How Do Insurance Brokers Make Money? Understanding Insurance Commissions (2024)

Insurance brokers act as key intermediaries, connecting clients with suitable insurance policies. Their expertise ensures clients find coverage tailored to their needs. But how do insurance brokers earn money? This article breaks down their primary sources of income, detailing the mechanisms of insurance commissions and broker fees. We’ll also differentiate between brokers and agents, address the impact of technology on broker commissions, and touch upon ethical considerations in the industry.

Here are some of the questions you’ll be able to answer after reading this article:

  • How do insurance agents differ from brokers in terms of earnings?
  • Are insurance brokers obligated to disclose their commissions?
  • How can I ensure I’m getting the best deal from an insurance broker?

The Role of Insurance Brokers and Their Revenue Streams

Insurance brokers play a pivotal role in the insurance industry, serving as intermediaries between policyholders and insurance companies. Their primary responsibility is to assist clients in securing policies that best suit their needs and budgets. They have expert knowledge of various insurance products, and they use this expertise to guide clients in making informed decisions.

So, how do insurance brokers make money? They have two main revenue streams:

  1. Commissions: This is the primary way most insurance brokers earn money. When a client purchases or renews an insurance policy, brokers receive a commission from the insurance company. The amount is a percentage of the policy’s premium. The specific commission rate can vary based on the type of policy, the insurance company, and other factors. There are two types of commissions: initial commissions and renewal commissions.
  2. Broker Fees: In some instances, brokers might charge their clients a fee for certain services. This can be for tasks like policy changes, consultations, or specific administrative duties. These fees are separate from the insurance premiums and are typically disclosed to the client upfront.

In essence, insurance brokers provide invaluable expertise to clients, ensuring they have the coverage they need. Their compensation, through commissions and fees, reflects the vital services they offer within the industry. It is important to understand commissions are paid to the broker by the insurance company, and not the insurance buyer.

Brokers vs. Agents: A Distinct Difference

Insurance brokers and agents both function as intermediaries in the insurance industry, but they have key differences. Agents represent specific insurance companies and promote their products, often having contracts that tie them to those insurers. Brokers, on the other hand, work for the clients, offering products from multiple insurance companies to find the best fit for the client’s needs.

Agents respresent insurer’s interests

Brokers respresent client’s interests

This article focuses primarily on brokers. Understanding this distinction is crucial when exploring how insurance brokers make money. Unlike agents, who might receive direct incentives from their affiliated insurers, brokers earn primarily through commissions and fees based on the policies they secure for clients. Their unbiased position ensures clients get a broader view of the market, while their compensation model reflects their client-centered approach.

Understanding Insurance Commissions: How Brokers Earn Money

At the heart of understanding how insurance brokers make money lies the concept of insurance commissions. These commissions represent a percentage of the premium that a policyholder pays to the insurance company. When a broker assists a client in purchasing a policy, they receive this percentage as compensation for the service provided.

There are primarily two types of commissions that brokers earn:

    1. Initial Commissions: These are earned when a new policy is sold. The broker guides the client through the process and explains various options. Once the client makes a purchase, the broker receives a commission. This initial commission is usually higher, given the effort and time involved in acquiring a new client and understanding their specific needs.
    2. Renewal Commissions: Insurance isn’t a one-time affair. Policyholders often renew their policies annually or as per the policy term. When a policy is renewed, brokers earn a renewal commission. It’s typically lower than the initial commission, given that the groundwork has already been laid, and the client is continuing with a policy they’re familiar with.

However, it’s important to note that commission rates can vary significantly. Factors affecting these variations include:

  • Policy Type: Different types of policies – like health, auto, or life insurance – can have different commission structures. For instance, life insurance policies might offer higher initial commissions than car insurance due to their long-term nature and complexity.
  • Insurance Company: Companies might have their unique commission rates. Some might offer higher incentives to promote certain products or target specific customer segments.
  • Complexity of the Product: Specialized insurance products, tailored for niche needs or high-value assets, might command higher commissions. They often require a deeper understanding and added effort on the broker’s part to sell.

Transparency is vital in the realm of insurance commissions and the health of the industry. In many jurisdictions, there’s an ethical and legal imperative for brokers to disclose their commission rates to clients. This ensures that clients are aware of any potential conflicts of interest and can trust that their broker is recommending products based on the client’s best interests and not merely the broker’s potential earnings.

Broker Fees: An Insight into Additional Broker Earnings

While insurance commissions are a significant way by which brokers earn, another avenue is broker fees. So, what exactly are these fees, and how do they fit into the larger puzzle of how insurance brokers make money? Broker fees are direct charges set by the broker for specific services provided to the client. Unlike insurance commissions, which are percentages of policy premiums, broker fees are typically flat charges or hourly rates depending on the service.

Situations for Charging a Broker Fee

There are several scenarios where a broker might implement these fees:

  • Policy Changes: If a client wants to amend their existing policy – perhaps they’ve acquired a new asset or their life circ*mstances have changed – the broker might charge a fee for the time and effort to process these modifications.
  • Consultations: Some brokers offer personalized consultation services, guiding clients in understanding their risks and insurance needs. This often requires a detailed assessment, for which a fee might be levied.
  • Specific Administrative Tasks: Brokers also undertake administrative duties such as paperwork, documentation, or liaising between the client and the insurance company. Sometimes, especially if these tasks are intensive or out of the ordinary, a fee might be charged.

In certain scenarios, especially when vying for a large account or during an RFP (Request for Proposal) process, brokers might opt to forgo the traditional commission structure altogether. Instead, they would set a broker fee. This can make their proposition more appealing to potential clients, as it might be seen as a gesture of transparency and aligning interests.

Regulations and Standards for Fee Disclosure

The insurance industry is heavily regulated to protect consumers. Hence, in many jurisdictions, there are strict regulations or industry standards that necessitate brokers to disclose any fees upfront. Clients have the right to understand all costs associated with their insurance coverage. By ensuring clear communication about fees, brokers maintain trust and uphold industry integrity.

Volume and Profit-Sharing Bonuses: Incentives Beyond Insurance Commissions

To fully understand how insurance brokers make money, it’s essential to look beyond standard insurance commissions. Another significant avenue that may contribute to a broker’s earnings is volume and profit-sharing bonuses.

Insurance companies value brokers who can not only bring in a substantial volume of business but also ensure that the clients they bring on board are low-risk, resulting in fewer claims. As a reward for this, insurers may provide additional incentives:

  1. Volume Bonuses: When brokers meet or surpass specific sales targets, they may receive volume bonuses. These bonuses act as a motivator for brokers to sell more policies and grow the insurer’s client base.
  2. Profit-Sharing Bonuses: Another key metric for insurance companies is the claims ratio [link to claims ratio in glossary], which is the proportion of insurance claims compared to the total policies sold. If brokers bring in clients who rarely make claims, it’s more profitable for the insurer. Recognizing this, companies might offer profit-sharing bonuses to brokers whose clients maintain a low claims ratio.

There is no denying there is a symbiotic relationship between brokers and insurance companies. While brokers benefit from added earnings, insurance companies see growth in clientele and profitability, making these bonuses a win-win in the insurance industry landscape.

Potential Conflicts of Interest: Client Needs over Earnings

The primary task of insurance brokers is to assist clients. However, the inherent human desire to earn can introduce potential conflicts of interest, especially when understanding how insurance brokers make money.

At its heart, the challenge for brokers is striking a balance. While they benefit from insurance commissions and bonuses, they must ensure that these earnings don’t influence their primary duty: providing clients with the most suitable coverage at a competitive price.

Recognizing these potential conflicts, many jurisdictions have instituted stringent regulations and ethical guidelines for brokers:

  1. Full Disclosure: Brokers are often required to disclose their commission rates, fees, and any other incentives they might receive. This transparency ensures clients are informed and can make decisions with all the necessary information.
  2. Fiduciary Duty: Ethical guidelines emphasize the broker’s duty to prioritize the client’s best interests above their own financial gains. This fiduciary responsibility is paramount in ensuring trust in the broker-client relationship.

So, while brokers must earn a living, their earnings mustn’t compromise the quality of service and advice provided to clients. Through regulations and ethical standards, the industry aims to strike this delicate balance.

The Role of Technology and Modernization on Broker Commissions

The insurance landscape is evolving, driven in large part by technology and modernization. As we consider how insurance brokers make money, it’s essential to recognize the transformative role of digital tools and platforms.

Digital platforms streamline the insurance process, potentially leading to reduced operational costs for brokers. This could influence broker commissions, as cost savings might be redirected to incentivize brokers or passed on to clients in the form of lower premiums.

Furthermore, the rise of direct-to-consumer insurance models poses a significant shift. Enabled by technology, these models allow consumers to bypass traditional brokers, purchasing policies directly from insurers. As a result, the traditional insurance commissions that brokers relied upon could be impacted, urging brokers to adapt, innovate, and find new avenues for revenue.

One could argue that while technology offers efficiency and convenience, it also challenges the traditional ways insurance brokers make money. Staying updated and agile in this digital age will be pivotal for brokers aiming to sustain and grow their earnings.


  • Insurance brokers bridge the gap between clients and fitting insurance policies.
  • Their earnings primarily stem from commissions and broker fees, both reflecting their pivotal role.
  • Another significant avenue that may contribute to a broker’s earnings is volume and profit-sharing bonuses.
  • Transparency is needed to ensure clients are informed and can make decisions with all the necessary information.
  • As technology advances, with digital platforms and direct-to-consumer models emerging, brokers face a changing horizon. Adapting to these shifts, while maintaining client trust and ensuring their revenue streams, is crucial.
  • Brokers must balance modernization with their traditional roles, always prioritizing their clients’ best interests.
How Do Insurance Brokers Make Money? Understanding Insurance Commissions (2024)


How Do Insurance Brokers Make Money? Understanding Insurance Commissions? ›

When a client purchases or renews an insurance policy, brokers receive a commission from the insurance company. The amount is a percentage of the policy's premium. The specific commission rate can vary based on the type of policy, the insurance company, and other factors.

How do insurance brokers earn money? ›

An insurance broker makes money off commissions from selling insurance to individuals or businesses. Most commissions are 2% to 8% of premiums, depending on state regulations.

What is the commission of an insurance advisor? ›

Over 12 years the commission will be 35%. 7.5% renewal premium per annum. 42.5% for the 12th year onwards.

What are the disadvantages of using an insurance broker? ›

What are the disadvantages of using an insurance broker? An insurance broker typically doesn't know all the policy details for every policy type and insurance company. There could be policy exclusions, terms and conditions they may not be aware of when suggesting an insurance company or specific policy.

What type of insurance broker makes the most money? ›

While there are many kinds of insurance (ranging from auto insurance to health insurance), the most lucrative career in the insurance field is for those selling life insurance.

Why do insurance brokers make so much money? ›

Insurance brokers bridge the gap between clients and fitting insurance policies. Their earnings primarily stem from commissions and broker fees, both reflecting their pivotal role. Another significant avenue that may contribute to a broker's earnings is volume and profit-sharing bonuses.

Is there an advantage to using an insurance broker? ›

The benefits of an insurance broker include; Insurance protection, competitive prices, insurance for all of your needs, savings of time and money, ease of service, obtaining service your way, prompt and personal attention, having a trusted advisor, expertise and experience, your interests are paramount, assistance with ...

How to calculate commissions insurance? ›

To calculate the insurance commission, multiply the premium amount by the commission rate. The result is the insurance commission.

What is the commission to premium ratio? ›

This ratio measures the commission paid by the insurance company against the net premiums earned by it. The higher the ratio of the insurance company, the higher is the commission which the company is paying its middlemen. This is good for the company as it promotes its business in the long term.

How does commission work for financial advisors? ›

There are several forms in which an advisor can receive their commission. These can include upfront sales fees; loads on mutual funds; commissions from annuities or other insurance products; a surrender charge on an annuity; or trailing commissions, in which the client pays a fee for each year they own an investment.

How many insurance brokers fail? ›

Dear Friends, Somewhere around 80% of new insurance agents hired by independent marketing organizations fail and quit within their first 12 months of getting their license. And then within 5 years, 80% of the remaining new insurance agents will struggle and quit! That is a 90% failure rate for new agents.

How stressful is being an insurance broker? ›

Insurance News

The insurer's 2023 Broker Wellbeing Survey has revealed that stress levels have risen for the fifth consecutive year, with 79% of brokers admitting to experiencing stress at work in the past 12 months.

What is the difference between an insurance agent and an insurance broker? ›

The biggest difference between an Insurance Broker and an Insurance Agent is the people/organization they represent respectively. An insurance broker represents you as the client whereas an Insurance Agent represents the company they are employed by as their client, and you become the customer.

What is the average profit margin for an insurance broker? ›

Taking these factors into consideration, most insurance agency owners operate with an average profit margin between 2 percent and 10 percent. Agency owners are advised to consult with an accountant or tax advisor when trying to structure your specific agency.

Can a insurance agent be a millionaire? ›

If you have a great work ethic and are willing to place yourself out there to establish relationships with clients, you will get more opportunities to earn a higher income. Selling insurance may even make you a millionaire.

How much do top commercial insurance brokers make? ›

Commercial Insurance Broker Salary in California
Annual SalaryHourly Wage
Top Earners$111,026$53
75th Percentile$98,700$47
25th Percentile$75,000$36

What are the pros and cons of being an insurance broker? ›

The Pros
  • Freedom to Choose. ...
  • Job Security. ...
  • Flexible Schedule. ...
  • Helping Others. ...
  • Training & Assistance. ...
  • Unpredictable Income. ...
  • People-Pleaser. ...
  • Limited Paid Time Off.

Is an insurance broker stressful? ›

However, it is not an easy job. You can expect a high rate of customer rejection, stress, and attrition rate.

Why did I quit being an insurance agent? ›

#1 Low Motivation

To be a thriving insurance agent, you have to want to succeed. Failure to work hard is one of the top reasons people in this industry want to call it quits. While it's true that this job isn't easy, it's also true that it can be very rewarding when you allow it to be.

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