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 both 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.”
Katkov continues. “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 to being in both of those service environments.
“This considered, as the client, you have to ask yourself 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 into the pros and cons of small vs. large insurance brokerages.
the pros and cons of small insurance brokerages
To gain some further insight, let’s discuss both the pros and cons of small insurance brokerages.
the pros of small insurance brokerages
A smaller brokerage might be a better choice if you’re looking for an insurance brokerage that understands:
- Your community
- Your business’s unique needs
Why? Smaller brokerages hire local agents, who will understand the property and area on a deeper level compared to 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.
Smaller brokerages have actual people on the other line as opposed to bots, helping you navigate the next steps to create a trusting relationship. With a small brokerage, you’re more likely to have personal contact with your broker, which can lead to a more seamless customer service experience overall.
Additionally, small insurance agencies are likely to have a lower level of employee turnover; meaning, the team you’re working with isn’t likely to change (which can, of course, be a pro or con depending on your feelings toward the team).
As you look for a brokerage that can meet your needs, larger insurance brokerages are unable to work with people or businesses with:
- Low credit
- A history of claims
- Or, that are below premium thresholds
In these cases, a smaller insurance brokerage might be a better fit.
the cons of small insurance brokerages
With a smaller brokerage, there may be challenges with the number of national resources available. Additionally, there is a risk that a small brokerage may not be around long-term or as long as a large firm might be. This may put your own financial situation at risk if you need to find a new brokerage.
the pros and cons of large insurance brokerages
Now, let’s shift gears and discuss the pros and cons of large insurance brokerages.
the pros of large insurance brokerages
A large insurance brokerage will most likely be more financially anchored, championing a more consistent income from a larger number of team members and clients (when compared to a small insurance brokerage).
One of the largest pros of working with a larger insurance brokerage is technology and innovation. Larger brokerages often have applications to assist your business or personal insurance needs with ease; this might look like support for making a claim or investing in new insurance policies.
Another advantage to a large brokerage is that their customer service chat portals typically run 24/7. This feature can be great to address quick questions or emergency situations. Moreover, there are a variety of quick-access tools—apps, website chats, phone lines, and typical email communication—that you can use to access information.
the cons of large insurance brokerages
When it comes to large brokers, it might feel like there’s a missing piece to the puzzle. And what is this puzzle piece? The personal touch.
With a larger client base, things can blend together between clients and brokers, and may even become hard for the brokerage 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 chatting with a bot for answers; whereas, at a small brokerage, you’d likely call your personal broker who already knows your situation and doesn’t need a time-consuming update.
The most important con, however, is what motivates the decision-making of a large multi-national brokerage. Remember: Publicly traded companies’ number one responsibility is to their shareholders, not their clients.
insurance carrier pricing requirements
As Katkov 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 both receive the same rates from carriers.
what type of insurance brokerage is right for me?
At the end of the day, selecting a brokerage is largely influenced by your specific business needs. Regardless, here are some factors to consider when choosing a partner.
a small brokerage might be a good fit if…
A small brokerage will likely be a good fit for you if you value the personal touch.
Going with a smaller insurance brokerage could also be the right option for your business geographically—where there are specific exclusions or conditions to consider based on location. Moreover, depending on your financial history and your claims history, a large brokerage might not consider you an eligible client.
a large brokerage might be a good fit if…
A large broker might be a good fit if your particular situation requires contact outside of normal work hours. Then, the 24/7 hotlines that most large brokerages offer will be a great resource. Lastly, there is also higher adaptability from the higher capital and number of brokers that work 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.