Insurance policies and useful benefits are key to protecting your business and employees against unforeseen circumstances. To find the best insurance and benefits, many companies use a broker or advisor who knows what they need and can get the best rates.
An insurance broker is a licensed professional that helps your business find insurance companies and policies best suited to your specific needs.
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. Brokers can then help you browse insurance options and pick policies and premiums best suited for your needs and your budget.
In this post, we cover what an insurance broker does, how they get paid , and how brokers are different from insurance agents.
What Is an Insurance Broker?
Purchasing business insurance can be complicated–especially finding out which types of insurance and levels of coverage are right for your company. Navigating the insurance landscape to find thorough coverage at a low cost requires guidance, and an insurance broker can handle that research and legwork for you.
There are about 413,000 insurance brokers and associated businesses in the U.S. as of January 2021, according to IBIS World.
An insurance broker is a licensed professional representing your company in the search for insurance policies suited for your needs. Insurance brokers represent small businesses to find appropriate coverage for the best value. They work with clients to research coverage, conditions, limits and price, and then recommend a policy that best fits the client’s needs.
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Insurance brokers review different insurance companies to find the best policy fit for their client’s business. They can then offer multiple quotes from different insurers to give you options that fit your needs and your budget. In doing so, a broker eliminates the need to learn about different types of insurance and requirements, making it easy to figure out what insurance will work for you. In addition, a broker can assist in a finalist selection of insurers for the client to review, interview and choose.
For example, if you are concerned about what would happen if you are sued for selling defective products or if a fire damaged your warehouse, an insurance broker can build an insurance plan that addresses each potential liability.
When you hire an insurance broker, they work directly for you – not the insurance companies. You can't buy insurance from an insurance broker, but they can help you find the best policy. So, you can think of an insurance broker as an intermediary between insurers and businesses, with no stakeholder interest in the policy itself.
The broker's main duty is to understand your business and requirements to find fitting insurance policies within your budget. A broker also provides ongoing services to help determine if policies should change, assist you with compliance, and help submit claims and receive benefits.
Some insurance brokers focus on specific industries or types of insurance, while others provide advice on many different business insurance topics. For example, brokers specializing in property and casualty insurance help small businesses find coverage for risks like natural disasters and lawsuits. Group Health and Life brokers will assist companies with the company benefit plans.
Are Insurance Brokers Licensed?
To ensure they meet their professional and legal duties, brokers are licensed by state insurance regulatory agencies. Brokers must be licensed in the state where they practice, and their license must be renewed every two years in most states.
Most states also require that insurance brokers take continuing education courses to maintain their license.
These requirements, coupled with experience in their field, make brokers well suited for business owners with complicated insurance needs. This is especially true if you need several policies or a Business Owner’s Policy (BOP) to manage your business’s specific risks and liabilities.
Insurance brokers are not limited to the types of insurance they manage, but many specialize in certain coverage types and become an expert to better serve clients.
For example, insurance advisers and brokers can specialize in offering one form of small business insurance, or they can cover many areas, including:
General liability insurance
Commercial property insurance
Group Health and Life Insurance
Workers’ compensation insurance
Professional liability insurance
Business interruption insurance
Commercial auto insurance
Errors and omissions insurance
How Do Insurance Brokers Get Paid?
An insurance broker typically makes money from agreed-upon commissions when your company buys and renews policies from insurance companies.
Commissions are typically paid out of premiums charged by insurers to policyholders. These could include base commissions and supplemental commissions.
The costs usually comprise a percentage of the annual policy premium. Most commissions fall between 2% and 8% of premiums, according to Investopedia.
Since brokers rely on repeat business, they are financially motivated to choose the best possible coverage for your company. Insurance companies also frequently offer additional persistency commissions to brokers for policy renewals, incentivizing them to find satisfactory policies from the start.
High-quality brokers often can negotiate lower rates for clients based on their knowledge, experience and relationships, as well as the amount of insurance coverage under review. The total cost of small business insurance depends on the type of business, amount of employees, deductibles or coverage limits, and optional coverage policies.
Brokers can also make money in another way, broker fees, which can be combined with a commission structure. Even with commissions and fees, you may spend less overall using an insurance broker.
Note: Some states require brokers to disclose commission rates and other fees upfront. As an example, Commissions for welfare plans are reported in IRS Form 5500 Schedule A.
Are Insurance Brokers Different From an Insurance Agent?
The short answer: Yes.
The main difference between an insurance broker and an insurance agent is whom they represent. Unlike agents, who represent one or more insurance companies, brokers represent your business.
Agents typically work with one or more insurers, with contracts that often limit them to selling certain policies from certain companies. Brokers, meanwhile, solicit price quotes from multiple insurers. To complicate this difference, some states like Michigan, for example do not recognize brokers but only license agents, therefore you may have agents that perform services very similar to brokers in some states.
Importantly, an insurance broker cannot complete the sale of a policy – that right is reserved by the insurance agent or insurance company. A broker must hand over the account to an insurer or insurance agent to complete the transaction and initiate the policy.
Since both brokers and agents make more money when you buy more coverage, they both can be motivated to upsell larger policies. On the other hand, they both need to supply quality client service to keep your business and renew those policies.
For most small businesses, using an insurance broker is more beneficial than buying insurance through an agent or on your own. Working with a qualified, reputable broker is an easy way to save time and money while you wisely protect the business you’ve built.
Smart businesses have good insurance and benefits. The best way to find good insurance and benefits is through a broker who knows what you need and can get you the best rates.
But, how do you know who to hire? With seemingly endless options, you feel under pressure to choose the right one. We believe that transparency, information, and choice leads to better hiring decisions.
It's why we created Mployer Advisor, a free broker marketplace that allows employers to compare brokers, consultants, and advisors working with multiple insurers in one place.
To get started, search for brokers near to get matched with a short-list of qualified brokers.