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Are brokers taking over?

Not too long ago, I was called into a radio programme and the host introduced me as an Insurance Broker. I quickly had to correct him by insisting that I was an insurance practitioner and not a broker.

Anyhow, the host may not have been far from right, as I basically sell insurance for a living. After the radio interaction, I kept wondering how the two, though closely related, could be confusing to the public!

Insurance brokers – what they really do

Generally, a broker is a businessman (or a company) who buys or sells for another (individual or company) in exchange for a commission called brokerage. An insurance broker is, therefore, responsible for selling, soliciting, and/or negotiating insurance, either on behalf of a client or an insurer, for compensation in commission. 

Thus, in relation to insurers, brokers act more as independent agents selling the company’s (ies) products. However, for clients, brokers provide expert pieces of advice in relation to choices and appropriate premiums, after soliciting quotes from selected insurers. 

In the event of claims, the brokers supply their partner insurers with all relevant documentation, on behalf of their client, in order to facilitate claims payment. 

Depending on the jurisdictions, insurance brokers are licensed to sell either life only, non-life only or both. 

Moreover, a distinction is made of Retail Brokers, who negotiate insurance contracts directly with clients; Wholesale Brokers, who negotiate contracts with retail brokers and agents, but not directly with clients; and Reinsurance Brokers, who solicit, negotiate and sell reinsurance cession and retrocession on behalf of ceding insurance companies seeking coverage with reinsurers. 

The relevance of insurance brokers in the insurance value-chain cannot be overestimated. Typically, insurance brokers not only facilitate the purchase or re-purchase of insurance, but more importantly, provide complementary services to both insurers and clients. 

This, therefore, makes brokers an important alternative distribution channel besides direct agents. 

Indeed, most clients, particularly corporate clients, often feel more comfortable dealing with brokers than dealing directly with insurers, as the brokers usually facilitate the claim requests.

The essence of brokers

Brokers make the insurance process more efficient for both the policyholder and the insurer. Notwithstanding the legal regime, the modus operandi of brokers is strictly an intermediary relationship, with a focus on working for and on behalf of their clients, in order to facilitate insurance contracts with insurers who have the capacity to insure their risks. 

Meanwhile, a broker’s status is determined both by their relationship with clients, as well as, insurers, but these changes depend on the needs at any given time. Where a broker represents an insurer in transactions, he or she is legally considered the insurer’s agent and not the client’s, and vice versa. 

In Ghana, the over 60 licensed brokers have assumed a central role in the insurance value-chain, as almost all insurers have partnerships with various brokers. 

Given that insurance retail business premiums continue to be negligible, the need to close in the gap is significantly hinged on the quality and capacity of the broker channel. 

Moreover, brokers are central, as the efforts of the National Insurance Commission to improve the industry’s capacity intensifies. 

Key challenges

The undesirable issue of ‘under cutting’ is a common challenge. In their desire to please clients by negotiating competitive rates, some brokers tend to negotiate for below allowable rates; thereby jeopardising the solvency of the industry as a whole. 

Currently, most brokerage firms in Ghana are either owned or managed by retired insurance practitioners with sound industry expertise. While this is good for the health of the broker sub-sector the challenge, however, is the tendency of some of those retired practitioners to negotiate businesses only for their previous employers or cronies, without recourse to the efficiency of the particular insurer and the value to the client. 

There is also the sad issue of some brokers placing businesses overseas, without exhausting the local capacity. 

The way forward

Given the challenges the insurance industry in Ghana may be experiencing, especially the role of brokers, the following must be given adequate consideration: 

• Brokers must always negotiate the right premiums, without seeking to impress their clients with undesirably low rates, even though it is noted that they do not determine policy pricing. 

Moreover, brokers must avoid cronyism in their choice of insurers for their clients. This will not only promote fair business practices, but also ensure that the right insurer is selected to give value to the client. 

It is also important for brokers to always exhaust the local capacities before placing reinsurance businesses overseas. This way, the capacity of the local industry will be greatly enhanced. 

• Meanwhile, the Ghana Insurance Brokers Association (GIBA), the umbrella body of brokers in Ghana, should, as a matter of urgency, collaborate with the Ghana Insurers Association (GIA) to intensify the latter’s call on government to consider a legislation compelling government agencies to take out Group Life Insurance Plans for their members. 

 

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