Car Insurance Brokers: Evaluate Efficiency and Effectiveness

Questions Answered

• When do I need a car insurance broker?

• What are my options if I don’t want to buy my car insurance through a broker?

• What’s the difference between an agent and a broker?

Channels for buying car insurance

In your search for the lowest car insurance rates and the best coverage, you may not be focused on which channel you’re dealing with, or whether it’s truly your best option. You can actually buy car insurance through several methods — direct from the insurer (i.e. the carrier), through an agent, or through a broker.  Each has its advantages; the main advantage of working with a car insurance broker is a less tedious, more streamlined buying process.

What is a car insurance broker?

A car insurance broker shops several insurance carriers on your behalf and then presents the most appropriate policy options to you. You can think of your broker as your personal insurance expert, who relies on their expertise and the information you provide to find the best coverage at a reasonable price. You can also lean on your broker to explain policy details like exclusions and coverage limits.  

How car insurance brokers get paid

Brokers get paid via commissions, fees, or both. Commissions are paid by the insurance carrier, but any fees are charged to you. Most states do require brokers to disclose how they’re making money, including their commission rates and fee structure. If this information isn’t offered to you at the outset, ask your broker to provide it.  

Paying a fee for a broker’s services isn’t automatically a bad deal. The broker saves you time, ensures that you get the right coverage for your needs, and often leads to a lower insurance premium. You could quantify potential savings by independently price-shopping car insurance, just to see if the broker’s options are cheap enough to offset the fee. That would reduce the time-saving benefit of using a broker, but it can justify paying for the broker’s services. Say the broker’s fee is $75, but he or she finds a rate that’s $100 cheaper than what you found on your own. In that case, it’s a no-brainer to pay the fee. You save money and time, plus you have an expert on your side to answer questions.

Buying car insurance without an insurance broker

If you don’t want to work through a broker, you do have other options. You can buy your policy directly from the insurance carrier or work through a captive or independent insurance agent.

Buy insurance directly from the carrier

Buying your auto coverage direct from the carrier usually begins with an online quote. If you decide to initiate the policy, you’ll likely have access to online or app-based policy management tools. Often, you can add or remove cars, change coverages, and file claims independently, all without talking to anyone. You can also call your carrier if you prefer that method of communication.

Many carriers do offer lower rates when you buy direct. This takes the form of a discount offered when you quote your coverages online.

Insurance companies that sell coverage direct include Geico and Progressive.

Buy from a captive agent

A captive agent represents only one carrier. Allstate, State Farm, and Farmers Insurance have a captive agent model. Captive agents do not charge a fee for their services; they get paid through commissions and, sometimes, a base salary from the carrier.¹ As you might expect, captive agents won’t price-shop for you across different carriers. They’ll only quote from a single carrier, but they typically have deep expertise with that carrier. That expertise has value; it can help them identify potential discounts that other agents may overlook.  

When you buy from a captive agent, you may not have as many online tools to manage your policy vs. buying direct. You may be able to make minor policy changes independently, but your agent is your first point of contact when you need to speak with someone or make larger changes.

Buy from an independent agent

An independent agent, like a broker, works with multiple carriers. Agents do not, however, charge fees — as with a captive agent, the independent agent earns solely from commissions paid by the carrier.²

How does an insurance agent differ from an insurance broker?

Insurance agents and insurance brokers provide the same service. Both look across different insurance carriers to find you a suitable policy that meets your budget. There are, however, three notable differences between the agent and the broker.

First, agents don’t charge fees. Second, agents represent the carrier, while a broker represents you. And third, an agent, acting on behalf of the insurer, can confirm that coverage is in place. A broker, on the other hand, will work with the insurer to get this confirmation and provide your proof of coverage.

Advantages and disadvantages of using an insurance broker

You’ve probably already recognized some of the pros and cons of working with a car insurance broker. But to summarize, here are the advantages:

• Car insurance brokers save you time by quoting rates from multiple carriers.

• When you work with a car insurance broker, you have a knowledge point of contact who can help you identify your insurance needs and understand policy details.

• A car insurance broker may find lower premiums than what you could find on your own.  

The disadvantages are:

• You may have to pay a fee for the broker’s services.

• A broker may not have deep expertise in a single carrier to the extent that a captive agent would.

• Since a broker works on commission, he or she may encourage you to buy more insurance than you need.³

   

  They may also direct you to an insurer that makes them more money instead of the one that’s best for you. You face this same challenge when working with an independent agent and, to a lesser degree, a captive agent.

When you should use an insurance broker

The fee is the sticking point for many drivers when working with a broker. If your broker does charge a fee, you’ll have to decide how valuable the broker’s services are to you. Certain insurance situations do give the broker more opportunity to add value, making the fee a worthwhile investment. These situations are explained below.

1. You have multiple cars or complex insurance needs.

The more complex your insurance needs are, the more you’ll benefit from having a broker. Complexity might mean you have multiple cars, multiple drivers, a teenage driver, one household driver with a poor driving record, or a high net worth to protect. Or, you might need different lines of coverage, such as coverage for your home, boat, and car.

2. You want to shop around without a time commitment.

If you live a busy life — and, really, who doesn’t? — you might be happy to pay the broker’s fee so you don’t have to price-shop yourself. Gathering direct auto quotes from insurance carriers is tedious and repetitive. Work through a broker and you can get multiple quotes after sharing your information just once.  

3. You prefer to work with one objective person who can answer your questions.  

A broker is objective in that he or she isn’t loyal to a single insurance carrier. Your broker can help you evaluate your options and even speak to the strengths and weaknesses of certain coverage types and carriers. And perhaps most valuable, a broker can interpret the legal language in your policy so you can make an informed decision on coverage.

How to find and choose an insurance broker

As with any profession, there are good brokers and bad ones. The good ones are thorough, patient, communicative, and trustworthy — basically, the type of person you feel comfortable taking financial advice from. Often, the best way to find that individual is by asking your friends and family for referrals. You can also search online for someone who’s local. Plan on interviewing at least three candidates to get a sense of their experience and communication style.

You may have to put time into finding the right broker, but it can be worth it. A reliable insurance broker is an advisor and partner, in the same way, a financial advisor or tax accountant is.

Insurance brokers make the buying process more efficient

A broker can make the insurance buying process more efficient, particularly when you have complex insurance needs. It’s critical to choose a broker you like and trust, so you feel comfortable asking questions and taking advice. That’s how you can get the most value from your broker — not only by asking for multiple quotes but also by treating him or her as a true advisor.