An insurance broker may be an individual or company that works as an agent between an insurance company and a customer trying to find the most appropriate insurance policy for the situation. Usually a broker works independently with the customer’s best interests in mind, but they may be affiliated as an agent with a specific number of policies or insurance companies. Broker’s may work on a commission basis, in that they get paid by an insurance company for referring them business, or they may work by charging a client a fee for providing their service of searching out the best insurance policy for them. In some instances it may also be both.
With the rise of the internet, a lot of insurance comparison is completed online and the typical business model has changed to using a website with comparison tools. The same commission system is still applied. More personal in depth services are still offered on a one to one basis.
In the United States insurance brokers are closely regulated and must apply for a broker’s license for their practices to be legal. Each state follows similar guidelines but issues their own licenses. Having a license in one state does not necessarily mean a broker can practice in another state, although the application process can be sped up if a license in another state is held. Hawaii is an exception, where all brokers must be residents of Hawaii.
Due to various laws there are many smaller brokerage firms, compared to a few large monopoly holders. This is because it is illegal to offer the rebates or discounts that might cause “the little guy” to go out of business. This means firms often only have their name and reputation to market their services.
It is not always necessary to go through a broker to obtain insurance, and it is possible to deal directly with insurance companies.