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Insurance Broker explained
A broker is someone who facilitates a transaction between a buyer and a seller. The broker may be an individual operating independently or an agent of a business and is not a party to the actual contract between buyer and seller. Today brokers are most recognizable for trading equities. Still, the practice dates back a thousand years with the trading of agricultural debt.
The first brokerages were set up in coffee houses in London and have evolved into large financial institutions with digital web-based platforms and have a significant influence on the economy.
A broker is essentially a “middle-man” operating independently or under a corporate banner. Typically brokers and brokerages exist in regulated industries where a licensed broker provides access and helps navigate the nuances of a market. Examples of regulated brokers include stockbrokers, mortgage brokers, and insurance brokers.
What does an Insurance Broker do?
Insurance brokers represent the buyer, who is looking for insurance solutions to transfer financial risks. In many instances, the buyer may not have access to all the insurance risk transfer solutions or may not know the nuances of the different insurance products.
The primary role of the insurance broker is to:
- Learn about the buyer’s business operations
- Evaluate the buyer’s needs
- Explore the buyer’s risk tolerance, and
- Provide options and advice on how different insurance products will address the buyer’s needs.
Insurance brokers will often work together with the buyer and insurance companies to create and/or negotiate customized insurance solutions specific to the buyer’s operations.
Career options and progression
A brokerage team needs different brokers to perform different functions to support their clients. This means there are a variety of broker roles available within the insurance brokerage community.
For example, a broker may be in a business development or an account executive. Account executives and business development leaders are sales-focused, and their performance may be linked to sales targets.
Not all insurance brokers are sales-focused.
On the other hand, a broker may be an account manager. Account managers focus on maintaining and servicing existing relationships, on client retention and client satisfaction.
Insurance brokers typically start as a junior broker or client services representative with a broad, shallow focus in health, commercial, or personal insurance. As insurance brokers progress through their careers, they will become more and more specialized. Specialized knowledge gives a broker an edge over the competition and adds real value to the client. For example, advice on risk management and claims handling procedures adds both credibility and value.
Similarly, for a broker, having deep subject matter expertise in a specific industry keeps them ahead of the competition. For example, a broker with expertise in fleet insurance would be no match for a sports broker in advising liability waivers for a ski hill.
There are still some niche industries where insurance agents work directly for an insurance company. In these cases, the agent provides insurance advice to insurance buyers, but the products they offer are limited to what is available and offered through the insurance company(ies) they represent, their employer. This is typically more common with Life Insurance product offerings.
Where does the insurance company fit in the equation?
Insurance companies sell insurance products through the broker. The insurance company employs marketers to educate the brokers on the benefits and value of their products and services and provide strategies, market intelligence, and ideas for prospective clients. Marketers support brokers in effort to increase the insurance company’s market position. Underwriters work on behalf of insurance companies and deal with brokers daily, assessing the risk profile of their clients, and negotiating terms with the broker. The underwriter works for the insurance company, and the broker represents the client in the negotiation.
Read about the underwriter role: What is an underwriter?
Successful insurance brokers come with an inherent need for achievement and can navigate rejection. A career as a broker can be complex and fast-paced, so having a high tolerance for ambiguity is important for success. Other key skills that can come in handy include:
- Commercial and sales skills.
- Communication skills.
- Explanation skills.
A career as an insurance broker is competitive, fast-paced, and financially rewarding. This is a career with relatively low barriers to entry, in terms of education, and reports a high level of career satisfaction and gratification that comes from helping others.
Insurance broking is a social, multifaceted career where professionals find mastery adding immense value to their clients. An insurance broker’s careers develops through work experience and continuing education. Financial rewards come through honing their skills, deepening their knowledge of the industry they serve, and through exceptional client and insurance carrier relationships.