Insurance Broker vs Carrier: Which Should You Choose?
This article is part of a larger series on General Liability Insurance.
The main difference between an insurance broker vs carrier is that an insurance carrier creates and services the insurance policy, whereas a broker helps a customer find the best policy among multiple carriers at the best possible rate. Carriers are responsible for maintaining the insurance contract, or policy, and responding appropriately and in a timely manner to claims. Meanwhile, brokers work for the customer, not the carrier, to look for insurance.
Think of it this way: A broker is like a vending machine. The vending machine does not create the products available through it. It offers a wide selection, and you can pick the best item for you. Meanwhile, a carrier is a company that produces products and then gives them to the vending machine.
When To Use Each
What Is an Insurance Broker?
A broker is a third party that can sell insurance from multiple carriers directly to customers. Rather than working for an insurance company, a broker works for the customer by shopping for insurance. This gives the broker the freedom to shop around and find a policy and carrier that is right for you.
Brokers understand insurance and businesses—and using that knowledge, they can help you find the best policy. Brokers also apply knowledge of risk assessment to your specific industry, making them a good choice for finding the right insurance and level of coverage, especially if you operate a business in a higher-risk industry.
Unlike an agent, most brokers cannot bind a policy and will work with the provider to do that. This means there will be a delay in obtaining coverage.
Pros & Cons of Insurance Brokers
| PROS | CONS |
|---|---|
| Work for the client | May charge fees to write the policy |
| Shop among many carriers | Don’t directly handle and resolve claims |
| Can find the best rates | Don’t service the policies they source |
Even when you have a preferred carrier or are happy with your existing insurance, it is worth exploring what a broker can find for your business. Remember, brokers work for you and can be a great way to find a cheaper policy for your needs.
The terms insurance agent and insurance broker are often conflated, but they are actually different:
- Agents are paid a commission by the carrier to act on their behalf and can bind coverage, making getting a policy quick and easy. Some are captive agents and work exclusively for one carrier while others are independent and work with multiple carriers. However, in general, an agent is not going to compare that policy with other carriers like a broker will.
- Brokers are not appointed with a specific carrier, so they are not limited to one or two carriers. While they also get paid a commission, the commission can come from any number of carriers depending on where the policy ultimately is sourced. This gives them a more objective approach to helping business owners find the right insurance.
It’s important to know that some brokers do charge a fee when placing the business with a carrier. This fee is not refundable if you cancel the policy early—although your premium would be.
What Is an Insurance Carrier?
An insurance carrier provides insurance policies, such as general liability insurance, and is the entity that determines whether a business is insurable or not and the pricing for the policy. Generally, it employs representatives and agents to solicit and sell insurance. Some carriers only work with captive agents, meaning they sell exclusively for that carrier, whereas others may work with independent agents. The best carriers will work with independent agents because it is a means of giving freedom to the customer in finding the right coverage.
The carrier is responsible for all insurance policy aspects, including underwriting, servicing, and claims. When a business owner has an issue, they typically get help directly from the carrier, as is the case during the claims process. Even independent agents will defer the processing of claims and many other issues directly to the carrier.
Pros & Cons of Insurance Carriers
| PROS | CONS |
|---|---|
| Often best explain features of the policy that brokers don’t note | Don’t allow for price comparison unless you do additional work |
| Bind coverage quickly | Make decisions based on the bottom line |
| Offer less confusion because there are no other options | May have limited geographic availability |
Typically, a business owner works directly with a carrier because they have a strong respect for the brand—they trust that the policy and its subsequent coverage will take care of them properly during a loss. It’s also possible that they go directly to the carrier thinking that they will save money in doing so because some offer a discount when working directly with consumers, but this isn’t true of every carrier.
Carriers sell insurance through four different means:
- Direct sales: Some carriers use representatives to fulfill policy orders but rarely solicit business via representatives.
- Captive agents: These agents work with only one insurance carrier but are independent business owners themselves and get paid a commission to solicit and sell for the carrier.
- Independent agents: These agents may have multiple appointments with various carriers to solicit and sell insurance based on limited shopping capabilities.
- Brokers: These are small business owners who shop policies among various carriers to find the best deal for clients.
Bottom Line
When evaluating between approaching an insurance carrier vs broker, there is no right or wrong answer. What matters is finding the right policy at the right price for your business. Understanding the resources offered by both can make a world of difference in simplifying the process. When the time comes to purchase the policy, ensure you understand what you are buying, the quality of the carrier, and the type of coverage.
