I have been an insurance broker for 45 years. For 45 years I have been hearing that brokers increase the cost of insurance because they are paid a commission. The commission that my employer receives is certainly part of the cost of a policy. The question should be is it a reasonable cost and is it justified. Everything we buy has a margin of markup. If there was no margin there is no incentive for someone to set up business to deliver the product to the consumer.
Let us examine an automobile policy. For the sake of this example we can assume an average auto policy is in the range of $700. Auto commissions to brokers vary from 9% to 12.5%. The variance is due to different companies and different accessment by the insurance company of the likelyhood the buyer will have a claim.
So on an average auto policy my employer is paid a commission of from $63 to $87.50. Is that a good value for the buyer? Your service representative is expected to check all companies represented to compare price and product and help the consumer make a choice. This requires a building, office, telephones, computers and the usual costs to support those. In the event of a claim, the representive will present your claim to the insurer and intervene on the buyers behalf if needed. The representitive is expected to explain coverages which can be very complex. Your representitive is available to meet with you and you you do not deal with a faceless call centre. A broker represents the insurance buyer, not the insurance company. As a broker, for many years, I considered it part of my job to help my clients select the best insurer. In recent years, sadly, it has become a job of selecting the least worst insurance company.
The question remains – is this a good value for your money. You don’t need me as there are many options where you can arrange insurance directly with the insurance company through various media. If you are comfortable with the complex world of insurance then perhaps my role is unimportant.