some brokers offer assistance with the claims process, though the actual claim still has to be made directly with the insurance provider.

How do insurance brokers make money?

Brokers earn commission on the policies that they sell. Once a broker’s customer has purchased a policy, the insurance company that provided it will pay the broker a commission for bringing them business. The commission is based on the premium amount and can be as high as 20%, depending on the type of insurance.

Some brokers also charge a brokerage fee, which is paid by the client, rather than the insurance company. Brokerage fees are not common practice, however. In many jurisdictions, they aren’t even allowed. Insurance brokers are regulated provincially, so check with your province’s regulatory body if you’re curious about the rules where you live.

What is the difference between an insurance agent and a broker?

Agents and brokers are often confused for each other. From the outside, they don’t seem to be all that different; they both sell insurance. The difference is that an agent represents an insurance company (or sometimes multiple insurance companies), and only sells that company’s policies to customers. Brokers don’t work for insurance companies. They work for their clients, and shop around to find the right coverage.

It may seem like brokers are the best way to buy insurance, but many people prefer to deal directly with the insurance provider. Buying directly from an agent is often faster, since agents can frequently issue new policies within minutes. Brokers need to file an application with the insurer by email or fax and wait for it the insurance company to approve it.

There’s also a third method of insurance shopping that’s picking up speed: buying online. Some companies, like Square One, allow customers to purchase policies online, which takes brokers and agents out of the picture altogether (though Square One also has a whole team of licensed agents ready to help out).

Do insurance brokers handle claims?

Since insurance brokers don’t work for the insurance company, they don’t have the authority to manage claims. Someone who buys insurance through a broker still needs to speak with their actual insurer in the event of a claim.

Some insurance brokers offer claims advice services. While they can’t manage claims, they can provide advice to their customers about the claims process. For example, they can advise about what types of claims would be covered, and what deductibles might apply.

The important points

  • Insurance brokers are different from agents. Agents work for insurance companies; brokers do not.
  • Insurance brokers don’t manage claims.
  • Insurance brokers are independent; they don’t work for insurance companies. They are free to transact with any insurer with whom they have a contract. The insurer pays the broker a commission if their client buys a policy.
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