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What is the difference between an auto insurance company vs. a broker?
Things to Remember...
- Shopping for new auto insurance quotes from time to time is a smart idea for all drivers
- The difference between an insurance company and a broker is that an auto insurance broker works with you as an insurance shopper to gather and compare quotes
- Because the broker gets car insurance quotes for you, you can benefit from saving time when working with a broker
- You can contact auto insurance companies directly to obtain a quote
What is the difference between an insurance company and a broker? The biggest difference is that an insurance company sells directly to the client, while a broker auto insurance company works with companies to find clients and sell them insurance.
Regardless of which method you use, car insurance rates adjust regularly based on a number of different factors. Because of fluctuations in these factors, many drivers may find cheap auto insurance rates by taking the time to get a few different auto insurance quotes today.
What is the difference between an auto insurance company vs. a broker and the advantages and disadvantages of a broker? We can answer those questions.
Before you read more about an insurance company vs. a broker, enter your ZIP code into our free auto insurance comparison tool to compare cheap car insurance rates right now.
Table of Contents
Insurance Company vs. Broker: What’s the difference?
Two of the options for buying car insurance are to get quotes directly from a car insurance company or from an auto insurance broker. While they may seem similar, insurance companies are not brokers.
So what is the difference between a broker and an insurance company, and which one should you work with to get quotes?
An auto insurance broker works in a similar fashion as a mortgage broker or other similar types of brokers. They work as a liaison to help buyers and sellers come together to execute a transaction.
Auto insurance brokers do much the same thing between insurance shoppers and insurance companies.
A broker works to facilitate a transaction between you and the insurance company. This process involves the broker helping you to get quotes from different auto insurance companies as well as answering any questions you have about the quotes you are receiving.
Auto insurance broker quotes can be gathered from multiple companies, and the goal is to find you the best possible rate.
After all, you likely will not be agreeable to switching insurance companies if a lower rate cannot be found.
However, the National Association of Insurance Commissioners (NAIC) cautions shoppers to make sure that their agent, broker, or company is licensed to sell. Fraud can be all too common when it comes to selling insurance.
How can I know to trust an affordable auto insurance broker or company? Shoppers should check credentials and complaints to make sure their chosen company or broker is reputable. We’ll cover more about insurance licenses below.
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How do brokers get rate quotes?
If you make the decision to work with an auto insurance broker, you will provide the broker with many specific details about yourself, your car, and your driving history.
These are the same details you would provide to an auto insurance company if you were to get a full insurance quote, as these are the factors that affect auto insurance rates. This information may include:
- The make, model, and year of your car
- Safety equipment in your car like an anti-theft alarm system, airbags, and more
- Your age and gender
- Your driving history
- Your home and work address
The auto insurance broker then takes your information to different auto insurance companies to get quotes on your behalf. Because the broker gets quotes for you, you can benefit from saving time when working with a broker.
To give you an idea of how one of the above factors (age and gender) can drastically change your rates, we’ve included rate data from Quadrant below.
Auto Insurance Rates by Age and Gender
| Auto Insurance Rates by Age and Gender | Single 17-year-old Female Average Annual Auto Insurance Rates | Single 17-year-old Male Average Annual Auto Insurance Rates | Single 25-year-old Female Average Annual Auto Insurance Rates | Single 25-year-old Male Average Annual Auto Insurance Rates | Married 35-year-old Female Average Annual Auto Insurance Rates | Married 35-year-old Male Average Annual Auto Insurance Rates | Married 60-year-old Female Average Annual Auto Insurance Rates | Married 60-year-old Male Average Annual Auto Insurance Rates | Average Annual Auto Insurance Rates |
|---|---|---|---|---|---|---|---|---|---|
| Allstate | $9,282.19 | $10,642.53 | $3,424.87 | $3,570.93 | $3,156.09 | $3,123.01 | $2,913.37 | $2,990.64 | $4,887.95 |
| American Family | $5,996.50 | $8,130.50 | $2,288.65 | $2,694.72 | $2,202.70 | $2,224.31 | $1,992.92 | $2,014.38 | $3,443.09 |
| Farmers | $8,521.97 | $9,144.04 | $2,946.80 | $3,041.44 | $2,556.98 | $2,557.75 | $2,336.80 | $2,448.39 | $4,194.27 |
| GEICO | $5,653.55 | $6,278.96 | $2,378.89 | $2,262.87 | $2,302.89 | $2,312.38 | $2,240.60 | $2,283.45 | $3,214.20 |
| Liberty Mutual | $11,621.01 | $13,718.69 | $3,959.67 | $4,503.13 | $3,802.77 | $3,856.84 | $3,445.00 | $3,680.53 | $6,073.46 |
| Nationwide | $5,756.37 | $7,175.31 | $2,686.48 | $2,889.04 | $2,360.49 | $2,387.43 | $2,130.26 | $2,214.62 | $3,450.00 |
| Progressive | $8,689.95 | $9,625.49 | $2,697.73 | $2,758.66 | $2,296.90 | $2,175.27 | $1,991.49 | $2,048.63 | $4,035.52 |
| State Farm | $5,953.88 | $7,324.34 | $2,335.96 | $2,554.56 | $2,081.72 | $2,081.72 | $1,873.89 | $1,873.89 | $3,260.00 |
| Travelers | $9,307.32 | $12,850.91 | $2,325.25 | $2,491.21 | $2,178.66 | $2,199.51 | $2,051.98 | $2,074.41 | $4,434.91 |
| USAA | $4,807.54 | $5,385.61 | $1,988.52 | $2,126.14 | $1,551.43 | $1,540.32 | $1,449.85 | $1,448.98 | $2,537.30 |
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As you can see, rates are drastically different among companies. Without the services of a broker, you would have to sort and compare each and every insurance company’s rates you request a quote from.
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What are broker fees?
What is the auto insurance broker fee and how do brokers make money? In most cases, an auto insurance broker is paid a commission from the auto insurance company you decide to purchase your new insurance through.
In some cases, drivers do not pay any fees at all in order to use a broker’s services. Some brokers work only on commission. Brokers will not get paid from the insurance company unless you actually purchase insurance.
In order to accomplish this, the broker must help you find a lower rate and convince you to purchase that coverage. With this in mind, many brokers will work very hard to find you a lower rate and to answer all of the questions you have about insurance coverage.
The percentage a broker makes off of a commission changes by state, but usually, they make anywhere from two to eight percent commission from every policy they manage to sell to a client.
When those commissions are on the smaller side, some brokers choose to charge a broker’s fee. This is a fee charged to the client for the broker’s services.
Should you work with a broker or an insurance company?
There is no right or wrong way to get auto insurance quotes. Working with an auto insurance broker does have its advantages. Most drivers want to know do insurance brokers save you money.
When working with a broker, you enjoy the free services of a professional who is dedicated to helping you find an insurance policy that will save you money.
You will also benefit from having a live person who wants to answer your questions and help you make the best decision for your needs and budget.
Whereas when you get quotes directly from an insurance company, you are talking to a representative of that company who wants to sell you the policy they have to offer. So when you compare an auto insurance broker vs an agent of a company, the agent may not be looking out for your best interests.
Many people who take the time to learn about the difference between an auto insurance broker and an auto insurance company make the decision to work with a broker after weighing the pros and cons of insurance brokers.
There are, of course, disadvantages to a broker as well. Let’s take a look at some of them.
11 Disadvantages of Insurance Brokers
Take a look at the following list of 11 disadvantages of insurance brokers in the table below and ask yourself, is it worth it?
11 Disadvantages of Insurance Brokers| Insurance Broker Disadvantages | Reason for Disadvantage |
|---|---|
| They work on commission | They usually only get paid after you buy a policy, which means they may be more concerned with selling you something than finding the perfect policy for your needs. |
| Incentive clauses may cause bias | Ask for a compensation disclosure statement to ensure your broker is not selling with a bias. |
| Slower than other means of getting quotes | They submit your information to companies on your behalf, which takes time. |
| They don't know you as well as you do | No one knows you better than yourself; a broker may get things wrong. |
| Auto insurance comparison websites work better. | They do the same thing but faster and more efficiently. |
| They do not work for the insurance company | Insurance brokers may not know all available bundles and savings opportunities an agent might have access to. |
| You may not need all of the coverage they recommend | They may recommend you take out more coverage to get a higher commission. |
| They may not be aware of all discounts | It's virtually impossible for one person to know all of the bundles and discounts offered by every insurance company. |
| Lack of knowledge | A newer insurance broker may not know enough about you or the industry to secure your best rates. |
| Lack of experience | They may not know enough about local, smaller insurance companies. |
| There's no guarantee they'll provide you with the best rates | You cannot be certain that they're presenting you with the best options. |
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As you can see, while insurance brokers are legally and ethically obligated to present you with your best rates, some may lean into bias and sign you up for more coverage than you need, or they may not know about certain discounts you’re eligible for.
If an insurance broker is not familiar with all of the available companies in the area, they may miss great rates from smaller independent insurers.
What’s the difference between an insurance agent and a broker?
People often think of insurance agents and brokers as much the same, but there are differences.
So what about the disadvantages of an insurance agent? What are the benefits of an insurance agent? What’s the difference, again?
As we’ve discussed, insurance brokers work for you, the client. They are truly independent as they don’t have contracts with specific companies. On the contrary, an insurance agent is contracted by one or more specific insurance companies.
An insurance agent can either be a captive agent, meaning they work for one specific company, or they can be independent agents, meaning they have multiple contracts with different companies.
In both scenarios, the agent always represents the auto insurance company or companies they’re contracted with.
What is an insurance license?
An insurance license is required for an individual to sell insurance. The process for qualifying for and receiving an insurance license varies by state.
You must complete a certain number of training hours before you can qualify for an insurance license. The more types of insurance you’re licensed to sell, the more required hours of training you must complete.
Oftentimes, an individual will make the most of their training hours by getting licensed to sell multiple different kinds of insurance, including auto, life, health, and homeowners insurance.
What are some other ways to get auto insurance quotes?
It is important to note that getting auto insurance broker online quotes is not the only way to obtain quotes. You can contact auto insurance companies directly to obtain a quote.
While you can call a company for a quote, many auto insurance companies also provide an online rate quote generation form.
You may also use a rate comparison website to get customized rate estimates. These can be used to determine which companies may offer you the lowest rate.
Based on this information, you will be able to head straight to the company that may provide you with the lowest rate rather than spend time shopping around from company to company.
Regardless of which option you choose to obtain new auto insurance rate quotes, an insurance broker or company, start comparing rates with your ZIP code in our free auto insurance comparison tool now and find affordable car insurance near you.
Frequently Asked Questions: Disadvantages of Insurance Brokers
You’re now an expert on all there is to know about insurance brokers and how they differ from insurance agents. Do I need an insurance agent? Now that you’ve finished this guide, the decision is up to you.
In the meantime, check out our frequently asked questions below for more information.
#1 – What are some disadvantages of insurance?
Some disadvantages of insurance include lack of coverage for all foreseeable issues, or paying for a policy that is not right for you and your individual needs.
Putting in the time upfront to research different companies and coverage options, and to receive multiple quotes before buying, can really save you time and money in the long run.
#2 – How do I find an auto insurance broker near me?
Look up different auto insurance brokers in your area and be sure they have the appropriate licensing for your state. It’s also a good idea to check on their customer service ratings to ensure they are trustworthy and professional.
#3 – What are some pros and cons of selling insurance?
Some of the pros of selling insurance include setting your own schedule and building your own network. A job as an insurance broker is great for go-getters with good time management skills who are willing to market themselves to build a strong client base.
The biggest con, however, is that many people question if insurance brokers are really necessary now that it’s easy to get insurance quotes online.
Auto Insurance FAQ