Insurance Brokers: Benefits and Costs - Part 2
“Does 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? ”
In Part 2 of our Benefits and Costs articles, we are exploring the direct and indirect costs and savings of using an Insurance Broker vs insuring direct. (Read Part 1 Here)
The question of costs relating to a Broker is an interesting one. Insurance Brokers earn their money from commissions from insurers (factored into your premium) and sometimes from a broking fee (added on top of your premium). Commissions and broker fees should be outlined in any quotes you receive from a Broker – just like those pesky PDS, you should read the detail carefully.
However, when you engage with an Insurance Broker, you have access to their support and services for that policy period or until you choose to go elsewhere. This means if you need to make changes to a policy or make a claim, your Broker will be there to assist you rather than you having to do all the work on your own. So, whilst technically, sometimes it may initially cost more than doing your insurance yourself, you need to take all the factors into consideration before deciding what the best option might be for your circumstances.
Example 1:
Fred sources a quote for his car insurance directly with an insurance company. The premium is $1000. Fred also asks a Broker for a quote and receives one for $1,000 which includes a 10% commission for the Broker. Without comparing policy inclusions/exclusions, based on cost alone, Fred is no worse off by going with the Insurance Broker.
Example 2:
Mary sources a quote for her car insurance directly with an insurance company. The premium is $1000. Mary also asks a Broker for a quote; they use their negotiating power to get a quote for $950 but the policy inclusions are much better than the first policy she had quoted directly from the insurer. Factoring in car hire, excess-free windscreen replacement, and other inclusions, Mary is potentially thousands of dollars better-off going through the Broker if she needs to make a claim, as well as the $50 saving on her premium.
Example 3:
Karen sources the same quotes as Fred, except her Broker adds a $75 broker fee. Karen chooses to insure direct, saving herself $75. A few months later she is in a car accident and her car needs repairs. Karen didn’t realise her policy doesn’t include car hire, so until her car is repaired, she has to use public transport or taxis – an inconvenience and extra cost. Her insurance company is refusing to cover the cost to replace her child’s car seat unless she can provide the receipt which she is having trouble finding. Every time she calls the insurance company she speaks to a different person and has to go over the situation again while they read notes on her file.
When Karen’s renewal is due, her premium goes up by 30% to $1,300, Karen is frustrated at the price increase and annoyed at how difficult the claims process was. Karen wants to insure elsewhere now and so has to spend hours getting quotes and comparing new policies. Whilst the immediate cost of using a Broker was slightly more expensive, the value for money over time would have been much better, especially if Karen added up all the hours she spent dealing with the claim and renewal, and her own ‘hourly rate’. Not to mention much lower stress levels!
And no, you will not have to pay your Broker any additional fees if you make a claim. Your insurance company will charge you excess outlined in your policy, they can:
· Request payment before finalising the claim
· Deduct the excess from any final cash payout to you; or
· Request you to pay the excess direct to a repairer. This is often common for car repairs
This is part of your contract with the insurance company and happens regardless of how you insure or who you are insured with. The work that your Broker does for your policy is covered by any commission and/or broker fee they’ve already received when you paid your premium You would only be looking at paying additional costs for your insurance if:
· You need to make a change to your policy (during the current policy period) that requires you to pay the difference between the original premium you paid and the new premium factoring in the changes. This would occur regardless of whether you were insuring direct or through a broker. For example, you undertake renovations on your property so the ‘sum insured’ or the amount it would take to rebuild your house if it was destroyed is higher than what it was originally insured for, so you need to pay an additional $100 on top of the premium you’ve already paid.
· You need to take out additional policies. For example, if you have a Motor Vehicle policy in place and you purchase a house, so you need to take out a Home and Contents policy. You would then pay a new premium (including new commission/broker’s fee) for the Home and Contents policy.
The best part about exploring whether you would like to insure through a Broker or not, is that you don’t pay a cent until you pay your premium. This means you can discuss your needs with a Broker, get quotes from them and ask them to explain the difference between policies – including any you may already have, before you make a decision about whether to insure through them or not.
Engaging with an Insurance Broker can not only save you time and worry – but money as well. If you would like an obligation-free review of your current policies to see how we may be able to save you money and/or improve your cover, contact us.
We look forward to exploring why we believe Strive Insurance delivers great value in Part 3!