Know Risk is a community education program designed by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) to improve our understanding of insurance and how it relates to managing the many risks we all face in life.
Using a broker vs buying direct from an insurer
Which option is best for you?
When you’re a business owner, making sure your insurance policies protect your assets and your business are important and are often forgotten. There are times where the success or failure of your business can rest on whether or not you have the right insurance in place.
There are options on how you buy your insurance. You can purchase direct from an insurer or you can engage the service of a licensed insurance broker.
An insurer is a company which is licensed by the Australian Prudential Regulation Authority (APRA) to underwrite insurance policies. APRA regulates and monitors insurance companies to ensure that they manage their business in a way that can pay claims.
An insurance broker is a professional adviser who is an expert in risk and insurance. They must hold and Australian Financial Services Licence (AFSL) and meet a strict set of obligations.
There are pro’s and con’s to how you purchase your insurance. This comes down in part to how comfortable you are with your insurance knowledge and how much time you have available. So that you can make a more informed decision about which might work best for you we have put together some pro’s and con’s for consideration.
Insurance through a broker
When you place your insurance with a broker, it is important to understand that they must work in the best interests of their customers. Their job is work with you to understand your business, to identify the risks to it and to find solutions to help manage the risks. Some of this will include risk management and some of it may be to buy insurance. Once you agree on the types of insurance and the level of insurance cover you need they will review the policies available and present a solution to you.
- A broker will act in accordance with the Corporations act and will provide you with appropriate advice.
- A broker will warn you if their advice is based on incomplete or inaccurate information.
- A broker will prioritise your interests where there is a conflict with their own interests (or an interests of a related party).
- A broker will prepare and provide you with a Statement of Advice (SoA) that documents their advice in relation to the insurance policy
- A broker will look at every facet of your business and the risks that it may face and will provide you with tailored advice specific to your situation.
- You may be able to find a broker who specialises in the type of business you own or the type of insurance you are looking to buy.
- If you need to make a claim, a broker will be there to help manage the claims process
- A broker will review the various policies available on the market and compare quotes.
- They will be able to guide your through the process and explain aspects of your policy or note things that you may not have considered.
- Because they’re doing the legwork for you, a broker will actually save you a lot of time.
- In some instances you may have to pay a fee for the professional services which includes the risk assessment and advice which is on top of your premium. If this is the case you will be advised.
- Some insurance brokers may also receive a small commission from the insurer which is used to offset the costs of placing and managing your insurance. If this is the case you will be advised.
- Choose carefully - not all brokers are created equal — some are more diligent than others.
Insurance direct from the insurer
Purchasing direct from the insurer is a more direct approach which can be useful if you have a solid understanding of the risks which your business may come into and know the right types of insurances to purchase.
- You are dealing direct with the insurance company which can save you time.
- There are some instances where you may be able to obtain a lower premium.
- You feel in control because you are reviewing and handling all of the details.
- Business insurance can be quite complex and if you purchase it directly from the insurer, You ‘don’t know what you don’t know’ and therefore may not fully understand all of the risks your business may face.
- When you buy direct from the insurer, it may be through a call centre and the staff member who is processing the purchase for you, may not be authorised to provide you with specific advice relating to your business.
- Every time you want to speak to your insurer about your business insurance, you may end up speaking to someone different.
- The process of comparing products and quotes between insurers can be long and arduous, and requires significant time and a solid understanding of insurance to be able to compare all of the inclusions, exclusion and limits.