Jessica Sautter is a Content Writer for CarInsuranceCompanies.com with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Sep 27, 2020

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Key takeaways...

  • When you buy insurance directly from a licensed agent, you should ask if they are a captive agent or a broker
  • A captive agent is a licensed professional who works for one carrier and can only sell that carrier’s products
  • An insurance broker is licensed to promote products for several different insurance companies all at once
  • Typically, agents act in the interest of their employer, and brokers act in the interest of their clients
  • Since brokers are self-employed, they will charge a brokerage fee to match you to an insurance company

Not all insurance professionals have the same interests in mind. When you’re shopping for coverage that will safeguard you and your family, you want to be sure that you’re working with the right professional who will provide you with all of the guidance that you need.

Buying insurance can be intimidating, and sometimes, all you want to do is talk to an expert.

Not all experts know the ins and outs of the car insurance industry. While agents are knowledgeable, they typically only know how to answer questions pertaining to the carrier they work for.

Brokers are well-versed in everything that has to do with all of the lines of property insurance they sell. To quickly and easily search for car insurance quotes from your home, enter your ZIP code now!

Are agents and brokers the same thing?

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Many people use the terms “agent” and “broker” interchangeably when they’re shopping for insurance. It makes just as much sense to say that you’re going to an insurance agent’s office as it does to say you’re going to an insurance broker’s office.

What you might not know is that the two professionals, while they each sell insurance, play very different roles in the industry.

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What does an agent do?

Agents and brokers perform very similar functions on a day-to-day basis. One of the main differences between an agent and a broker is that agents must be appointed by an insurance company to sell their products.

Since agents must be licensed, trained on the carrier’s product, and then appointed, they hold the authority to bind coverage.

There are both independent agents — who sell products from several different carriers they are appointed to — and captive agents.

Independent agents are a lot like brokers because they are self-employed, and they have options when they are providing you with quotes. Captive agents can only promote and sell products sold by the carrier that employs them.

What does a broker do?

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Just like an agent, a broker must complete an educational program and pass a licensing exam before they can start working.

Once licensed, a broker can start to promote insurance products through certain carriers. They will shop the market for the best premiums and fair guidelines that benefit the customer.

After the broker matches their client to the best policy, they will fill out the application for coverage and submit them. Since the broker isn’t appointed by the insurer, they don’t have any power to bind coverage on their own.

They can, however, request that the insurer writes out a temporary binder that will give the client coverage for 30 to 60 days.

Is it better to work with an agent than a broker?

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It’s hard to distinguish between a broker and an agent at first glance. Luckily, this information has to be disclosed if you ask for it. There are drawbacks and benefits to working with both agents and brokers.

One major benefit of working with agents is that they have the authority to bind coverage immediately. That doesn’t mean that your quotes won’t ever change.

One of the drawbacks of working with a captive agent is that the agent can only provide you with the rates through a single carrier, which also means that the agent will be biased when recommending products and may not be knowledgeable on other types of products offered by competitors.

Another drawback to consider if you’re tempted to work with a captive or independent agent is that these appointed professionals have signed a contract with the insurers they represent, saying they will act in the best interest of the carrier. The agent’s purpose is to keep the carrier profitable.

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What are the benefits and drawbacks of working with a broker?

Brokers may be licensed, but they don’t have the same license that agents have. Agents complete training through all of the carriers they are appointed to, but brokers need to know industry guidelines and restrictions to compete.

Thus, most people consider brokers experts because they are familiar with the largest menu of product offerings.

Another benefit of working with brokerages is that the brokers there are going to make recommendations based on what benefits you. Since there are some many different ways for consumers to shop around, the broker needs to keep their clients happy at all times.

They will be the middleman, but they don’t represent the insurer you’re applying to.

How do brokers get paid?

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Brokers have to make money or the profession wouldn’t exist. The number of brokers in the industry has dwindled down since online quotes have grown in popularity.

A lot of people don’t want to do business with brokers because they charge fees. In almost all states, brokers are allowed to receive incentive commissions as well.

First, they make commission off of the products sold. These commissions are paid by the carrier. Then, the broker will charge you a brokerage fee, which must be listed in a compensation disclosure statement that you’ll receive with your policy paperwork.

Not only are there fees at the inception of the policy, there might even be fees to process changes to the policy as well.

Is there a better way to compare premiums?

You don’t want to contact several insurers to get quotes, and you also don’t want to pay brokerage fees to get expert help. If you want to get multiple quotes for coverage through several carriers at once, it’s best for you to use a brokerage-style tool on the Internet for free.

Comparison shopping tools online can help you identify the most affordable carrier, just like a broker would.

The best thing of all is that it’s the insurers who pay marketing fees to have their quotes displayed instantly. In this way, you can get all of those quotes you need all at once without having to pay a fee on your end.

Get instant quotes now, and locate the best policy in minutes!

References:

  1. http://www.investopedia.com/terms/c/captive-agent.asp
  2. http://www.investorwords.com/2512/insurance_broker.html
  3. http://www.investopedia.com/terms/b/brokerage-fee.asp
  4. http://www.iiat.org/docs/default-source/new-agency/am_ams_overview.pdf?sfvrsn=0
  5. https://www.irmi.com/articles/expert-commentary/agency-captives-revisited
  6. http://www.ibac.ca/Why-Use-A-Broker/What-a-Broker-Does.aspx
  7. http://www.insurancejournal.com/magazines/features/2011/09/05/213622.htm
  8. http://www.dfs.ny.gov/insurance/appoint3.htm
  9. http://www.aldoi.gov/consumers/AutoSmartShopping.aspx
  10. http://www.investopedia.com/ask/answers/050715/how-does-insurance-broker-make-money.asp