Depending on where you live, and what type of insurance you need, insurance broker fees may be very important to you, as they can account for a decent chunk of your insurance budget.
Captive Agent: Represents the insurer. An employee of the insurance company they sell for, i.e. State Farm agents – similar to a grocery bagger, who works directly for their company.
Independent Agent: “Represent” multiple companies by contract. Agent’s “loyalty” is with the companies they represent. In fact, the contract they sign in order to offer various products from different insurers clearly dictates that fact.
Insurance agents earn commission based on the overall insurance premium they “produce,” typically between 10-20 percent. A $1,000 insurance policy may earn an agent between $100 and $200, plus a commission if the policy renews.
Insurance Broker: Represents the individual seeking insurance – not the insurer. Brokers typically do not get paid a commission from the insurance company who issues the policy, and therefore must charge a broker fee in order to make money on the transaction.
Note: In some states, California for example, an insurance salesperson may be an agent, broker or both. Depending on which they “are” in each sale, they may earn a commission, charge a broker fee, or in some cases, both.
Why Insurance Broker Fees Are Charged
In some cases, agents charge fees for non-standard auto insurance policies because they tend to require more work as a result of cancellations and re-writes due to nonpayment of premium.
Essentially every time an agent has to “touch” a policy, it costs them money (in the form of time).
This sort of activity causes many agents to charge fees for their service; otherwise they wouldn’t make any money by selling and servicing insured who require multiple transactions to keep their insurance policies in force.
How Much Are Insurance Broker Fees?
Agents who charge broker fees typically charge what they feel is a “fair” amount. The consensus seems to be to charge whatever amount adds up to an overall profit of 15% of the policy premium.
For example, if your policy premium is $1,000 and the agent/broker earns a 10% commission of $100, the agent/broker will charge a fee of $50. The total amount earned would be $150, or 15%.
Are There Any Rules?
Actually, yes. Depending on which state you live in, there are certain rules and regulations dictating when and what an agent can charge in the way of insurance broker fees.
For example, if a salesperson is operating as an “agent,” under contract for an insurer, they may not be able to charge anything in the way of insurance broker fees.
If they are acting as an insurance broker…they can charge whatever you will pay.
However, they MUST DISCLOSE the amount they are charging you as a “fee.” This means you must be provided with a document that details the charge and you must sign it.
If you discover you have been charged an insurance broker fee and have not seen a disclosure, call your agent/broker and ask for a copy.
For the record, many insurance agents are unclear on what they are allowed to charge, if anything.