If you have an insurance product, you may have worked with an insurance broker. They generally step in and help you make sense of insurance products.
But what else should you know about them? We have a look at exactly how insurance brokers work, and we consider how they earn a living.
Tip: Could you pay less on your car insurance? Get a quote today and find out.
The role of the insurance broker
According to Barry Taylor, chairman of Non-Life Exco at the Financial Intermediaries Association, the insurance broker’s role is to provide advice on insurance, and ongoing service to their clients.
“The broker needs to be skilled in terms of the range of products available to clients. They need to have a good working knowledge of the insurance market, and they need to have a good understanding of the regulatory requirements and application thereof,” says Taylor.
He explains that the broker’s role is to understand the client’s needs by offering a range of innovative and cost-effective solutions to the client.
“The broker plays an important role in supporting clients in terms of simplifying complex insurance terms, assessing and addressing risk, providing suitable advice, and negotiating competitive pricing,” says Taylor.
According to Yehuda Kay, senior wealth navigator at Octagon Financial, insurance brokers’ main function is to assist client with:
- Finding the best – not always the cheapest – premium and cover for their assets.
- Assisting clients with claims, and negotiating settlement between the insurer and their client.
- Ensuring the annual renewal of cover offers the best possible rate and premium for the client for the next year.
- General maintenance, such as the addition and removal of items from cover, and insurance advice to clients.
According to Kreethan Budhu, thought leader and head of broker relations at Fedgroup, an insurance broker’s main focus is their clients.
“But, on occasion, you will find an insurance broker that is a tied-agent for a specific insurance provider and will only provide information and advice on a specific provider’s product,” says Budhu.
“Otherwise, they will have contracts in place with more than one insurance provider and will be in a position to offer advice and information on various insurance products to suit their client’s individual needs,” he explains.
READ MORE: How to negotiate lower insurance premiums
How are insurance brokers paid?
Budhu says that the Financial Advisory and Intermediary Services Act no 37 of 2002 (“FAIS”) requires an insurance broker to establish and maintain a professional working relationship with their clients.
“For this, and the advice offered to a client on various insurance products, an insurance broker can charge a fee. This fee must be agreed upon by the client,” says Budhu.
“As an indication, the standard fee or commission paid to insurance brokers in South Africa, which is prescribed in the Short-Term Insurance Act, is approximately 12.5% of the policy premium in relation to a motor insurance product, and approximately 20% of the policy premium in relation to an insurance product that is non-motor related,” he explains.
It’s important to note that these fees are paid by the insurance company, and not the client. If a broker is not listed on an insurance policy, this will have no impact on the amount that you will pay.
According to Brett Zinn, executive at ASI Insure, brokers can also charge broker fees over and above commission earned. These fees would need to be disclosed and agreed upon with each client and should be for services over and above the normal functions required to earn commission.
“Certain brokers are mandated to perform functions on behalf of insurance companies, such as claims rating quoting and collecting payments. For this, they get paid additional fees by the insurance companies,” says Zinn.
Regularly review your car insurance and get new quotes to ensure you have a good deal.