What is an Insurance Broker?
An insurance broker (sometimes called an insurance agent or insurance producer) is a licensed professional who sells insurance and related products to a variety of clients. The type of insurance can be personal or business and across a wide range of categories. For this service, the broker charges a fee or commission. An insurance broker represents his client, the insured, above any one specific insurance company (referred to as “non-captive”). The term insurance broker infers independence.
Technically, when the broker sells an insurance product as a representative of a specific insurer, he is acting as agent, or “captive” and thus should be considered an insurance agent in that situation. Sometimes the perception of a conflict of interest with which policy the agent selects for his customer, since the agent sells the policies of just his company.
What does an Insurance Broker Do?
An insurance broker sources new clients, offers independent and impartial advice on the types and level of coverage needed. Then, the broker goes out to a network of different insurance companies and purchases the insurance or related product on the client’s behalf. The broker will often assist in any claims process and handle all related paperwork and servicing needs.
What are the Different Types of Insurance Brokers?
Individual Insurance Brokers
Most insurance brokers deal with individuals. They can fulfill their clients risk management needs and provide insurance all throughout their lives. For example, as individuals progress through life they may need automobile insurance, renters insurance, home insurance, life insurance and long-term care insurance. There are many variables when purchasing an insurance policy and the slightest mistake can cost you too much money or too little coverage when you need it most. An experienced broker’s advice is typically better than just an online quote.
Frequently asked questions include, “should you buy whole life insurance or term life insurance if I want to leave money to my kids? Which is you want the policy to cover a specific obligation, like college tuition? What is the best policy for a former smoker?” An experienced broker can explain these to you and not be biased towards ones with the highest embedded fees.
Commercial Insurance Brokers
All businesses should have some form of liability coverage. Commercial brokers help service business clients with their risk management needs. Commercial policies include errors and omissions (E&O) insurance, professional and cyber liability policies. Often, commercial insurers specialize in certain sectors that they know inside and out. This understanding, combined with a strong network of contacts, allows the broker to the right suite of products, even hard to get coverage, for their customers. In this way, the broker saves his clients time and money.
For example, a small construction company may need different types of coverage. What if your bulldozer goes down in the middle of the project, costing your team a day’s work? You’d be OK with equipment breakdown coverage often pays for the actual damage but what about the business interruption losses? Your crew might be solid, but what about your subcontractors and suppliers? Is E&O coverage necessary?
A business owner’s policy (BOP) is a wrap up policy which bundles together a variety of separate policies and is sometimes a cheaper option for businesses. Your broker should be able to decide the best option for your business.
You may not have known that financial advisors, if properly licensed, can sell some insurance related products like variable annuities contracts or variable life insurance policies. This is because these products, due to their “variable” nature are actually classified as securities. They ‘vary’ because they are in fact invested in securities like mutual funds.
Variable annuities have exploded in popularity due to the persistent low interest rate environment and longer life expectancies for people. These investments are products developed by insurance companies that provide a stream of cash flow for a specified period of time. You purchase the annuity up front and the insurance company guarantees you a stream of payments often for your lifetime. Like bonds, they are subject to the credit risk of the company issuing it, in the case of the annuity it’s the insurer. They are also not insured federally by SIPC, like for normal brokerage account holdings. They’re insured only by the state.
Some of these products can have high commissions or “loads”. An experienced financial advisor, possibly a Certified Financial Planner, CFP, should be able to steer you in the best direction for your specific needs at a lower cost. For example, you may be able to avoid “load” expenses when purchasing a life insurance policy. For variable life insurance policies, this means your cash value builds faster. No load policies are harder to find and are purchase typically from a financial advisor. They will have a flat fee, not a commission from the insurance company.
What are the Required Skills and Credentials of an Insurance Broker?
Networking skills are essential as insurance frequently tap into their network of contacts when sourcing new ideas or for referrals. For individual insurance brokers, that means targeting all the people you know (or have ever known) as your network. Providing good service to an individual allows for higher referral rates, a meaningful part of an insurance brokers new business. This means being active in the community and charity events, etc. For a commercial insurer, frequent chamber of commerce meetings and community events where you can mingle with other business sponsors.
There is also a significant sales component to being an insurance broker and many have rigid production quotas they must meet. Commercial insurance can be especially competitive between brokers, since the policies, and payouts, are typically larger. Even financial advisors that are dual-licensed to sell insurance must be able to show their clients the benefits of insurance in their overall financial plan.
There are certain state licenses that may need to be obtained. In most states, you need to obtain just one license to be an insurance producer, and you can act as broker or agent, but must disclose to the client your relationship to the company issuing the insurance or product. In addition, you may need more licenses to sell related financial products. If an insurance broker can pass the Series 6 exam he can also sell mutual funds.
Academically, since insurance brokers have a significant sales component, a high school diploma or GED is all you need to actually get licensed by the state and get started. But many employers prefer a bachelor’s degree. To get hired as a financial advisor and sell both securities and certain insurance products a bachelor’s is typically needed and a Master’s degree in finance may be preferred.
What is the Compensation for Insurance Brokers?
Glassdoor calculates the national average salary for an insurance broker salary at $70,000.1 Of course, compensation varies by geographic region and experience. As you progress in your career, more compensation and more comes in through your clients annual renewal fees.
Independent insurance agents had average annual incomes of $87,000.2 This is a bit skewed because to become independent infers that you’ve already worked for a number of years and built up a client base, so the experience level is probably higher. It’s typical for financial advisors that sell variable insurance products to make well in excess of both these figures.
How do I Become an Insurance Broker?
Job sites like Indeed often feature companies hiring for positions as insurance brokers. If you can prove some sales background or demonstrated a passion for selling, you’ll probably get a shot. The job is tough at first, but the longer you stay in the better you’ll do, typical of many sales-bases positions.
You may even try and start becoming an independent agent on your own from home. You’ll need to network with insurance companies and learn about the different products they provide. Once you start to build a client base, start networking in your area. Build and cultivate a social media presence.
If you want to sell insurance and also financial services like mutual funds you should try a similar approach as for a financial advisor.