How Insurance Brokers Work

There are many questions about how insurance brokers work and where they come in when buying insurance. People are confused about whether to purchase insurance through brokers or simply go directly to the companies. Some others mistook brokers for insurance agents with other wrong ideologies on them. 

How Insurance Brokers Work


This post gives you a clear illustration of who they are and how insurance brokers work. Furthermore, it will provide you with insight into their part in your dealings and what they gain. Hence, if you’re that person looking forward to buying insurance, you certainly want to read this to the end. 

Who is an Insurance Broker? 

An insurance broker serves as a liaison between a customer and an insurance business. Their goal is to support the customers in determining the appropriate policy for their needs. 


Insurance brokers cannot bind coverage on behalf of the insurer because they serve clients rather than insurers. This is a job for insurance agents who represent insurance companies and can close insurance arrangements. 

What Do Insurance Brokers do? 

The primary objective of a broker is to find their clients the best insurance coverage at the greatest price. When you work with a broker, they’ll go over various insurance alternatives with you to find the most fantastic. Insurance brokers must pass exams and participate in regular continuing education to keep their license to work in their province.

When a broker meets with a new client, the first thing they will discuss is their insurance needs. Depending on the sort of insurance they require, the client may ask a few questions. Also, they may request papers in the form of inspection reports, appraisals, property assessments, etc.

With this information in hand, the broker begins shopping. Brokers interact with hundreds of insurance companies, offering them a vast range of options. When the broker has identified the most OK insurance policy and provider, they present the quote to their client.


Afterward, the client can then decide whether or not to purchase it. The insurance provider will pay the broker a commission if the client purchases.

Brokers provide information and assistance even after the insurance purchase is complete. Furthermore, they assist customers with managing premium payments, asking for policy changes, and making renewal recommendations. Although some brokers can help with the claims process, the claim must be made directly with the insurance carrier.

How do insurance brokers make money? 

An insurance broker’s principal source of income is commissions and fees they earn on sold policies. They typically calculate these commissions as a percentage of the annual insurance premium. An insurance premium is an amount paid by an individual or a business for a policy.

After they earn it, the premium is money for the insurance company. It also comes with a risk because the insurer is liable for any claims made under the policy. Insurers use premiums to cover the risks associated with the policies they write. 

Furthermore, they may invest in premiums to gain higher returns and offset some of the costs of providing insurance coverage. This can help an insurer keep its prices competitive.

They invest premiums in various assets with varying levels of liquidity and return. However, insurers must maintain a certain level of liquidity. The amount of liquid assets required for insurers to pay claims depends on state insurance regulators.

Typically, an insurance broker or agent would earn a lump sum percentage of a policy’s first-year premium, followed by a smaller but recurrent annual residual income payout over the policy’s term.

Other Ways Brokers Make Money 

Clients can also pay brokers for consulting and advising services. In some instances, they may levy transaction fees. For example, brokers may charge fees for initiating adjustments and assisting with claim filing.

States govern when and how brokers can charge commissions. To be allowed, fees must meet specific criteria, such as being reasonable. Also, both the client and the broker must agree on it.

Surprisingly, several insurers offer incentives or more excellent compensation to brokers who perform well. Compensation is typically based on past performance and serves as a drive to keep certain revenue-generating behaviors going. However, this method of collecting commissions is sometimes awkward because brokers don’t represent a corporation in its clients’ best interest.

Insurance Brokers’ Career Path

Insurance brokers, like insurance agents, should have a bachelor’s degree, sales or business experience, and excellent interpersonal and research skills. Also, they must be careful in their work and comfortable analyzing terms and conditions. They must never forget they are responsible for scrutinizing contracts on behalf of their clients.

Although insurance brokers are free to offer as many types of insurance as they choose, specializing in is more beneficial. Brokers must receive licenses in their respective states and pass the FINRA Series 6 and 7 exams. Maintaining client confidence also requires being updated with changes in insurance legislation.

As of January 15, 2023 , the median annual salary for a mid-level insurance broker was over $70,000.  This figure should rise as an insurance broker gains experience and clients.

Do insurance brokers deal with claims?

As they do not work for the insurance company, insurance brokers don’t have the authority to manage claims. Anyone who acquires insurance through a broker must still contact their actual insurer in the event of a claim.

Some insurance brokers aid with claims. While they cannot handle claims, they can provide information to customers about the procedure. They can tell you what types of claims are covered and what deductibles you’ll have to pay.

Is it better to get insurance through a broker?

A broker can help you find a policy that matches your needs, even if you can’t buy insurance through them. After a broker has finished all of their research and presented their clients with options, note what happens next. 

An insurance agency or business must bind the policy purchased. A broker does not complete a transaction.

How is a broker different from an agent?

Brokers represent – and work for – consumers, whereas agents represent and work for insurance companies. Brokers, unlike agents, are unable to complete an insurance sale.


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