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First of all, what’s an insurance broker? A broker is an insurance agent who represents several different insurance companies and is not contractually limited to primarily represent just one company. That’s why independent brokers usually have more than one insurance company logo displayed on their front window.

When an agent only has one insurance company logo on their front window, that agent is usually a “captive agent” of that company. They’re not an independent broker. That doesn’t mean they can’t act like a broker, it just means the company they represent requires them to give you quotes from that company first. If you don’t like the price then that agent is usually not allowed to give you a quote from another company. That would be against their contract with the company whose logo is on their office window.

In some cases, if the captive agent’s company declines to insure you (perhaps it’s because your home is in a brush zone or your business does things they don’t insure), that’s when the captive agent may be able to get you a quote through another agent or company. This is called “placing business outside” of their contract.

The big questions are: “Do brokers always charge a broker’s fee?” and, “What’s it for?”

Brokers don’t always charge a broker’s fee. In fact, for policies from “preferred” carriers such as The Hartford, Allied, CNA, Safeco, Travelers and Zürich you should never be charged a broker’s fee. Preferred insurance companies like these do all the accounting, the billing, and offer direct customer service. These are called “direct bill” policies. In my opinion, charging a customer a broker’s fee for “direct bill” policies should not be an acceptable practice.

A broker’s fee should only be charged when an insurance company requires the agent to generate invoices, do the accounting, arrange premium financing and use their trust account to pass the premium from you to the insurance company. These are called, “agency bill” policies. The broker’s fee is meant to pay for the agent’s time and expense for these services.

Next time an insurance agent gives you a quote and there’s a “broker’s fee”, ask them, “what’s this for?” Is it because they had to go through another agent to get the policy and they feel there isn’t enough commission left after they split it to make it worth their time? Or is it because it’s an “agency bill” policy and they must provide additional services such as invoicing, accounting, etc?

Doing business with an independent broker is no more expensive than doing business with any other insurance agent. In fact, if your broker follows the rules you may even save money when they don’t charge you a broker’s fee. It always pays to shop through an independent broker - and it can pay even more when you see a broker’s fee and ask the simple question, “why?”