For drivers looking to buy a new auto insurance policy or switch companies, their friends might tell them to go talk to a particular insurance agent or a particular insurance broker. Agents and brokers both act as middlemen between the customer and an insurance company. They basically help you buy a policy that fits your needs. But there are key differences between agents and brokers.
First, we'll talk about how agents and brokers are similar and how they're different. Then we'll discuss the pros and cons of buying from each.
(Note: States handle the licensing for insurance agents and brokers, and the technical definition in some states' regulations may differ somewhat from the specifics given here. But the information in this FAQ should apply in most states.)
How insurance agents and brokers are similar
As we said in the introduction, both agents and brokers help consumers buy a policy from an insurance company. In addition, both will help you file a claim with your insurer when you get into an accident. They both also must be licensed through the state before helping you purchase a policy. Finally, both receive a commission on their sales. Those are the basic similarities between the two.
Consumers should hold brokers and agents up to the same standards. According to the Missouri Department of Insurance, both should:
- Take the time to explain your policies and coverage to you.
- Review your insurance needs annually, looking at whether you have too much coverage or not enough.
- Explain how your premium is determined and point out any opportunities for savings.
How they're different
The main difference between agents and brokers is who they work for.
Insurance agents tend to work for either one company or a group of related companies. They sell policies to customers on behalf of the company (or companies) that they work for.
Brokers, on the other hand, are independent and can offer you policies from a variety of companies. Instead of selling the policy on the behalf of an insurer they work for, they coordinate the sale of policy between a customer and whichever insurer is the best fit for them.
One way to think of it is like buying a cell phone. In some cases, you could go straight to the manufacturer, like Apple, and purchase the cell directly from a company-employed sales representative. That would be similar to buying from an insurance agent. On the other hand, you could go to a retail outlet like Best Buy or Walmart and choose your phone from various brands. That would be more similar to the role of the insurance broker.
What are the pros and cons of buying from an agent?
Just as Apple can offer special pricing or added features when they sell directly to consumers, agents/direct writers can often add discounts and incentives when selling an auto insurance policy. Direct writers may also be aware of new product lines in development and can give a heads-up to a policyholder if a new product fitting their needs becomes available.
However, an agent can only sell you a policy from the companies that he works for, so the selection is somewhat limited.
What are the pros and cons of using a broker?
One of the biggest pros of buying through a broker is a greater number of options. Brokers can "sample a broader range of available coverage," according to the Washington Office of the Insurance Commissioner. "Brokers survey the market and bring back options for you to review."
Brokers can evaluate the needs of the potential policyholder as well as the driving record and other personal characteristics to find insurers and policies well suited for the driver. This often can lead to lower premiums from smaller companies, such as Wawanesa or other smaller insurance firms.
The main drawback to using a broker is they might not be able to offer the special discounts or added features that an agent could include.
The bottom line:
Consumers may want to shop directly with a company like Geico or Progressive, then shop with a broker to get a full price comparison on their auto insurance policy. And if you recently purchased a policy with a broker or agent without consulting with the other, don't stress. While there can be a large variation in premiums and coverage offered between brokers and agents in the property or life insurance lines, car insurance doesn't vary much between the two types of sales personnel. As one San Diego commercial auto broker put it: "There's really no big difference, other than at the end of the day we work for ourselves."