Why use an insurance broker?
A broker works for your business, not the insurer. Here’s what they do, what they cost, and when going direct might be enough.
What a broker does for you.
From finding the cover to helping with a claim.
- Finds the cover Brokers negotiate cover for you with insurers or underwriting agencies. The small business ombudsman says a broker “can be a deciding factor in the quality or availability of insurance for small business”.
- Works for you Brokers are “normally agents for the insured”, not the insurer. Brokers who follow the brokers’ code have a duty to act in your best interests when acting for you.
- Explains it The ombudsman found policy documents so hard to navigate that small businesses “purchase unsuitable policies and obtain inadequate cover”. Under the code, a broker helps you understand “the costs, key risks and benefits” of what they recommend.
- Helps when you claim If an insurer unreasonably denies or reduces your claim, brokers who follow the code “will act as claims advocates” to try to get it paid, within the terms you agree with them.
- Handles renewals Brokers who follow the code contact you at least 14 days before your cover ends, and look at your options.
- Licensed Every broker holds, or acts under, an Australian Financial Services Licence regulated by ASIC.
Sources: Insurance Inquiry Report, Australian Small Business and Family Enterprise Ombudsman, December 2020; Insurance Brokers Code of Practice, sections 5.1, 5.3, 7.1 and 7.2. The code binds members of the brokers’ association, NIBA, and brokers who adopt it.
Broker or going direct.
You can buy some covers straight from an insurer. Here’s the difference.
| Broker | Direct | |
|---|---|---|
| Someone acting for your business | Yes | No |
| Can approach more than one insurer | Yes | No |
| Help if a claim is knocked back | Yes | No |
| No broker commission or fee | No | Yes |
Going direct can suit one simple cover you understand well. A broker earns their keep when you need several covers, a contract or licence asks for specific cover, your work is higher risk, or you need to claim.
What a broker costs.
Most brokers are paid by the insurer.
- Commission Paid by the insurer, out of your premium, so there’s usually no separate bill for it.
- Fees Some brokers also charge a fee for their work. Brokers who follow the code set out what they’ll earn in writing before they start, so there are no surprises.
Sources: Insurance Inquiry Report, ASBFEO, December 2020; Insurance Brokers Code of Practice, section 4.2; Moneysmart.
Questions to ask a broker.
Five questions for the first conversation.
- 01What’s your licence or authorised representative number? You can check it on ASIC’s registers.
- 02Which insurers can you approach for us? Brokers who follow the code tell you about any limits on what they can arrange.
- 03How are you paid, and how much? Commission, a fee, or both.
- 04Will you help if we need to claim? And who will we deal with when we do?
- 05Do you follow the Insurance Brokers Code of Practice? It sets the standards above, including for claims, renewals and complaints.
Common questions.
Do I need a broker for business insurance?
No. The small business ombudsman says small businesses typically buy insurance directly or through an intermediary, often a broker. A broker can help most when you need several covers, a contract or licence asks for specific cover, or you need to make a claim.
Is a broker more expensive than going direct?
It depends on the cover. Brokers are usually paid commission by the insurer, and some also charge a fee. Your broker will tell you about any fees or commissions they receive.
What’s the difference between a broker and an insurer?
An insurer writes the policy and pays claims. A broker arranges cover for you with insurers, and is normally your agent, not the insurer’s.
How do I check a broker is licensed?
Brokers hold, or act under, an Australian Financial Services Licence. You can search ASIC’s professional registers by name or number. COVRA checks this before a broker can receive enquiries.
Is COVRA a broker?
No. COVRA isn’t a broker or an insurer, and doesn’t give advice. We put your business in touch with one licensed or authorised broker, free.
Still have a question? A broker can talk it through with you.
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