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Insurance brokers: annoying salesperson or blessing in disguise?

By Azal Khan
Yahoo7 Moneyhound
Why Use An Insurance Broker

Insurance brokers explained.

Insurance is one of the most complex products you can buy. And Australia is one of the most under-insured countries in the world, coming in at number 16 on a global listing. Research shows that Australians with dependents are under-insured by $1.37 trillion. Simply put, only four per cent of the population with dependent children has sufficient cover.

If you’re serious about getting the right insurance cover to suit your needs, you might want to think about using an insurance broker to help you arrange your insurance or get advice on how to make the most of your insurance budget.

Insurance salesmen have had a bad reputation for a while now, and while there are no doubt some dodgy individuals out there, not everyone is a shark.

Insurance brokers are regulated heavily in Australia by APRA (Australian Prudential Regulation Authority) and brokers abide by the NIBA (National Insurance Brokers Association) Code of Practice, which ensures that brokers act in their clients’ best interest at all times. NIBA represents an estimated 90 per cent of all insurance brokers in Australia.

Insurance brokers handle around 90 per cent of the commercial insurance transacted in Australia, and handle over $18 billion in premiums per year.

When on the hunt for an insurance broker, check out their experience and qualifications. All insurance brokers in Australia must hold an Australian Financial Services (AFS) license, issued by ASIC under the Corporations Act, which enables them to deal in and advise on risk insurance products.

What does an insurance broker do?

An insurance broker can help you assess and manage your risks, and provide advice on insurance solutions appropriate for you needs. In most cases, an insurance broker acts on behalf of you as your agent, but in some situations the broker may act for insurers.

Insurance brokers offer a range of services, including:
• selecting and arranging appropriate insurance tailored to you;
• expertise in detailed insurance markets, prices, terms and conditions, plus the pros and cons of the wide range of insurance policies available on the market;
• helping to in interpret, arrange and complete insurance documentation;
• predicting, managing and reducing risks;
• experience with claims and settlements;
• assistance with services related to insurance such as premium funding and risk management reviews.

Related: How much should I be insured for?

If you are thinking about using the services of an insurance broker, consider the benefits and pitfalls. It’s important to weigh up the risks and benefits of using the services of a broker or adviser, taking into account the issues of commission and scandals that have recently rocked the financial advice industry.


Saves time
Nobody wants to spend hours trawling through the net trying to find the right insurance provider. Online comparison sites are great, but if you prefer face-to-face advice then the services of a broker may be for you.

Broad market understanding
As brokers work closely with a variety of providers, they will have a broad understanding of the various offerings from all of the top players. They will be able to recommend a product that suits your needs.


Brokers earn commission
Brokers generally act as salespeople, and receive commission when they contract new customers. In some cases, brokers have been known to sign people up to the insurance providers that they know will result in the best commission.

The financial advice sector has been rocked by scandals in recent years with revelations advisers have pocketed high commissions for signing up their clients for high-risk products without their knowledge or consent.

A report released last month recommends commission for financial advisers in the life insurance industry be capped at $1200 in order to stamp out unethical practices by financial advisers. The report, authored by former banking regulator John Towbridge, proposes an overhaul of commissions worth $3.5 billion a year in order to restore consumer trust in financial advisers.

This has sparked fierce debate in the industry, with some arguing that imposing a cap for commissions on life insurance advice will mean consumers might end up paying more, as planners recuperate their lower income by charging higher fees.

The move is designed to discourage “churning” which involves switching clients from one insurer to another to pocket bigger commissions. Last year, ASIC found this practice was rife in the industry and nearly 40 per cent of the advice given by planners selling life insurance had failed to comply with the law.

Related: Why life insurance is important

Unwanted pressure
It all depends on the broker, of course, but there have been cases where people have felt pressured into signing up to a specific provider. If this happens to you, it’s better to walk away than agree to something you don’t want.

Hard to find one you trust
There are a lot of insurance brokers in the market, so finding one you can trust isn’t easy. Ask friends and family for recommendations and seek out online reviews. When you find someone, you should go with instinct.

If you decide to go it alone, comparing online is the easiest way to get the best deal.

What do you think about insurance brokers and would you use one? Comment and share your thoughts on our facebook page.