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What Is An Insurance Broker?

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There’s an easy answer to this question. An insurance broker should simply make the process of obtaining the right insurance coverage easier for you and your business.

Most business owners would agree that using an insurance broker is the best way for a business to obtain insurance, and in this guide we’ll take closer look at who they are and what they do.

What do they actually do?

An insurance broker’s role is to act on behalf of their clients to help them with a range of insurance and risk related issues.

This can range from providing general advice through to handling a complex claim.

A typical broker/client relationship could include many of the following:

  • Analysing your business risks
  • Making recommendations on how to manage those risks
  • Providing quotes and recommendations on insurance products
  • Putting insurance policies and packages in place
  • Assisting with paperwork
  • Answering ongoing insurance related questions
  • Providing general claims advice
  • Handing claims from start to finish
  • Reviewing your insurance needs on an ongoing basis
  • Requoting your policies each renewal to remain competitive

These are just some of the roles that an insurance broker will fill. There is certainly more to the relationship than providing quotes and sending out a renewal each year.

A typical broker/client relationship

If you make contact with a broker, this is typically how the process will run:

Step 1 – Discuss your needs with the broker.

In this step the broker will learn more about your business, which will enable them to put together their recommendations on how to manage your risks with insurance.

This is also your chance to learn more about the broker and decide whether or not they are the right fit for you and your business.

Step 2 – Present quotes and recommendations.

Once the broker has put together their recommendations and compiled your quotes they will present these to you. This may be done in person, but increasingly this process is moving to electronic forms of communication.

Step 3 – Implementation.

If you are happy with the broker’s recommendations and choose to proceed with cover, the broker will now have the policies put in place and provide you with the necessary documentation.

Step 4 – Ongoing Reviews.

At some point prior to your next renewal your insurance broker will meet with you to ensure your cover is still appropriate, and in most cases will conduct research to see if a different insurer is able to offer a more competitive policy this year.

New ways of doing business

In the ‘old days’ of insurance broking it was all about face-to-face contact between insurance brokers and their clients.

Today many business owners don’t have the time (or in some cases the interest) in meeting with a broker face-to-face. Instead they want to use the convenience of the internet to sort out their insurance.

This is where the online insurance services come into the picture.

With many of the online services (including ours) even though you can take full advantage of the convenience offered by the internet, you still have the peace of mind that comes with dealing with a fully qualified insurance broker.

Here’s how the insurance process will typically look when dealing with a website like ours:

Step 1 – Request your quotes.

Using the online forms you provide information about your business and its insurance needs. Some websites will ask only a few questions, whilst others will ask a lot of questions.

Generally speaking, the websites which ask more questions (as is the case with ours) will be more likely to provide you with a more accurate quote right from the start.

Step 2 – Receive your quotes.

After your quote request has been forwarded to a qualified insurance broker, they will put together your quotes and send them to you via email or give you a call to run through them.

Step 3 – Implementation.

If you are happy with the broker’s recommendations and choose to proceed with cover, the broker will now have the policies put in place and provide you with the necessary documentation.

Step 4 – Ongoing Reviews.

At some point prior to your next renewal your insurance broker will contact you to ensure your cover is still appropriate, and in most cases will conduct research to see if a different insurer is able to offer a more competitive policy this year.

As you can see, steps three and four are generally no different whether you use a traditional insurance broker or an online insurance broker.

Whether you choose to use a traditional broker or an online broker really depends upon your own preferences and how you prefer to deal with people.

In terms of the work conducted by the broker it is really no different, it’s just that they’re communicating with you electronically rather than face-to-face.

Are they qualified?

Anyone calling themselves an insurance broker in Australia must be suitably qualified.

Generally this requires either ‘Tier 1’ or ‘Tier 2’ general insurance compliance. Many brokers will also hold diploma qualifications, and in some cases degree qualifications.

Insurance brokers must also hold an Australian Financial Services Licence (AFSL) or be authorised by an AFSL holder.

A broker who does not hold their own licence but is authorised by another licence holder will generally be known as an ‘Authorised Representative’.

There is no difference in the qualifications, knowledge or experience between a broker who holds an AFSL or is an Authorised Representative. They are simply different ways of running an insurance business.

All insurance brokers are also required to earn a certain number of professional development points each year.

These points are earned by attending industry training and other events, and help to ensure that all brokers maintain up to date knowledge on insurance matters.

How do they get paid?

There are two ways in which most insurance brokers are remunerated.

Most insurance companies pay commissions to insurance brokers when they arrange a policy for one of their clients.

Whilst some people believe that commissions can lead to biased advice, the truth is that most business insurance providers pay a fairly standard commission percentage, so there is little incentive to place a policy with one insurer over another.

Most insurance brokers also charge what is commonly known as a broker fee or admin fee.

This amount is charged on top of the insurance premium, and in theory should represent any additional work that the broker has had to complete in order to provide your insurance.

In reality broker fees can vary widely from $20 on a basic public liability policy through to one case where a local council paid over $30,000 in broker fees!

It’s important to remember that the individual broker will not necessarily receive all (or any) of the commission and broker fees.

Many individual insurance brokers are paid a salary, with the commissions and fees retained by the business and used to pay wages and office expenses.

Should I use one?

So the big question is should you actually use an insurance broker for your business?

As the writer of this article I have to admit to being biased when I say that you should definitely use an insurance broker.

Why do I believe this?

Because I have been in the industry for over a decade and have seen firsthand the benefits that insurance brokers can provide to businesses.

I have also seen the losses that businesses can incur by not seeking professional advice from a broker and therefore not having the appropriate business insurance in place.

As business owners we sometimes like to try and do everything ourselves, believing that we know better than anyone else, but there are some areas where using an external professional (such as an insurance broker) is the smarter way to go.