What Is the Difference Between an Agent and a Broker?
Here in California, there is often very little difference between an agent and a broker when it comes to auto insurance. In fact many insurance producers (a person or a business that sells the policy) are both an agent and a broker. What it boils down to: Does the producer have an agent contract with the company with whom the policy is being placed? Generally, an agent contract gives more authority to the producer to bind business and act on behalf of the company. If it is a broker contract, or no contract, the producer can tack any fees they wish onto your down payment as long as they disclose them. (There are other distinctions and requirements, but for auto insurance this is the main thrust of it.) To find out if a broker is appointed as an agent, you can check to see which companies have appointed them an agent at the Department of Insurance web site.
Why Do Brokers Charge Extra Fees?
Sometimes, if a broker has to go above and beyond placing a policy with one of his/her usual companies, a fee might be charged. Such an example might be someone with a really atrocious driving history that needs auto insurance or someone that owns a dog with a history of biting needs homeowners insurance.
Other times, if a policy has a really low premium and/or the client has a history of not paying their bill and has to be rewritten every couple of months (the agent/broker loses almost all their commission when a policy cancels right away), the producer may choose to charge a fee when they rewrite the policy to keep from losing money on that auto insurance client.
What is key is that usually such fees are reasonable ($50 to $100 broker fees for a car insurance policy are common) and are disclosed up front.
(One caveat: When discussing broker fees in this article, I am only talking about personal lines like auto insurance and homeowners insurance. Commercial Insurance can get much more complex and require much more work, therefore broker fees are much more commonly charged, many times rightfully so.)
Are Broker Fees a “Rip-Off”?
Unfortunately, with the latitude to set whatever fees they want, many brokers charge fees far in excess of the services they provide. They will charge $250 for starting an auto insurance policy (something agents charge nothing to do), then will charge $100 for each and every little change to the policy (changing cars, changing coverages or adding or deleting drivers). Many unsophisticated consumers will pay these fees without question because they simply don’t know that they don’t have to. This is often the case with young or immigrant consumers because they don’t know any better. Those brokers aren’t performing any services that any Independent Agent doesn’t, they are just gouging for the most basic of services.
How Can I Tell If a Broker is Ripping Me Off?
First off, responsible auto insurance brokers will include the broker fee in the down payment they quote you originally. ‘Broker fee mills’ (as they are unflatteringly known in the industry) often do not disclose the fee until you are sitting across the desk from them. They know that once the customer is there, ready to sign, they are much less likely get up and walk just to start the whole process all over again. It is the old “Bait and Switch” and they do it every day. If the auto insurance quote they gave you goes up when you get to their office, even though nothing else has changed, get up and walk. If that is how they operate, how can you ever trust them not to gouge you and to look out for your interests?
Second, if you are good at paying your auto insurance premium and your insurance needs are pretty run of the mill, there is no reason to pay fees over and over and over. Fees to start the policy with a company they use regularly, fees to make a change to the policy (big red flag), fees for them to accept a payment from you… All those fees add up and can dramatically increase the cost of your car insurance.
Do I Have to Pay Broker Fees on Auto Insurance?
No you do not, pure and simple. If you are a good customer there is no reason to have to pay those fees over and over. Simply tell the broker you refuse to pay the fee and if you are a good customer many brokers will agree to waive it. If they won’t waive it, you can often call your auto insurance company directly and they will take the change or payment with no broker fee at all. Then you can find another agent or broker that doesn’t abuse their customers.