What's The Difference Between An Insurance Company and An Insurance Broker?

You may have heard the terms "insurance company" and "insurance broker". You may have thought they meant the same thing, but there are differences between the two. Find out what defines an insurance company versus a broker, their strengths and questions to ask when choosing one over the other.

When shopping for insurance, there are several key things consumers consider, such as cost, speed, ease, security of personal data, and peace of mind that all essentials are covered. How do you know if you should be dealing with an insurance company or an insurance broker? Let's review the key differences between the two.

Insurance Company

An insurance company employs professional agents who represents their company directly. The agents sell the company's insurance products to consumers for a commission. A consumer has no way of knowing if the price being quoted is the best deal for the coverage provided. It’s up to the consumer to do their homework and shop around to compare rates.

Insurance Broker

Insurance brokers represent consumers directly. Consumers in this case are defined as either individual people or individual businesses. Unlike an agent, brokers have access to multiple insurance companies to find the best deal on behalf of their clients. They are not locked into representing a single insurance company.

More About Insurance Companies

Insurance companies employ insurance agents to sell insurance policies from their company. Insurance companies and the agents who work for them are known as direct writers.

An insurance company enters into an agreement with the client to compensate for damages covered under an insurance policy. Examples include home, car, property or business insurance.

There are two types of insurance agents who work for insurance companies- captive agents, who typically represent only one insurer, and independent insurance agents, who typically represent more than one insurer.

Both captive and independent agents work on commission and can execute an insurance transaction from start to finish, on a variety of insurance plans.

Captive agents receive a great deal of support from the parent company. This can come in the form of financial assistance for office space, overhead expenses, employee benefits, etc. Product training is often extensive, including marketing materials, promotions, campaign assistance and detailed seminars.

However, they are still bound to a single group of policies that might not be the best fit for a client's unique situation. Sometimes a parent company may discontinue certain policies or raise rates. Without having comparable companies to make a lateral move, clients may need to shop around elsewhere in this situation.

More About Insurance Brokerages

An insurance brokerage employs expert brokers. Brokers work closely with clients to find the right coverage for them. The broker examines the terms and conditions of several options, and recommends an insurance policy that best suits the client’s needs at the best price.

They have access to superior products representing numerous insurance companies. This means they can usually secure the best value and customized options to satisfy a large cross-sections of clients. They are not a one size fits all solution, as they have flexibility across many lines of insurance.

Brokers are licensed to sell multiple products, allowing their consumers a package deal like home, auto and life insurance at a discounted premium. Brokers are required to provide full disclosure on commission rates and the effects the rates may have on the insurance premium.

At the point of sale, a broker will provide a statement that outlines how much of the premium will go towards commission, which helps consumers make a more informed choice when shopping for insurance.

Brokers are often independent businesses, with a competitive advantage of having in-depth knowledge of the evolving insurance landscape and available services. A broker’s job is to quickly and accurately compare insurance options from a variety of carriers on a client's behalf. Long-term relationships with customers and reputation are keys to the success of an insurance broker.

Since brokers don’t represent insurance companies, they can’t bind coverage on behalf of an insurer. After a broker solicits price quotes from multiple insurers, they must obtain a binder directly from an insurance agent or the insurance company once their client is ready to purchase a policy.

Strengths Of An Insurance Company

Because insurance companies employ agents who are aligned with their company, they tend to have strong product focus and knowledge about the policies they offer.

It’s generally easy to get a quote over the phone or online, which can speed up comparison shopping. This kind of "automated" shopping saves the insurance company time, which may translate into discounted premiums for the client. This is ideal for people who have quick, straightforward needs and don't require a customized solution with expert cost and "fine print" comparisons.

Insurance companies and their agents can complete insurance sales (bind coverage), while brokers cannot. Agents receive appointments to represent one or more insurance companies, and brokers do not. An appointment is a contract an agent and insurer sign that outlines the products the agent can sell, along with defined commission rates.

Strengths Of An Insurance Broker

Brokers don’t carry contractual obligations with any one provider, meaning they can reach out to any number of insuring companies to find the best fit and least expensive policy for their client’s custom needs.

Brokers must maintain full licences in their respective provinces, which means they are required to complete annual training hours. This generally means brokers have the most up to date knowledge in the insurance marketplace. Their knowledge base tends to be diverse, as well, as they deal with a large number of markets.

Many brokers work for smaller companies that represent big insurance companies, which means their service is typically more personalized, with better quality support.

Most brokers can complete an insurance policy and provide insurance documents in less than 24 hours. This can vary based on the insurance company and the type of insurance being purchased. In some cases, official documents can be provided immediately. In other cases, a ‘binder of insurance’ might be provided, which is an interim document guaranteeing coverage.

Questions When Shopping For An Insurance Company

Regardless of the type of insurance you’re looking to buy, there are several things you'll want to confirm before buying directly through an insurance company:

  • Are you able to tailor existing insurance products to my specific requirements
  • What is the process and approximate timeline for making a claim
  • Will a live person handle my claim or will it be handled online
  • Will the same agent always manage my policy
  • How are you compensated

  • Questions When Shopping For An Insurance Broker

    Just as there are questions you should ask an agent, there are questions to ask when selecting an insurance broker :

  • What are your qualifications
  • How long have you worked in the insurance industry
  • What carriers do you represent
  • Do you offer customized insurance products
  • How do I make a claim and what are the approximate timelines
  • Will you work with me consistently or will I be switched to another staff member
  • How often and how will you stay in touch
  • Choosing between an insurance company or an insurance broker involves weighing pros and cons, while understanding your unique insurance needs. It's recommended to shop around to find a balance between a fair rate, appropriate coverage and feeling comfortable with the agent or broker selling the policy.

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