Insurance agents make money by selling insurance policies and collecting commissions on the policy. However, surplus insurance brokers may charge a fee in addition to the commission they earn on the policy. This additional fee is paid directly to the broker and not to the insurance company. You should understand the difference between these two fees before buying a policy.
Identification
A surplus line of insurance is more of a process than an actual product. A surplus insurance broker finds a policy for you from a company not licensed in the state where you live. You may be trying to purchase insurance in your state for a risk which no insurer offers coverage for. Alternatively, you may be turned down coverage because the available insurance companies in your state cannot accept the risk you want to transfer through the insurance policy. In this case the surplus line broker finds a policy from an insurer who will cover your risk needs but who is not licensed to do business in your state.
Broker Fee
The broker fee is not part of the insurance policy when you pay your premiums. This fee is paid directly to the broker to find the policy you need. This fee may be negotiable. Brokers who charge fees for surplus line insurance will disclose the fee schedule and the amount you pay for each insurance policy. They will also separate these costs for you from the insurance policy commissions. Fees are normally a one-time payment.
Commission
A commission is a percentage of the premium you pay to the insurance company. This percentage is fixed and is paid to the agent as compensation for selling the policy to you. Commissions are ongoing as long as you carry the policy for many types of insurance policies. Some policies, like life and annuity insurance, carry limited renewing commissions for the agent while other insurance policies like health insurance offer perpetual commissions for the agent.
Consideration
You should shop around for brokers offering surplus line insurance. You should try to get a broker with the lowest fees so that you minimize your cost when buying the policy. Premiums are unlikely to vary from broker to broker, though premiums do vary between insurers. In other words, a broker may offer you a lower premium on an insurance policy, but not because he can get you a special deal on an insurance policy. Rather, he may have contracted with an insurance company who offers different coverage or has better experience in managing investments and claims, and thus offers lower premium policies.
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