Sometime in 2007, I approached a multinational firm in the bid to prospect for insurance business from them. In my initial interaction with the officers in charge of insurance for the firm, I was told that they would do business with my insurance company ONLY through the recommendation of an intermediary – an insurance broker.
They explained that there was certainly no problem dealing directly with a mainstream insurance company but they felt life would be less stressful if they did so through a broker who would come in handy to advise them on the scope of insurance they should have for their assets, employees, the choice of insurer etc as well as one that would handle their claims when they are triggered.
In sharp contrast to what the multinational firm’s understanding was, managers of some companies still wonder why their firms should give their insurance portfolios to insurance brokers when they could actually do so directly.
For a clearer understanding, this week’s piece will throw more light on the need for insurance brokers and other related brokerage matters.
Who an insurance broker is
An insurance broker can be described as a specialist in insurance and risk management who acts on behalf of their clients by providing advice on insurance with the view to promoting the interests of their clients. They are invariably willing to help their clients identify their (i.e. clients’) insurance needs and also help the client to decide on what to insure and where to insure.
According to the Canada Insurance Brokers Association an insurance broker works for you (client) rather than an insurance company. Brokers use their professional knowledge and experience to help to properly assess insurance needs, shop for the best value in insurance coverage and help to pursue a claim in the event of one.
Insurance brokers generally work for the client in the insurance procurement process and acts independently in relation to insurance companies. They help their clients in the choice of specific insurance policies that would meet their needs. Clients are presented with alternatives by way of choice of insurance companies and products.
The good news about engaging the services of a broker is that, their clients enjoy high level professional advice in insurance at no cost to them. Unlike the insurance agent who generally works for the insurer, insurance brokers work for the client and is paid brokerages (commissions) by the insurance companies without charging their clients. Due to their professional nature insurance brokers are licenced to work with several insurance companies in the placement of risk on behalf of their client.
What brokers do
Brokers per the nature of their work invite quotes from selected insurance companies and support clients in determining the appropriate limit of cover as well as the product from a range of products and also provide information on the claims payment profile of various insurers.
In some business jurisdictions, there are distinctions among brokers depending upon the types of specialized products they are licensed to sell – some are licensed to sell both life and non-life products, while some others may be limited to either of the two.
There are also reinsurance brokers who solicit, negotiate and sell reinsurance cessions and retrocessions on behalf of ceding insurance companies seeking coverage with reinsurers. Reinsurance brokers can get involved in a reinsurance company’s retrocession of parts of its risks.
Benefits to the client
The engagement of a broker makes the insurance process more efficient for both the client and the insurer. Regardless of the legal role in which a broker is acting, the manner in which the broker approaches all such placements for their clients is as an intermediary – working on behalf of their clients to facilitate insurance contracts with insurers that have the ability and capacity to insure their risks.
Administratively, the broker replies to all correspondence between the insurer and the insured and ensures that renewals are done on time. Even though, such a process-based approach is increasingly used around the world, the legal status of insurance brokers varies in the global insurance market.
The importance of brokers in insurance practice
The importance of insurance in contemporary economies is unquestionable. Clearly, insurance serves a broader public interest far beyond its role in business matters and its protection of a large part of the country’s wealth cannot be under-estimated.
Apart from facilitating the placement and purchase of insurance, they complement the insurance placement process.
They are a critical channel of distribution as the client sometimes feels more at home dealing with them than dealing directly with insurance companies. Some corporate clients in particular rely on brokers having in mind the headache they could have having to deal directly with insurers.
Insurance Brokers in Ghana have become very critical as they complement the efforts of not only the National Insurance Commission (NIC) but also the Ghana Insurers Association (GIA) to improve on the insurance industry’s total capacity on an oily wheel.
With the desire to please their clients by getting competitive rates for them, there is the tendency to coerce insurers to undercut premiums to levels that could simply pass for uneconomic especially in recent times.
Many brokers in Ghana are owned or rather headed by experienced insurance practitioners who are either retired from service. They are usually top executives whose expertise in insurance consultancy cannot be challenged. This is good for the health of the insurance industry; having professionals who ‘know what time it is’. The disadvantage here, however, is that some of them may prefer placing businesses at their former places of work or with their ‘connections’ within the industry without recourse to the efficiency and whether they can help in addressing the needs of the broker’s clients. Some brokers also without exhausting the local capacity place their businesses in overseas markets.
The way forward
Brokers must ensure that the right premiums are charged even though it is a known fact that they do not determine the pricing of insurance products.
The practice of placing businesses with companies they have some ties with may be putting some other companies at a disadvantage hence the need to transact business based on fair practice and the ability of the other insurers to deliver based on client specifications as well as risk profile.
Some Local brokers are the channels through which external reinsurance placements are effected and this must be checked in order to protect the local capacity before resorting to external business arrangements.
Retail businesses are still accounting for almost a negligible portion of premiums hence the need for support in controlling the commercial portfolios usually from the State and other multi-national entities.
There is the need for brokers to recognize the fact that they have a responsibility towards insurers to ensure that all the parameters in rating a risk have been applied properly and at the same time balancing the equation to obtaining good terms for their clients.
Indeed, insurance is an essential element in the operation of sophisticated national economies throughout the world today. From the perspective of especially multinational companies, and with the not-so-pleasant a perception about the sector, it is needless to say that insurance brokers indeed inspire confidence in the insuring corporate world and this reputation must be guarded and improved on.