What does an insurance broker do, and when should you use one?

A plain-English look at what an Australian insurance broker does, how brokers differ from buying direct, and when using one may be worthwhile for a business, farm or family.

Insurance is one of those purchases most people would rather not think about until something goes wrong. Which is exactly why understanding what a broker does, before that moment arrives, is worth the ten minutes it takes.

This is a plain-English look at what an Australian insurance broker does day to day, how the broker model differs from buying direct, and when using one may be worthwhile for a business, a farm or a family with more complex cover.

The short version

An insurance broker acts for the client when providing insurance advice and arranging cover, rather than acting for the insurer. Depending on the broking arrangement, that advice is provided under an Australian Financial Services Licence or through an authorised representative of an AFSL holder. Their role sits across four pillars: review the risk, arrange suitable cover, manage the program year to year, and support the client when a claim is lodged.

“The real test of an insurance program is often not when the policy is purchased, but when something changes or a claim occurs.”

That last pillar is where the difference is most visible. A direct insurer's call centre is set up to sell and service policies at scale. A broker is set up to represent one client, in one situation, at one time.

What a broker does day to day

The work of a broker is less about products and more about understanding what the client is exposed to. In a typical engagement that involves reviewing the current program to see what is in place, what may be missing, where cover overlaps and whether the structure still suits the way the client operates, then translating the business or family's real-world exposures into the insurance market's language.

From there the broker approaches insurers on the client's behalf, negotiates terms, compares the wordings side by side and presents a recommended structure with the trade-offs explained. Once cover is in place, the broker remains the point of contact for policy changes and insurer discussions, then reviews the program again at renewal and, where appropriate, tests alternative markets.

How a broker is different from buying direct

Buying direct means dealing with one insurer's product, on that insurer's wording, through that insurer's service channel. It can be a fine outcome for straightforward personal cover where the risk fits neatly inside a standard policy.

A broker may be able to approach multiple insurers and specialist markets, depending on the type of risk and the markets available. That can include specialist and agricultural insurers that do not sell direct to the public, and it can allow a broker to seek wording extensions, higher limits or specific endorsements where the standard product falls short. That flexibility can be particularly valuable where the risk is more complex, involves several classes of insurance or does not fit neatly within a standard direct product.

When engaging a broker is worth it

A broker adds the most value when the risk is not standard. Common examples include a business with staff, vehicles, premises and contracts to consider, where Business Insurance usually spans several covers; a farm with a mix of property, livestock, plant and public liability exposures; a professional practice needing Professional Indemnity or Management Liability; and any operation where a claim would have material consequences.

For a simple home and contents policy on a suburban block, the case is less clear cut. As the risk becomes more complex, policy wording, insurer appetite, claims support and the way different covers interact generally become more important.

What using a broker looks like

The first conversation is usually a short review of what the client does, what they own and what they are worried about. From that, the broker can identify which exposures need to be considered and where existing cover may already be sufficient. A written recommendation follows, with the cover, insurer, premium and any trade-offs set out clearly.

Once the cover is in place, the broker is the point of contact for the year: policy changes, certificates of currency, questions about wording, and, if it happens, the claim itself. A well-run broking relationship is quiet most of the time and loud when it needs to be.

How brokers are paid

Insurance brokers may be remunerated through commission paid by an insurer, a broker fee paid by the client, or a combination of both, depending on the arrangement and the type of insurance being placed.

The remuneration and relevant fees should be disclosed in accordance with the applicable financial services requirements and the broker's own disclosure documents. Insurance advice is provided under an Australian Financial Services Licence or through an authorised representative of an AFSL holder.

Where a broker can add value

The value of a broker is not just the policy document. It is having someone who understands the client's business, knows how the insurance program has been structured and can assist when questions arise or a claim needs to be lodged.

If your business, farm or insurance needs have become more complex, it may be worth reviewing whether the current structure still suits the way you operate. RMA Insurance Brokers can review the program with you before renewal and identify areas worth discussing.