What is an Insurance Broker?
An insurance broker is an independent agency that works in your behalf to find insurance policies. Each broker has a set of companies that they have a relationship with, some of which do not offer their policies directly to the public. This relationship means that you get a better price than if you called them directly, if they allow you to call them directly. Great independent agencies will have several solid, reliable insurance companies that offer the same coverage. This allows them to 'shop around'.
What does an Independent Insurance Agency do?
In short, an insurance broker agency finds you insurance policies. They do not work for one company and offer only policies from that company. An insurance broker will always have at least several good policies from several great insurance companies for you to choose from.
The long answer separates the good brokers from the bad.
A bad insurance agency will contract with insurance agencies that are questionable, maybe even unstable, in order to get a rock bottom price that looks too good to be true.
A good insurance agency will have reliable, stable companies that honor claims quickly. The prices they offer will be lower than publicly advertised prices, too.
A bad agency will have a call or two with you and send you quotes really fast. A great independent insurance agency will take their time, ask to meet you face to face, and make sure the insurance coverage they quote is exactly what you need. This means you don't pay for what you won't use and you don't find yourself putting in claims that won't be honored because you weren't covered enough.
Great insurance brokers are usually not new ones. New companies don't have the years of deep relationships needed to negotiate the best prices with key people. Well established agencies will have the experience and connections to get your claims handled fairly, too. You should never be expected to handle your claims by yourself.
Your agent should always be able to answer insurance questions, provide advice, and have superior follow-up with you. If they aren't on top of getting back to you, how will they stay on top of your claims?
An amazing insurance broker will know your name and offer ways to save you more without you actively seeking them out. Agencies that call you midterm to make sure all the info is still correct when it appears there may be changes is basic expected behavior! The insurance broker that is for you will each year search for new ways to lower your overall cost, such as combining car with your new homeowner's insurance.
Why will getting insurance direct will cost you more?
If you go directly to an insurance company, instead of hiring an independent agency, you'll run into 2 things right away.
The first issue is that you won't be getting a pre-negotiated discount. Insurance brokers who know what they are doing, and have been around awhile, have an established agreement to get insurance cheaper. Simply, "they know people". Buying direct from insurance companies will mean you being offered insurance you don't need, after which you'll be given an 800 number to call for help. If you find yourself confused, getting answers could be very hard.
The second issue you'll need to deal with when you skip the "middle man" is that you'll be just another account for the insurance company. With a broker it is in their very best interest to make you happy - really happy. The broker works for you. Good brokers will work hard to establish a personal long term relationship by getting to know your specific needs and serve them well.
How can a broker be paid by the insurance company but not work for them?
Getting an insurance broker is free for you. How they are paid is totally transparent. The insurance company pays a commission for each account negotiated by the broker. This is kind of like buying a home and the other party pays the commission for your real estate agent. Their contract is with you, not the other party - beyond the set commission price. It is in their best interest to make you happy or you'll not go to them next time. The cost of the insurance is lowered for you to make the brokers want to bring them clients. Brokers can only land clients if the client sees a monetary and customer service benefit.
Also, insurance brokers are regulated closely and have laws governing their relationship with insurance companies.