The Insurance Broker

By Susan Saksida

Is it better to buy insurance from an agent or from and independent insurance broker? This is the $4 billion dollar question as this is approximately what was paid in insurance commission in 2005 for all insurance products. About half of this relates to auto insurance premium.

For those of you who don't know the difference, an agent represents one insurance company and a broker represents several. I use both an agent and a broker to buy my insurance products. My agent is a professional agent, so apart from the fact that he represents only one insurance company he operates and is compensated in the same manner as a broker. I have no idea if I would like dealing with a call centre agent but the few times that I've had to speak to them, they've been pleasant and professional.

This is not the conclusion that my broker or the Independent Brokers Association of Canada wants you to reach. They've made a big effort to convince you that your best choice is a broker because of their independence, objectivity and advocacy on your behalf, even price. Take a look at their website at www.ibac.ca and they will explain all of their advantages. This sounds impressive but just like an agent, a broker's job is to sell you insurance first. What you should be looking for is complete transparency in your insurance transaction and to judge this, you need to know how a broker operates.

How independent is your broker?

While it is true that an independent broker is not an employee of an insurance company, they still represent only a limited number of companies and each dictates the type of client they want and the premium level they expect to reach. Although the broker may offer more selection than an agent, your choice may still be limited because of other factors. Ask your broker to explain the company affiliations and target markets of the companies represented and you may be surprised to find that of the eight or nine companies, only one or two are actually interested in insuring you.

Beware of brokers who give you exorbitantly high quotes with only one or two low quotes. These are filler quotes to make the lower priced one look better. Obtaining quotes is automated and not the lengthy process that it used to be, so don't be afraid to ask your broker for more quotes at different deductibles or limits to compare pricing options. A good broker will disclose affiliations and explain target marketing and if they know that you can't get a good price from the companies they represent, they will refer you elsewhere.

Is your broker objective?

If you are happy with your current insurance company, why move? Although rare, your broker may recommend that you change companies because there is solvency or reputation issue and this is done to protect you. Other times your broker may recommend you change solely for their own financial benefit because they can earn more commission with the new company. You should also be aware that brokers and insurance companies do cancel the service contracts between each other, which means that you must change to another insurance company of find a new broker if don't want to change.

Always ask your broker to explain why they are recommending the move and how it benefits you? If your premium remains the same but your broker will receive more compensation, you may be fine with the change but you should still know that this is the reason. Not surprisingly, there are some advantages to being a long-time insured which you may lose when you move companies. Ask your broker to provide you with a written explanation why the change will benefit you and what they will do for you in the event of a dispute over premium or claims with the new company that may have been avoided with your current company.

Is your broker a good advocate on your behalf?

Insurance companies take the complaints of some brokers very seriously and will respond quickly, but this is not true for all brokers. If your broker is inexperienced in claims, their advocacy on your behalf may be well intentioned but weak. Also, some brokers can be very selective about which complaints they will pursue aggressively and although your position is correct, they may be reluctant to upset the insurance company.

A good broker who knows claims will explain when you are wrong and will give you reasons why and if you are right, they will advocate strongly on your behalf. Ask your broker about their specific claims experience or who in their office will be your advocate. In serious disputes with your insurance company, ask that all communication between the broker and the company be in writing and copied to you. Too often advocacy consists of one or two phone calls and a documented refusal by the insurance company in your client file, which simply is not adequate.

How is your broker compensated?

Brokers are now beginning to disclose their compensation which is a good thing. Don't be shy to ask your broker about the compensation received on your business. Currently average auto commission levels run between 10% -12% plus bonus, plus incentives which can add 5% or higher. Commission for auto is somewhat regulated but it is not for some personal property and most commercial insurance, which can run as high as 30%. Savvy clients are negotiating fixed service fees for certain policies and allowing their broker to receive commission for others. Speak to your broker to determine if this will work for you.

At the end of the day, who you buy auto insurance from is often dictated by the company you choose; some only sell through brokers and others use agents exclusively. Your best advantage is to be a knowledgeable consumer.