How do insurance brokers make money?
How do insurance brokers make money? It is a great question in a complex market where insurance policy premiums vary greatly based on the different inclusion, exclusions and levels of coverage of the insurance product you end up purchasing.
Insurance brokers can make money in a few different ways. Understanding how an Insurance Broker makes money can help you as you look to find an insurance broker that you can trust.
Commissions paid on policies sold
Insurance brokers can be paid a commission on the insurance policies that they sell. The commissions that are received can be either a once off commission or can remain in effect for the life of the policy. The amount of commission paid as a percentage can vary based on the type of insurance and the size of the policy that has been purchased.
Fee-for-service for advice given
Insurance brokers can operate on a fee-for-service model, where the broker charges the client purchasing a policy a fee that reflects that time and expertise required in analysing what insurance you require, through a form of risk analysis and then sourcing various insurance policies for you to consider and ultimately purchase.
Some insurance brokers can call this approach a "broker fee".
A mix of Commissions and fee-for-service
Insurance brokers can operate under a mixed model where they both receive some commission for the insurance policy being sold and receive funds via a fee-for-service approach. Mixed models can include a "broker fee" as a separate item on your invoice.
Ultimately, the key to understanding how insurance brokers make money is that transparency needs to be maintained between the customer and the insurance broker. As a customer, you always have the right to ask your insurance broker how they make money and to ensure that you understand what fees you are paying as a proportion of your total insurance cost.
If you are confused, please ask your insurance broker to explain the situation to you.