If you’re shopping for business insurance, you’ll likely come across both insurance carriers and insurance brokers. But what exactly is the difference between an insurance carrier and a broker?
While they both play important roles in the insurance industry, carriers and brokers serve very different functions. Understanding how they differ is key to determining the best option for your company’s insurance needs.
In this comprehensive guide, we’ll explain:
- The definition and role of insurance carriers
- The definition and role of insurance brokers
- Key differences between carriers vs brokers
- When to use a carrier or a broker
- Pros and cons of each approach
Let’s dive in!
What is an Insurance Carrier?
An insurance carrier, also known as an insurance company or insurance provider, is the entity that actually issues insurance policies. Some examples of well-known carriers include:
- State Farm
- Liberty Mutual
- The Hartford
The carrier takes on the financial responsibility and risk for covering claims under the policies it sells. Its key responsibilities include:
Underwriting – Assessing risk and determining pricing/eligibility for applicants. Carriers decide if a business is insurable and at what premium cost.
Policy creation – Designing insurance products and establishing coverage terms, exclusions, and conditions.
Sales & distribution – Marketing and selling policies directly or through intermediaries like agents and brokers.
Customer service – Servicing policies and assisting customers with questions, changes, etc.
Claims handling – Receiving, investigating, processing, and paying out claims made under its policies.
Essentially, the insurance carrier conducts the behind-the-scenes work of risk analysis, actuarial calculations, and coverage design to create and maintain insurance products. It also carries out the customer-facing tasks of selling policies and managing ongoing service and claims.
Carriers may sell policies directly or appoint agents and brokers to sell and service policies on their behalf. But the carrier remains responsible for all aspects of the insurance contract.
What is an Insurance Broker?
An insurance broker serves as an intermediary between insurance buyers and insurance carriers. The broker’s job is to help clients identify their risks, find appropriate coverage, and purchase policies.
Rather than working for any particular carrier, brokers work for the client to deliver impartial advice and insurance recommendations.
Key responsibilities of insurance brokers include:
Conducting needs assessments – Identifying the client’s risks, assets, and coverage goals through conversations and data collection.
Advising – Making coverage recommendations based on the client’s specific needs and budget.
Shopping for quotes – Researching options from multiple insurance carriers to find suitable policies and the best rates.
Comparing policies – Presenting, analyzing, and explaining quotes and coverage from different carriers.
Purchasing – Assisting with enrollment, payments, and paperwork to secure the chosen policy.
Ongoing service – Acting as the client’s advocate for policy changes, claims, and renewals.
The broker serves as an adviser and insurance expert on the client’s side, not beholden to any particular carrier. This allows them to focus on finding the optimal insurance solution for each client.
Key Differences Between Carriers and Brokers
Now that we’ve defined both insurance carriers and brokers, let’s look at some of the key ways they differ:
|Create and issue insurance policies
|Do not create or issue policies, but facilitate purchase
|Take on risk for covering claims
|Do not take on underwriting risk
|Profit from premiums collected
|Earn commission based on policies sold
|Set policy terms and conditions
|Have no control over policy terms set by carrier
|Handle claims and service directly
|Advocate on client’s behalf but carrier handles claims
|Sell directly to public or via intermediaries
|Always serve as intermediary between client and carrier
|Represent the clients, not the carriers
|Make underwriting decisions based on risk analysis
|Provide advice but do not underwrite policies
When to Use an Insurance Carrier
Here are some situations when purchasing directly through an insurance carrier may make sense:
You know exactly what type and level of coverage you need.
You have experience with a particular carrier and trust their policies and service quality.
You want to avoid any broker commissions and work directly with the source.
You need to secure coverage very quickly, as carriers can often bind instantly.
You prefer managing insurance completely in-house rather than using an outside broker.
You only need very basic liability or property coverage.
For simple, commoditized business insurance needs, going directly to an insurance carrier can provide an affordable and convenient option.
When to Use an Insurance Broker
Here are some scenarios where hiring an insurance broker may be beneficial:
You need guidance understanding risks and available coverage options.
Your business operates in a higher-risk or highly regulated industry.
You want quotes from multiple carriers to compare and optimize costs.
Your coverage needs are complex or you need multiple types of insurance.
You lack time to conduct research and negotiate policies yourself.
You want help customizing a policy to your risks.
You prefer having an expert represent and advocate for you long-term.
For specialty insurance needs or niche industries, an experienced broker’s expertise can prove very valuable.
Pros and Cons of Insurance Carriers
Pros of carriers:
- Policies can be bound quickly to secure coverage fast
- Direct customer service and claims handling
- No intermediary broker fees
- Potential bundling discounts when purchasing multiple policies
Cons of carriers:
- No ability to easily compare multiple carrier quotes
- Decisions driven by bottom line, not your best interests
- Limited objective advice on appropriate coverage
- Potentially limited geographic availability
Make sure to assess both the advantages and drawbacks when deciding to purchase directly through a carrier.
Pros and Cons of Insurance Brokers
Pros of brokers:
- Get quotes from many carriers to find the best rate
- Specialized expertise to match your risks
- Ongoing policy management and advocacy
- Fiduciary duty to serve your best interests
Cons of brokers:
- Commissions may increase your costs somewhat
- Don’t handle claims directly
- Additional time needed to shop and compare carriers
- Potential to seem “salesy” if broker is inexperienced
Finding the right broker that fits your needs and budget while providing value beyond just placing coverage can yield many benefits.
The Bottom Line
At the end of the day, there is no universally “right” choice between purchasing insurance directly from a carrier vs using a broker. It depends entirely on your specific situation and preferences.
For most businesses:
- Simpler insurance needs may lend themselves to direct carrier purchases.
- More complex risks and coverage requirements warrant consulting an insurance broker.
Carefully weigh the pros and cons of both options. If you use a broker, do your due diligence to confirm they are transparent, experienced, and a good fit for your business.
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