Insurance Business

How Does an Insurance Broker Make Money?

Insurance Broker

IRDA (Insurance Brokers) Regulations, 2018, provides for the different types of Insurance Brokers. The broker advises regular people on their insurance requirements before assisting them in choosing the best insurance option. The insurance brokers act as a middleman between the insurance firm and the person looking to purchase the right insurance coverage. The laws and knowledge pertaining to insurance are well-known to insurance brokers. The pandemic increased the level of uncertainty that was already very high in this world. As a result, it increases the need for insurance plans. In this article, we will discuss how insurance brokers make money in India.

Insurance Broker 

A business, company, or qualified individual registered as an insurance advisor or qualified firm which is acting through the directors/partners or employees who have in-depth knowledge of insurance-related laws and regulations is known as an insurance broker. On the other hand, an insurance agent, based on the commission, sells the product of the insurance firm to customers. Common people are guided towards their insurance needs by insurance brokers. Insurance brokers offer their clients technical information. The brokers primarily serve as mediators between the insurance firm and the general public, encouraging individuals to purchase an insurance policy. A broker’s primary responsibility is to the client, not like independent agents who represent one or more insurance firms. They are mainly paid through broker fees, which are a percentage commission on insurance policies being sold.

Brokers are skilled at analysing policies from different providers. They can assist the customers in determining the type of coverage they require and can pay on a limited budget. Brokers can assist customers in maximising savings by guiding them through the enrollment process. Brokers are therefore obliged to develop a plan that would make the customer happy in the long run. Customers might feel more confident in their choice because they often work with a variety of policies.

Types of Insurance Brokers

There are five types of insurance brokers which are:

  • Direct Broker (Life),
  • Direct Broker (General),
  • Direct Broker (Life & General),
  • Reinsurance Broker and 
  • Composite Broker.

Direct Brokers

The IRDA (Insurance Brokers) Rules, 2018 state that they grant licences to direct brokers so that they can get to know their clients’ insurance needs and explain and negotiate with insurers. A direct broker provides advice in relation to the appropriate policy and its related terms and conditions. These brokers follow the instructions provided by the clients. They also need to stay up with changes in the insurance markets, monitor insurance transactions, and help resolve claims. 75 lakh rupees in the capital is needed for registration, and a net worth of 50 lakh rupees must be maintained.

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Reinsurance Brokers

Reinsurance serves as insurance companies’ protection. Direct insurers and reinsurers enter into reinsurance contracts through reinsurance brokers. Because he/she works for both parties, he/she is governed by their contracts. These brokers not only find the best protection for each client they represent, but they also negotiate contracts. You must maintain a net worth of at least 50% of the required capital, or at least Rs. 4 crores, in order to register.

Composite Brokers

Since composite brokers combine direct and reinsurance brokers, they serve a dual purpose. For composite brokers, the minimum capital requirement is at least Rs. 5 crores, and they must also maintain a net worth of at least 50% of that amount.

What Do Insurance Brokers Do?

A broker for insurance helps potential purchasers choose and bargain for insurance coverage. These experts meet with their clients to go through budgets and policy criteria in order to assist them in obtaining coverage that is appropriate for their needs. They obtain quotations from several insurance companies and provide their consumers with a range of possibilities. In addition to counselling fees from buyers, brokers often collect commissions from insurers. They are able to give their clients a more excellent selection of insurance plan options because they do not represent any particular insurance agency. Additionally, they may attempt to adjust these plans in response to customer requests, alert clients of any changes, and suggest other insurance options. Some of their duties are as follows:

  • Providing clients with the best insurance policy that suits their requirements.
  • Managing client records that include information about their insurance policies, the dates of renewal, and the total amount insured.
  • Before suggesting policies, engage with clients to learn about their health problems, financial status, assets, and other aspects.
  • Calculating premiums and choosing payment options for their customers.
  • Keeping up with industry trends and changes to help clients with better advice.
  • Understanding the contract terms and regulations to ensure that the contracts are legitimate.
  • Managing the track of insurance companies and communicating with them to learn their various plans and policies.
  • Updating them with tax regulations and offering clients strategies to reduce their tax burden.
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How are Insurance Brokers Paid?

The broker makes money when the customer purchases an insurance policy. As insurance brokers depend on repeat clients, it is in their best interest to find a suitable insurance solution for their clients. Insurance brokers are getting paid through some of the following ways:


Insurance brokers act as representatives for both the customers and the insurance firms. They are permitted to offer a client an appropriate insurance plan from any insurer. In this instance, the insurance provider whose policy the client ultimately chose pays the broker a brokerage.

Costs and Commissions

The primary sources of income for an insurance broker are the costs and commissions backed by the sale of insurance policies. These commissions are often maintained as a percentage of the annual premium for the insurance policy that is sold. The premium is the insurance company’s source of income once an individual or business purchases an insurance policy. It also represents a liability because the insurer is required to provide coverage for insurance policy claims. The sum of money that an individual or company pays for insurance is known as a premium. Insurance policies, such as those for the vehicle, health, life, and house insurance, are acquired using insurance premiums. Premiums are used by insurers to pay responsibilities related to the policies they back. They will invest the premium in hopes of higher returns and to offset various costs associated with providing the coverage, which aids an insurer in maintaining fair prices.


In certain circumstances, the client needs expert guidance on matters such as insurance plans, financial planning, etc. Brokers are then able to provide advice on a fee basis. As an illustration, let’s say a customer is seeking a life term insurance coverage but has no idea what an insurance policy is. As an insurance broker, you can assist the client in choosing the best coverage for him while also charging a consultation fee. 

Claim Support

Without assistance, making a claim is complex. Brokers are helpful because they are the ones who have a thorough understanding of the regular claim filing procedure. They have also collaborated with numerous insurance firms. Brokers may charge a predetermined fee under the heading of “claim support” when they assist a customer in filing and settling a claim. As an illustration, a broker can help to settle a claim when a commercial property is damaged rather than the customer having to do it themselves. An insurance broker is not permitted to charge for a claim if the policy was serviced through him, according to IRDAI regulations[1].

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Benefits of Using an Insurance Broker

Getting the help of an insurance broker has many benefits because they do not represent any insurer. That includes:

  • An insurance broker receives a commission from the insurance business for selling their policies and goods; as a result, it is no need to pay for their time up front, and there won’t be much expense.
  • When choosing an insurance policy, you could find the knowledge of insurance brokers helpful. They have a far better grasp of which policy suits you because they spend their days working in this industry.
  • An insurance company could offer you policies that are similar to “one size fits all” products with limited options, but an insurance broker will make sure that you receive the best possible policy for your needs.
  • The fact that your claims are handled by an insurance broker is one of the most important benefits. Your insurance agent can assist you in filing a claim and overcoming any obstacles that may arise. If one purchases insurance directly, they may encounter numerous difficulties because they may need to contact the insurance provider for a claim.
  • By completing the process without overburdening you, an insurance broker may help you save time and effort by purchasing insurance on your behalf.
  • It may take some time to see an insurance broker, but it is essential to remember that he will assist you in obtaining reliable information so you can make an correct decision and finalise the policy.
  • They must constantly act in their client’s best interests because of insurance laws. When you speak with a broker, you can be sure that they will provide you with impartial recommendations and assist you in finding the best coverage at an affordable price.


Between you and an insurance company, a broker serves as an intermediary. They will work for your best interests and use their extensive insurance expertise and experience to find you the coverage that satisfies your requirements while remaining within your budget. A broker does not require payment from you; instead, they are compensated by commissions on sold insurance contracts.

Also Read: How to get an Insurance Broker License in India?

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