Buying Insurance From Brokers vs. Agents vs. Direct — What’s the Difference?

If you’re in the market for professional liability insurance, you’ll notice there are a few ways to buy a policy: from a broker, an insurance agent, a group or organization you’re affiliated with, or directly from an insurance company. But what’s the difference? The biggest variables seem to be price and service. Everyone’s insurance needs will vary, so you’ll want to weigh a few considerations to avoid rushing into a decision you may later regret.

Insurance Brokers vs. Agents vs. Program Administrators

What Is an Insurance Broker?

An insurance broker acts as a go-between (sometimes referred to as an insurance “intermediary”) between clients and (potentially several) insurance companies. They basically do the cross-comparison shopping for you to secure coverage based on your needs. They may focus on one type of insurance or industry (e.g., life insurance brokers), or they may be knowledgeable about insurance products across various industries. Brokers are licensed and governed by state regulations.

This does come at a cost. Insurance brokers make a commission on the sale of a policy from the insurance carrier, usually as a percentage of your premium. That means it costs the insurance company more to sell you insurance through a broker, which can impact the price they charge.

What Is an Insurance Agent?

An insurance agent is also an insurance intermediary between clients and the insurance company, but they typically represent one specific insurance company. So, while brokers can be appointed by several different insurance companies to sell products, agents often sell on behalf of one insurance company. And just like brokers, agents are licensed and governed by state regulations.

What Is an Insurance Program Administrator (PA)?

If things aren’t already complicated enough, some organizations are “Program Administrators” for one or more insurance companies. This allows them to quote, bind, and issue policies on behalf of the insurer within their given authority — and in some instances handle the claims on those policies, too. Often program administrators act a lot like agents, but they do receive commission or other revenue from the insurance company to administer and sell these products on their behalf. Depending on their level of authority, you may find yourself dealing solely with the program administrator and not the insurer themselves, even regarding your claim.

The Benefits of Using a Broker, Agent, or PA

• A broker will work for you by analyzing your options; an agent has expertise regarding a specific suite of products offered by a single carrier; and a program administrator may have experience in an area (or a relationship with an association) that makes buying convenient.
• Brokers can cross-compare when they’re shopping coverage and pricing for you, especially if they’re familiar with more than one company.
• Many brokers will assist you if you have a question or want to change your coverage so you don’t have to contact the insurance company yourself.

What to Consider Before Using a Broker, Agent, or PA

• Brokers, agents, and PAs get paid by the insurance company for selling you a policy. This means the final cost of an insurance policy can be much higher than a direct-buy policy might be (see “Direct-Buy Insurance” section below).
• If the insurance is the same rate year after year, your policy requires payment of the commission repeatedly — and if the price goes up, the commission may go up, as well.
• Some brokers, agencies, and PAs do not handle claims. For that, you’d still need to go through the insurance company’s claims team.

Examples of Brokers and PAs*

• Agents often work for the insurance company itself.

What Does It Mean to Buy Insurance ‘Direct’?

Typically the most affordable option, direct-buy insurance allows you to call an insurance company or go directly to the company’s website to buy a policy. This cuts out any go-between. You’ll form a relationship with the insurance company itself, which often matters to people who care about brands and reputation. This relationship starts when you apply for the policy and can continue through the entire life of the policy and beyond.

Some direct-buy insurance companies are aiming for a more tech-savvy experience for the 21st century. They might consider themselves “disruptors” in the insurance space (like Casper is for mattresses and Warby Parker is for glasses). As well as the standard live customer service teams and claims groups, you might find features like live chat, instant (same-day) downloadable policies, custom dashboards, and more. Insurance agents and brokers also might have web platforms for you to buy insurance, but they are not the insurance company paying your claims.

The Benefits of Buying Insurance ‘Direct’

• The insurance company does not pay an agent or broker a sales commission to market their products, which can often save you money.
• You can avoid paying fees sometimes charged by brokers to represent you.
• You can anonymously get quotes online and avoid sales pressure.
• You can have a relationship with your insurance carrier directly, which can be helpful in a claims scenario.
• It’s typically fast and easy. Depending on the company, you may even be able to get last-minute coverage.

What to Consider About Buying Insurance ‘Direct’

• If shopping around, you’ll need to get a quote from each insurance company separately because they tend not to use an aggregator to advertise their product – just like how Southwest Airlines doesn’t use an aggregator like Kayak or Expedia to sell tickets.
• Buyers who have more complex insurance requirements may need to have a policy customized, and it may take time and experience to explore those options on your own.

Examples of Direct-Buy Insurance

9 Questions to Ask Yourself Before You Buy an Insurance Policy

1. Do I already have a connection with an insurance company? Am I happy with them?

If yes, do they offer the insurance I’m looking for? If no, what do I feel I’m missing that a different company could provide?

2. Have my friends or colleagues had an insurance-buying experience they’ve loved?

If yes, what did they love about it? Did they use a broker they would recommend? If they bought direct, what was that experience like? Are my insurance needs similar to theirs?

3. Are my insurance needs complex or simple?

4. Do I know how much coverage (i.e., limits of liability) my peers typically get, or am I totally in the dark?

5. How soon do I need this coverage?

6. Do I know of any insurance brokers?

If not, do I have resources I can use to get good recommendations?

7. Do I want to do my own research to find various prices and coverages?

Is finding a well-priced policy important to me? If I need help, am I comfortable working with the insurance company’s support team — or would I be willing to pay a higher premium in exchange for buying my policy through a broker or program administrator that might customize my service?

8. Am I comfortable working directly with an insurance company with questions about coverage or claims?

9. What’s important to me about how an insurance company, broker, or program administrator relates to me as a customer?

When purchasing insurance, whether you decide to buy directly from an insurance company or through an insurance intermediary really depends on your own needs and preferences. If you’re looking to be in complete control of your buying experience, willing to do your own research, and want quick access to coverage, the direct-buy model may be a great option for you. But if your coverage needs are more complicated (i.e., you’re shopping for multiple policies), or if you have a connection with an insurance liaison, working with an agent, broker or program administrator may help you feel more at ease.

 

Image courtesy of iStock.com/solidcolours

 

Last updated on Jul 24, 2024.
Originally published on Jan 24, 2019.

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The views expressed in this article are those of the author and do not necessarily reflect those of Berxi™ or Berkshire Hathaway Specialty Insurance Company. This article (subject to change without notice) is for informational purposes only, and does not constitute professional advice. Click here to read our full disclaimer