Insurance brokers can help your business choose policies and coverage types that make the most sense for you. Their job is to help clients understand their liabilities and how those risks can be managed through proper insurance coverage.
Insurance brokers do not sell insurance, but they can find insurance companies and coverage policies that align with your business, and then negotiate with multiple insurers to find competitive rates.
To finalize and initiate a business insurance policy, you or your insurance broker will need an insurance agent working on behalf of the insurer to close the deal.
In this post, we explain the difference between insurance agents and brokers, who pays an insurance broker, and companies’ requirements for business insurance.
What are insurance agents and insurance brokers?
Insurance brokers help you review and shop insurance and benefits policies best suited for your needs and your budget.
The main difference between an insurance broker and an insurance agent is whom they represent. Insurance agents represent one or more insurance companies, but when you hire an insurance broker, they work directly for you not the insurer.
While independent agents work with more than one insurer, they have contracts with companies that often limit them to selling certain policies. Brokers, meanwhile, can solicit price quotes from multiple insurers. So, you can think of an insurance broker as an intermediary between insurers and businesses, with no stakeholder interest in the policy itself.
Importantly, you can't buy insurance from an insurance broker, but they can help you find the best policies and manage claims. Put another way, an insurance broker cannot complete the sale of a policy that right is reserved by the insurance agent or insurance company. Once a broker has done all of their research and presented their clients with options, the policy selected must be bound by an insurance agent or company.
Independent agents and brokers approach their work similarly, because they can offer several policy options from multiple insurers. Captive insurance agents, meanwhile, work on behalf of a single insurer, and brokers are not contracted with any insurers.
Are companies required to use insurance agents?
Regulations require each company with employees to have workers’ compensation insurance, and most states have additional requirements. These typically include policies such as general liability for lawsuits or business property insurance for workspaces and equipment.
In some cases, you are legally required to purchase certain types of business insurance. Since insurance companies may require state licensed insurance agents to sell their products, companies purchasing business insurance may be required to use insurance agents.
Some states do not recognize brokers and only license agents for insurance. With insurance being state regulated, each state handles brokers and agents all differently.
Many insurers rely on agents and brokers to distribute their business insurance products. They don't often sell policies directly to businesses, due to regulations and industry best practices. If you do not use a broker, you will most likely have an assigned agent at each company you contact.
To initiate policy coverage for a business, a broker or agent must obtain a binder signed by an underwriter or other representative of the insurer.
The type of license an agent or broker needs depends on the state and the type of insurance coverage required.
Good brokers and agents stay on top of legislation changes and tax reforms, making sure your policies are up to date. They can help ensure you are covered for unexpected legal and tax issues related to your insurance benefits.
Who pays an insurance broker?
An insurance broker makes money from commissions when your business buys and renews policies from insurance companies, along with any broker fees, if applicable. They may charge both commissions and fees, or only a commission.
Insurance broker commissions
Commissions are typically included in the price of the annual premium charged by insurers to policyholders. These could include base commissions and supplemental commissions, which are smaller, ongoing annual payments.
Most commissions fall between 2% and 8% of premiums, according to Investopedia.
Insurance broker fees
Brokers may also be paid broker fees, which can be combined with a commission structure.
Broker fees are usually non-refundable, so your money will not be returned if you cancel your policy mid-term, unless your insurance broker was dishonest or broke your contract. Fees are generally paid directly to the broker, but in some cases are included in annual premiums.
You should know if your broker or agent charges fees, and what those fees are, before they start searching for insurance policies on your behalf.
Are you ready to find a top rated insurance broker that can find you a cost effective policy that best fits your needs? Search for a broker with Mployer Advisor’s online broker marketplace.