The Economic Value of Insurance Broking

Early last year NIBA commissioned Deloitte Access Economics to prepare a report into the economic value of insurance brokers. The now released report represents the most comprehensive analysis of the insurance broking industry ever undertaken in Australia. Examining the value brokers provide to clients and insurers, as well as the industry’s impact on the economy and broader society.

Not surprisingly, the report found that brokers provide immense value to their clients at every stage of the insurance cycle. The report estimates that it would take clients on average, 11 hours to complete a risk assessment of their business, compare
insurer offerings and apply for cover. Based on a conservative estimate, this equates to $300 per annum in lost time or a combined $230 million across all business clients.
Brokers also support clients in accessing a greater range of policies and insurers – in 2019, the average NIBA broker placed policies with more than 10 different
insurance providers.

The report was also able to quantify the role of brokers in reducing the incidence of underinsurance and non-insurance, with 40 per cent of clients not having appropriate
insurance prior to engaging a broker. This increase in cover was not always accompanied by an increase in premiums. While only 1 per cent of clients were over insured before engaging a broker, 33 per cent of new clients were previously paying more for their insurance prior to engaging a broker.

The report highlighted the important role brokers play as advocates for their clients during the claims process, saving clients time, simplifying the claims process and ensuring a more favourable outcome for the client. The report found that clients who were assisted by a broker during the claims process were less likely to feel their claim was complicated compared to those who completed the process themselves.

Brokers also support insurers to distribute products more efficiently and effectively, the report estimating that brokers save insurers the equivalent of 1,380 full-time equivalent (FTE) staff a year. Brokers also supported product distribution and client reach with almost 40 per cent of broker gross written premium, issued for clients outside of Australia’s
capital cities, this includes clients in both regional areas and international jurisdictions. Brokers are also able to place risks with approved international insurers, giving these insurers access to markets they may not be able to reach otherwise.

In addition to detailing the benefits brokers provide to both clients and insurers the report also went deeper, investigating the value the intermediated insurance industry provides to the economy, government, and broader society. In the 2018-19 financial year, the insurance broking industry supported over 15,000 FTE staff and directly contributed almost $2.6 billion in gross value added (GVA) to the Australian economy. Further indirect contributions supported another 5,000 FTE staff and $0.9 billion in GVA.
Brokers also help facilitate a more efficient insurance market and risk management through reducing information asymmetry, facilitating competition, reducing customer inertia, providing risk education and matching clients with appropriate products.

The report also highlighted the value brokers provide to government and the broader society, especially their role in helping clients recover from natural disasters. Brokers play a key role in finding solutions for clients with difficult-to-insure risks, particularly in markets where there is limited access to insurance products. By working with clients and insurers to reduce the incidence of noninsurance and underinsurance in these markets the burden on government and society post-disaster is diminished. In addition to arranging appropriate cover for their clients, should an insurable event occur, brokers also support clients during the damage assessment and claims preparation process, supporting economic recovery and reducing costs that may otherwise fall on government.

The extensive research done by Deloitte provides NIBA with a strong platform to advocate against further regulation of brokers and or the removal of commissions. Over the next 12 months, NIBA will be engaging with federal and state governments, regulatory bodies, consumer and business groups, and other industry and stakeholders to promote the role of brokers and ensure that the debate on broker commissions is an informed one.