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can bigger insurance brokerages negotiate better rates than smaller ones?

can bigger insurance brokerages negotiate better rates than smaller ones?

At benchmark commercial insurance, we often get asked whether or not it’s better to work with a small brokerage or a large brokerage. While there are pros and cons to both, the pricing must remain the same from carriers. Hear from Benchmark’s own Peter Katkov, as he explains:

“I’m often asked the question, does the size of the agency impact the pricing of coverage received by a carrier? And the simple answer is no. There’s actually legislation that prohibits discriminatory pricing based on the size of the agency

So, based on identical underwriting information and for the same coverage, the quote provided to the small agency or to the biggest in the world must be identical. Obviously, there are pros and cons in being in both of those service environments, so you have to ask yourself as the client, if the policy on the shelf is the same and costs the same, under which environment are my needs as a client best being met?”

Let’s dive a little deeper. 

The Pros and Cons of Small Insurance Brokerages

Pros

If you’re looking for an insurance brokerage that understands your community and your business’s unique needs, then a smaller brokerage might be a better choice. Typically smaller brokerages are hiring local agents who will understand the property and area on a deeper level than a national agent. 

Another factor to consider when deciding between a small or large brokerage is how accessible their agents are to their clients. If you’re experiencing an emergency, you want a quick response from your broker about how to handle the situation. Generally, smaller brokerages have actual people on the other line, helping you navigate the next steps while creating a trusting relationship.  

Small agencies likely have lower employee turnover, so the team you are working with is unlikely to change with the breeze.

As you look for a brokerage that can meet your needs, oftentimes larger insurance brokerages are unable to work with people or businesses with low credit, a history of claims, or are below premium thresholds. This is where smaller insurance brokerages could be a better fit. 

Cons

With a smaller brokerage, there may be some challenges with the number of national resources available. With a smaller brokerage, there exists a risk they may not be in business in the long run as compared to larger, more stable firms. This may put your own financial situation at risk if you need to find a new brokerage. 

However, with a small brokerage, you’re more likely to have the personal contact of your broker, who knows everything about your insurance. This can lead to a more seamless customer service experience overall. 

The Pros and Cons of Large Insurance Brokerages

Pros

A large insurance brokerage is going to have a more consistent income from more team members and clients, which means that they are financially anchored. 

One of the largest pros to working with a larger insurance brokerage is technology and innovation. Larger brokerages are able to create apps to assist your business or personal insurance needs with ease. Whether that means making a claim or investing in new insurance policies.

Another advantage to a large brokerage is the customer service chat portals typically run 24/7. This is great for quick questions or emergency situations. There are multiple tools for quick access to information including apps, website chats, phone lines, and your typical email communication. 

Cons

There is a missing piece to the puzzle when it comes to large brokers. The personal touch. With a larger client base, things blend together between clients and brokers and may become hard to keep track of. Employee turnover leads to an ever-changing Rolodex of different contacts for each service need.

In the case of an emergency, you might find yourself endlessly chatting with a bot on the website chat line, compared to calling your personal broker who already knows your situation and doesn’t need a time-consuming update. 

Most importantly, however, is what motivates the decision-making of a large multi-national brokerage.  Publicly traded companies’ number one responsibility is to their shareholders, not their clients.

Insurance Carrier Pricing Requirements

As Peter mentioned above, there are laws and regulations that forbid discriminatory pricing based on the size of the agency.

According to the Federal Trade Commission:

A seller charging competing buyers different prices for the same “commodity” or discriminating in the provision of “allowances” — compensation for advertising and other services — may be violating the Robinson-Patman Act. This kind of price discrimination may give favored customers an edge in the market that has nothing to do with their superior efficiency. Price discriminations are generally lawful, particularly if they reflect the different costs of dealing with different buyers or are the result of a seller’s attempts to meet a competitor’s offering.”

In the insurance industry, pricing discrimination is considered ‘unlawful’,’ therefore small brokerages and large brokerages receive the same rates from carriers. 

What type of insurance brokerage is right for me?

At the end of the day, choosing your brokerage is largely impacted by your specific business needs. But here are some of the factors to consider when choosing a partner. 

Small

A small brokerage will be a good fit for you if you value the personal touch. This also could be the right option geographically, where there are specific exclusions or conditions to consider based on your location. Depending on your financial and claims history, a large brokerage might not consider you as an eligible client. 

Large

However, if your situation requires a lot of contact outside the normal work hours, then the 24/7 hotlines that most large brokerage firms have will be a needed resource to consider. There is also more adaptability due to the higher capital and amount of brokers that are working with a large firm.

Unsure about what you should be paying to insure your business? Check out this article explaining the different factors that contribute to the coverage costs of business insurance. 

“I’m often asked the question, does the size of the agency impact the pricing of coverage received by a carrier? And the simple answer is no. There’s actually legislation that prohibits discriminatory pricing based on the size of the agency.

So, based on identical underwriting information and for the same coverage, the quote provided to the small agency or to the biggest in the world must be identical. Obviously, there are pros and cons in being in both of those service environments, so you have to ask yourself as the client, if the policy on the shelf is the same and costs the same, under which environment are my needs as a client best being met?”

Let’s dive a little deeper. 

The Pros and Cons of Small Insurance Brokerages

Pros

If you’re looking for an insurance brokerage that understands your community and your business’s unique needs, then a smaller brokerage might be a better choice. Typically smaller brokerages are hiring local agents who will understand the property and area on a deeper level than a national agent. 

Another factor to consider when deciding between a small or large brokerage is how accessible their agents are to their clients. If you’re experiencing an emergency, you want a quick response from your broker about how to handle the situation. Generally, smaller brokerages have actual people on the other line, helping you navigate the next steps while creating a trusting relationship.  

Small agencies likely have lower employee turnover, so the team you are working with is unlikely to change with the breeze.

As you look for a brokerage that can meet your needs, oftentimes larger insurance brokerages are unable to work with people or businesses with low credit, a history of claims, or are below premium thresholds. This is where smaller insurance brokerages could be a better fit. 

Cons

With a smaller brokerage, there may be some challenges with the number of national resources available. With a smaller brokerage, there exists a risk they may not be in business in the long run as compared to larger, more stable firms. This may put your own financial situation at risk if you need to find a new brokerage. 

 

However, with a small brokerage, you’re more likely to have the personal contact of your broker, who knows everything about your insurance. This can lead to a more seamless customer service experience overall. 

The Pros and Cons of Large Insurance Brokerages

Pros

A large insurance brokerage is going to have a more consistent income from more team members and clients, which means that they are financially anchored. 

 

One of the largest pros to working with a larger insurance brokerage is technology and innovation. Larger brokerages are able to create apps to assist your business or personal insurance needs with ease. Whether that means making a claim, or investing in new insurance policies.

 

Another advantage to a large brokerage is the customer service chat portals typically run 24/7. This is great for quick questions or emergency situations. There are multiple tools for quick access to information including apps, website chats, phone lines and your typical email communication. 

Cons

There is a missing piece to the puzzle when it comes to large brokers. The personal touch. With a larger client base, things blend together between clients and brokers and may become hard to keep track of. Employee turnover leads to an ever-changing rolodex of different contacts for each service need.

 

In the case of an emergency, you might find yourself endlessly chatting with a bot on the website chat line, compared to calling your personal broker who already knows your situation and doesn’t need a time-consuming update. 

 

Most importantly however, is what motivates the decision making of a large multi-national brokerage.  Publicly traded companies’ number one responsibility is to their shareholders, not their clients.

 

Insurance Carrier Pricing Requirements

As Peter mentioned above, there are laws and regulations that forbid discriminatory pricing based on the size of the agency.

 

According to the Federal Trade Commission:

 

A seller charging competing buyers different prices for the same “commodity” or discriminating in the provision of “allowances” — compensation for advertising and other services — may be violating the Robinson-Patman Act. This kind of price discrimination may give favored customers an edge in the market that has nothing to do with their superior efficiency. Price discriminations are generally lawful, particularly if they reflect the different costs of dealing with different buyers or are the result of a seller’s attempts to meet a competitor’s offering.”

 

In the insurance industry, pricing discrimination is considered ‘unlawful’,’ therefore small brokerages and large brokerages receive the same rates from carriers. 

What type of insurance brokerage is right for me?

At the end of the day, choosing your brokerage is largely impacted by your specific business needs. But here are some of the factors to consider when choosing a partner. 

Small

A small brokerage will be a good fit for you if you value the personal touch. This also could be the right option geographically, where there are specific exclusions or conditions to consider based on your location. Depending on your financial and claims history, a large brokerage might not consider you as an eligible client. 

Large

However, if your situation requires a lot of contact outside the normal work hours, then the 24/7 hotlines that most large brokerage firms have will be a needed resource to consider. There is also more adaptability due to the higher capital and amount of brokers that are working with a large firm.

Unsure about what you should be paying to insure your business? Check out this article explaining the different factors that contribute to the coverage costs of business insurance.