Auto Insurance Broker Vs Auto Insurance Agent: What’s The Difference?

Sometimes the terminology in the insurance industry can be misleading to consumers who spend money on services they don’t even need. One such mistake often comes between the distinction of job duties of an auto insurance agent and an auto insurance broker. Both work in the insurance industry but require different job duties which consumers need to understand.

What’s An Auto Insurance Broker?

An auto insurance broker is a person that works in the insurance industry, usually independent, that solicits premium quotations for a client (either business or consumer). A broker is not an agent of an insurance company nor is she an employee. The broker is also not a representative of the insurance companies from which they seek quotes. Instead, the broker works for the consumer or business client to find adequate insurance coverage information at the lowest possible price.

A broker collects information from their client and contacts several insurance companies to request policy information. They then present the collected information to the client to make the final decision. Brokers do not bind coverage, create insurance policies, or authorize coverage. Once a particular policy is accepted by the client, the insurance company will provide the insurance binder that outlines the limits, terms, and conditions for the insurance coverage.

A broker gets paid through fees or commissions that are added to the insurance premium. Brokers must disclose their fee amounts to the client as required by law. They must also get their clients signed permission to collect on commission or fees.

Large brokerage firms are able to secure all types of insurance coverage, including auto, home, motorcycle, and life insurance. Smaller businesses may concentrate on only one area of insurance.

What’s An Auto Insurance Agent?

An insurance agent has entered into a contract with an insurance company in order to sell insurance to consumers and businesses. An agent does not work for the insurance company as an employee but operates a separate business as an independent contractor. An insurance agent is legally authorized to obligate the insurance company to provide insurance coverage based on the contract terms and conditions. All payments made to the licensed agent is the same as making a payment directly to the insurance company.

The insurance agent is also allowed to hire other licensed employees to service policyholders, which itself constitutes an insurance agency. Many agencies are exclusive, meaning they only solicit business for one insurance company. Larger agencies may have contacts with more than one insurance company and are known as non-exclusive agents. All agents must pass a Property Casualty licensing exam conducted in their state in order to conduct business as an insurance agent.

The one similarity insurance brokers and insurance agents have is that they both must pass the Property Casualty licensing exam issued in their state in order to work in insurance.