Insurance Broker Fees vs Commission: What Are the Differences?

Insurance Broker Fees vs Commission: What Are the Differences?
Apr
22
Thu

Owning and managing a business can be an unpredictable experience. Planning around the great peaks and sudden valleys of business life can be challenging, but insurance can offer a valuable safety net. Unfortunately, the wide range of insurance policies and coverage alternatives can be difficult to understand. Insurance brokers can bear this load for you, walking  business owners and benefits managers alike through the costs and details in order to find the very best selection for their personal circumstances. 

What is the Difference Between Commission and Brokerage?

Insurance brokers are experts in their field; they provide vital knowledge and support for professionals trying to choose the right insurance policy for their needs in exchange for commission and or additional fees. Commissions are usually based on a percentage of the annual premium (which can vary depending on the policy and insurer) and are included in your monthly premium, paid directly to the broker from the carrier. Fees, however, are often charged for extra services and are paid directly to the broker, typically from the client. 

Captive and independent agents represent an insurance company (or companies) and rely entirely on commission; this means that they have a personal incentive to direct clients toward certain insurance carriers. Insurance brokers, on the other hand, represent the individual seeking insurance. Insurance brokers may receive a commission from the insurance company, which sounds like it would make it difficult to garner trust between the broker and the client. On the contrary, the commission continues the longer clients stay with and pay for their policies; the more satisfied a client is with their policy, the longer they’ll stick with it, and the more the broker will make. As a result, client happiness is a major motivating factor for brokers.

Alternatively, some brokers may only charge a broker fee in order to make a profit on the transaction. This serves to override that personal, financial bias entirely. The base parameter of broker fees is that they must be reasonable, clearly disclosed, and typically must be accepted with a signature.

What are the Benefits of Using a Brokerage Company?

Whether you’re interested in purchasing business insurance or expanding the benefits offered to your employees, understanding the ins and outs of your options is essential to getting the coverage you need. Insurance brokers are key to this decision. Because they know the market, they’re able to recognize the difference between a great policy and one that is simply adequate. Because they know the law, they’ll be able to protect your business from accidental exposure to serious liabilities, such as bank debt or accounts payable debt. And because they know the industry, insurance brokers are kept up-to-date on the market and the options available for clients. 

Although your broker will not be able to finalize a policy transaction, they can provide important insight into a number of different and complicated policy options and help you get the process started. Overall, they will:

  • Provide you with a few plans best suited to your needs, as well as one or more premium quotes.

  • Discuss alternatives so you’re able to see and understand several plan choices.

  • Assist you in implementing the selected plan through the insurance company.

  • Service the account, which includes solving billing problems, eligibility issues, and claim interruptions.

  • Do the legwork for you, freeing you up to focus on other things.

  • Help you get the most from your coverage after it’s been purchased.

  • Assist with the renewal process.

Ultimately, the advantages differ based on your position: if you’re a benefits manager concerned about making the right decision for your company, you can rest assured that your recommendation will provide adequate protection and support for your company; if you’re a  business owner, partner or senior officer, you can save time and money by trusting an experienced professional to do the heavy lifting; and if you’re representing a medium-sized business, you can find a partner to walk you through the process without wasting your time.

How Can I Find an Insurance Broker That's Right for My Business?

The complex nature of owning and running a business puts business owners and their representatives at the top of the list to benefit from the experience and expertise offered by an insurance broker.

Look for the following qualities when searching for a broker:

  1. Knowledgeable: Insurance policies are not simple documents. They vary immensely depending on the coverage desired and the insurer’s specific interests. Your insurance broker should be well-versed in the ins and outs of both and should possess the ability to clearly communicate complex terms and topics in an understandable way.

  2. Trustworthy: Brokers represent their client, not an insurance company. If you feel that your broker is focused more on making money than providing a reliable, professional service with your best interests at heart, it’s time to move on.

  3. Accessible: As with any professional relationship, it’s vital that your broker return your calls and emails in a timely manner. 

  4. Experienced: Insurance brokers often specialize in certain fields, such as liability insurance or health insurance. You’re going to want to focus on finding one with a background in your industry and company size in order to benefit from an enhanced level of service and expertise.

  5. Transparent: Brokers who are only interested in making a profit will often conceal or avoid discussing the details surrounding costs, benefits, and everything that falls in between. Honesty and upfront communication is essential to building trust and establishing a successful professional relationship.

Knowing what you’re looking for from a policy is as important as selecting an insurance broker. While you may be overwhelmed by the various options and laborious details, you should have a base understanding of the coverage you’re interested in obtaining. Take the time to do a bit of research on your end; an insurance broker can make solid recommendations but only you are aware of the specific needs of your company.

At the end of the day, insurance brokers are there to help. Whether you’re looking for assistance understanding the technical minutiae of a certain policy or are starting your search from scratch, an insurance broker can make your journey significantly easier. Although it may seem like extra work, paying attention to broker commissions and fees can improve your comprehension of the function a broker plays and lead to a more positive overall experience.

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