Insurance broker clients range from individuals and small business owners to large corporate and multinational firms. Brokers support their clients to engage in the insurance market more effectively, providing access to knowledge and policies not available in the direct-to-consumer market.
Brokers are experienced risk-professionals, with the knowledge and expertise to match the needs of their clients with products available in the marketplace. For hard-to-place risks, where solutions aren’t available in the Australian market, brokers are able to source cover from overseas markets.
The matching process that brokers perform often allows them to obtain cover more suited to the clients’ needs at a more competitive price than can be obtained in the direct market. When speaking of their newest client who had not previously engaged the services of a broker, 76% of brokers identified that they were underinsured, with another 13% having no insurance. This increase in cover does not always translate to higher premiums, with only 30% of brokers identifying that the client paid less prior to engaging them.
Brokers act as advocates for their client both during the purchase of insurance and most importantly when an event occurs. Clients who used the services of a broker were significantly less likely to indicate that their claim was difficult compared to those who did not use a broker. Broker clients were also more likely to have favourable claims outcomes than those in the direct market. A survey of the claims outcomes of SME clients showed that broker clients were twice as likely to be fully covered for their claims than direct buyers.
Brokers support insurers to reach new clients and reduce the costs of product distribution and administration. Many insurers rely heavily on brokers to distribute their products across different markets, especially in regional areas where insurers may not have a physical presence. On average, 38% of broker gross written premium was for clients operating outside of Australia’s capital cities.
Brokers support better matching between insurer products and client risk profiles, enabling insurers to effectively and confidently price and assess risks. Insurers identified that this ability to efficiently and effectively find customers and assess their risk profiles was a key value of using brokers.
Brokers also support insurers by helping to identify new and emerging risks and insurance needs. On average, 13% of policies sold by brokers 2019 represented a new market opportunity for insurers. Examples of emerging product opportunities identified by brokers include pollution coverage for construction businesses, cyber risk for businesses and products to cater for emerging industries such as Airbnb and rideshare operators.
Insurance broker business make a significant contribution to the Australian economy. The industry also facilitates economic activity through its purchase of intermediate goods and services. In the 2018-19 financial year, the intermediated insurance industry contributed an estimated $2.6 billion in gross value add (GVA) to the Australian economy and directly employed almost 15,000 full-time equivalent (FTE) workers. This is roughly equivalent to the contribution of each of the gas supply and creative arts industries. The industry also indirectly supported economic activities in other industries totaling almost $900 million and supporting an additional 5,000 jobs.
Brokers facilitate a more efficient insurance market and risk management, which supports economic recovery and stability across a range of sectors and society. Brokers facilitate the efficient placement of risks in the economy by limiting uncertainty and closing information gaps between players in the market and encouraging competition amongst insurers.
Brokers play an important role in reducing underinsurance, with 45 per cent of new broker clients being underinsured prior to engaging a broker. By ensuring risks are adequately insured and managed businesses and the communities they serve, are able to recover more quickly if an insurable event occurs.
Brokers play a key role in finding appropriate insurance for difficult-to-insure risks, particularly in marlets where the is limited access to insurance products. Brokers work with clients and insurers to reduce instances of underinsurance and non-insurance, this reduces the burden on governments and society. Where risks cannot be placed with insurers, government acts a ‘insurers of last resort’ by providing financial support for communities for disaster recovery relief.