Are insurance brokers necessary?

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Are insurance brokers necessary?

This was a great question asked on Quora. Here's the answer I posted: First, I want to distinguish between a captive insurance agent – who represents one insurance company – and an independent broker, who represents multiple insurance companies and whose duty is to the client. My answer refers to brokers, who I believe are still necessary for most insurance products. Let’s clarify what insurance brokers do and don’t do for you:

  • They don’t get you better prices per se. Rates and insurance premiums are filed with and regulated by your state's department of insurance. Whether you buy directly from the insurer, your local agent, or an independent broker, you’ll pay the same monthly premium for the same plan from a given carrier.

  • Brokers who have access to multiple insurance carriers are able to help you choose the best policy across carriers to fit your needs. Unsurprisingly, insurance policies are not all created equal. A good broker will work to understand your needs and match you with the carrier & insurance policy that provides you the best coverage and value for your dollar.

  • A good broker will also be there to help you in the unfortunate event that you need to make a claim. I say unfortunate, as insurance should never be thought of as an investment. Expecting a "return" on an insurance policy (i.e., by collecting on a claim) is not something you should do.

The question I would ask is: why are insurance policies so complicated that you need brokers to help you? Many insurance products are unnecessarily complicated. I assume that scares a lot of consumers off, making a broker’s job even tougher. A great example of this is disability insurance – I’m willing to wager few people would be able to explain what this product actually does (hint: it does a lot and most of us should have this coverage).

My proposal would be for insurance companies to attempt to strip out the complexity in the products they offer and make it easier for consumers to feel assured they are purchasing something that will protect them. This would leave brokers more time to educate consumers on the need for insurance and help address some of the consumer irrationalities when it comes to purchasing insurance.

Photo: Yi Chen