Nobody wants to spend the time and effort going through the process of getting an insurance quote, then gear up for making a change to a new insurance company, just to find out that there’s some additional fee they weren’t aware of that could drastically affect their decision. Hopefully, I can shed some light on how an insurance broker gets paid to better help you in the decision-making process. (Because personal insurance (auto and home) and commercial (business) insurance are 2 different animals, in this article, I’m going to be focusing on personal lines insurance.) One thing to keep in mind while looking for a new insurance agency is there are strict laws in place in each state that govern the insurance industry and provide the framework for these different payment options.
There are a few ways that an insurance broker can get paid. Typically, an insurance broker is paid a commission from the insurance company that they place your insurance with. It’s usually a percentage of the total cost you pay for the policy and it’s already built into the price of the insurance. The percentage of commission is set by each company individually and is pre-approved by each state. It’s the same way that an insurance agent who is not a broker is paid. You may be wondering if you can bypass the insurance broker and go directly to the company and not have to pay that commission, therefore saving on your insurance cost. The answer is no. Even if you went directly to one of the companies your price would remain the same, they would just keep the commission and you would now be dealing with an 800 number as opposed to an agency, but paying the same price.
In addition to a commission, many states allow a broker to also charge a broker fee. Usually the only parameters for this fee is that it has to be reasonable, disclosed and typically has to be accepted with a signature. Some insurance brokers charge a fee for all new business, renewal business and for many service transactions. Some just charge a fee for new customers with their first policy.
We choose not to charge a broker fee and only receive commission from the companies we partner with.
If you have any questions regarding this or anything else insurance related and would like to ask an expert, give us a call at 1-800-665-5154.