Insurance Brokers: Benefits and Costs - Part 1
“Why would I use an Insurance Broker when I can just do my Insurance myself?
Doesn’t it cost more to use an Insurance Broker?
Do I have to pay my Broker if I need to make a claim, or each time I need to make changes to my policies?
Is there any benefit in going through a small Brokerage? ”
Working in General Insurance, we often get asked these questions - and we are always happy to explore the answers with people.
Regardless of who people use as their Broker, or if they do their own insurance, we enjoy helping educate people about insurance. We believe that the more informed people are, the better equipped they are to make the right decisions to protect themselves, their assets, and their future financial security. For us at Strive Insurance, that is one of the most important things in owning a Brokerage, even if it doesn’t translate to income for us.
Over three posts, we will explore the themes of the benefits and costs of using an Insurance Broker. In Part 1, we are looking at why someone would use a Broker instead of doing their own insurance. This is also known as ‘insuring direct’ as you the customer, are going direct to the insurer, rather than through a third party, the broker.
Often, these types of questions arise when people don’t fully understand what a Broker does…
A broker:
Works for you, the client, not the insurance company, and must operate for your best interests
Is an expert in risk management. They will seek to understand what your personal / business risks are, and explain to you how insurance can protect your assets and/or businesses.
Has qualifications and expertise in General Insurance (different from Life, Income, and Health Insurance). They must complete a minimum number of hours of professional development each year and must hold, or be a representative of a company that holds a financial license
Will provide you with options for different insurance policies – similar to the way Mortgage Brokers work with bank loans
Can negotiate with insurance companies for specialised cover and/or better prices. Brokers often have access to policies and prices that aren’t available to the general public
Will support you through claims processes. They will help you understand what is required, liaise with the insurance company on your behalf, and go into bat for you if the insurance company is being difficult – hard to believe it happens, we know!
Simply put, yes you can do your insurance yourself! However, we would then ask:
Do you have the time to research different policies and prices across multiple companies?
This can involve filling out forms, making phone calls, and/or sending emails, often having to provide fairly in-depth information each time, then reviewing and comparing each policy carefully. Policies are not all the same, and some people will gravitate towards the cheapest price which can cost you significantly down the track if you need to make a claim. Alternatively, some policies are priced much higher than others whilst essentially providing the same level of cover. A Broker can differentiate between policies for you so you’re not relying on price alone.
Will you do this research and comparison every year? Prices and policy wordings change, as do your own circumstances. Some insurers offer a discounted ‘new customer price’ to hook people in, then count on them not having the time or motivation to shop at renewal time, and of course, the premium then jumps up in price. A Broker will easily understand policy changes and know what a reasonable price increase will be in the current market, they can then quickly review both these factors for you before you renew.
Do you have the expertise to interpret the jargon in the Product Disclosure Statements (PDS)?
We always recommend people read the PDS but the reality is, many people don’t. Sometimes the PDS wording can be unclear so when people do read it, it can be hard to understand exactly what is covered, and more importantly what isn’t covered. A Broker’s industry expertise can help them understand what is intended by the wording or when to push harder with an insurer to get a positive resolution for the client. They can also summarise the PDS for you in layman’s terms.
Do you have the time and expertise to deal with potentially complex claims if something goes wrong?
Claims require time and effort. They often involve coordinating across the insurer, the client, assessors, and professional trades. Sometimes there are options of payout vs repairs that can have longer-term implications if something doesn’t go right with the repair/replacement. Going through a claims process can be very time-consuming and frustrating when you are also trying to juggle work, family, and other commitments – whereas this is a key component of a Broker’s daily work.
How powerful is your negotiating power?
Say you’re disgruntled with your insurer, and you threaten to pull your business. The insurance company is then facing the relatively small loss of your premium, maybe a few premiums if you have multiple policies. Chances are, they’ll shrug their metaphorical shoulders and move on to the next paying client. If a Broker believes the value and quality of the insurer’s product and service is lacking, because of their large client numbers and often backing of a large broking group (in our case Oracle Broking Group) they have the potential to cost the insurer hundreds of thousands or even millions of dollars in premiums if they take their ongoing business elsewhere. That’s why Brokers often have access to better policy wording and prices than the general public.
Do you know what you don’t know?
When choosing an insurance policy, sometimes you don’t know what you don’t know, until you need to make a claim and realise your cover wasn’t what you thought it was. That usually translates to a decent financial hit.
Here at Strive Insurance, Jamie has over 25 years of experience in the insurance industry. Jamie has a wealth of knowledge of the ins and outs of the sector, and where to go if he comes across a unique situation or business. Not only is he an expert in his field, but he is also very well-placed to understand where he may need to seek additional information or question an insurer about the cover.