What types of insurance do brokers offer?
According to the National Insurance Brokers Association (NIBA), brokers place almost half of all general insurance premiums in Australia – about $17 billion a year* – and are typically involved in helping arrange commercial insurance.
The most common types of insurance brokers arrange are business packages, commercial motor and professional indemnity.
However, nearly all brokerages also provide assistance for everyday types of insurance, such as home insurance and private motor insurance, for clients.
* APRA Intermediated General Insurance Statistics, June 2012
What do brokers do?
Insurance brokers work with their clients to understand their risks, and to discuss how to use insurance to protect their assets and businesses. Brokers offer expert advice on the management and reduction of risk, and on the range of insurance products that are available.
They use their in-depth knowledge of risk and the insurance market to identify and arrange suitable insurance cover – both for businesses and individuals.
Brokers have an extensive knowledge of the range of insurance policies available in the market, and a network of industry contacts, allowing them to negotiate the best deals for their client’s individual needs. The same skills and networks are also used to help their clients resolve claims when they arise.
Why use a broker?
An insurance broker can save you time, money and worry. A broker can help you understand the cover you need, and can purchase that cover for you from the insurance market.
Often consumers and businesses will make a decision based purely on the lowest price – and that can backfire in the event of a claim if you find out you’re not adequately covered, or even not covered at all for the loss that occurred.
Do you have to pay for the services of a broker?
Many insurance brokers get paid a commission by the insurance companies when the policies are purchased. Other insurance brokers act on a fee-for-service basis, and negotiate the fees they charge with their clients. Ask your broker to explain the situation to you.
Does it cost more to use a broker?
Not necessarily. It can cost less because brokers have knowledge of the insurance market and can negotiate competitive premiums on your behalf.
Remember, not all insurance policies are the same. You might be able to get a cheaper policy elsewhere, but it may not provide the cover you need if something goes wrong.
What’s the difference between an insurance broker and an insurance company advisor?
Advisors representing a particular company provide guidance on that company’s insurance products.
Because brokers are usually not aligned to any one company, they can usually explore a range of products and services available on the market and offer you tailored advice.
Some brokers do work on behalf of insurers but they are obliged to inform you if this is the case.
What sort of questions should you ask your broker?
Like any business partnership you enter into, it’s important to choose a broker that is a good fit for you and one you feel you could develop a close and long-lasting business relationship with.
It’s good to find out:
- The broker’s qualifications
- The range of services
- Who would service your account
- Experience with your type of business
- The size of the broker’s typical client
- How they bill for the work
- References from satisfied clients
- Business compatibility
- Level of commitment
- How the brokerage proposes to solve your insurance problems
- The competitive advantages of that brokerage compared with any others you may be considering
Can a broker help you work out what risks you have?
Yes, particularly with regard to business insurance. Many brokers are skilled risk managers who can advise you on the risks you face, and how to manage them.
Insurance is just a part of the overall risk management strategy, in that it transfers risk to another party (the insurer) at an agreed premium. Having effective risk prevention and loss minimisation strategies may help reduce premium costs.
Should you let your broker know if your circumstances change?
Yes, and straight away. New circumstances can have a great bearing on the risks you face, and these will need to be factored into your insurance requirements. Not doing so could result in your insurer reducing or refusing your claim.
You should also ask your broker to provide written confirmation that any changes have been passed on to your insurer.
How can you be sure a broker will pass on your premiums?
There are mechanisms in place to protect consumers in the unlikely event that premiums are not passed on by a broker. In almost all cases, the customer will not be adversely affected should a claim arise under such circumstances.
What if you have a complaint about a broker?
All insurance brokerages in Australia must hold an Australian Financial Services (AFS) licence or be appointed as an authorised representative of an AFS licensee. Insurance brokers must comply with certain requirements under the Corporations Act 2001 (Cth), the Insurance Contracts Act 1984 (Cth), and the Insurance Brokers Code of Practice. The Australian Securities and Investments Commission ASIC) is the industry regulator that regulates the conduct of Australian Financial Services (AFS) licensees.
Brokers are required to be members of an authorised external dispute resolution scheme as a condition of their AFS licence. Generally, the Financial Ombudsman Service (FOS) is the independent organisation that helps resolve complaints and problems between brokers and their clients. Brokers are bound by the decisions of FOS.