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The engagement of a broker makes the insurance process more efficient for both the policyholder and the insurer.

Who needs insurance brokers?

“It is not for nothing that the stomach allows the teeth to do the chewing on its behalf”

The Ghana Insurance Brokers Association (GIBA) recently held its conference in Koforidua, in the Eastern Region of Ghana, under the theme ‘Strategising for effective Broking.’ 

 

Indeed, this couldn’t have come at a better time considering the contribution of brokers to the insurance industry in Ghana, particularly, when the country still has a penetration rate of less than two per cent as of December 31, 2014. 

In a recent interaction with a friend, he wondered why his company decided to engage a Broker to manage their various insurance portfolios, when according to him, they have the internal capacity to make their own insurance arrangements. 

Like my friend, many others also have similar opinions. However, as a practitioner in this industry, I fully appreciate the role of the broker in the scheme of things in insurance practice. In this regard, I painstakingly explained to my friend why he should be pleased that his company has engaged the services of an Insurance Broker, as I noticed he was completely oblivious of that fact. 

The foregoing episode, thus, informed my decision to provide readers some insight into the workings of Brokers in the insurance industry.

Who/what is an Insurance Broker?

An insurance broker is a specialist in insurance and risk management who acts on behalf of clients by providing advice on insurance with the view to promoting the interests of their clients. 

They are always willing to help their clients identify their (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 you properly assess your insurance needs, shop for the best value in insurance coverage and help you in the event of a claim. 

Insurance brokers generally work for the client in the insurance procurement process and acts independently in relation to insurers. 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 insurers and products. 

Remunerations

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, the insurance broker works for the client and are paid brokerages (commissions) by the insurers without charging their clients. 

Due to their professional nature the insurance broker has the luxury to work with several insurance companies in the placement of risk on behalf of their client.

What they do

Brokers per the nature of their work invite quotes from selected insurers 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 specialised 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 above. 

There are also reinsurance brokers who solicit, negotiate and sell reinsurance cessions and retrocession 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 policyholder 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.

I can confidently say everybody especially corporate entities need insurance brokers.

The role of brokers in Ghana 

The roles of Insurance Brokers in Ghana have become very critical as they complement the efforts of the National Insurance Commission to improve on the insurance industry’s total capacity on an oily wheel. 

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. 

The challenges

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. This is frowned upon by the Insurance Act.

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 seeming fading practice of placing businesses with companies they have some ties with is putting some other companies at a disadvantage; hence the need to transact business based on fair practice, with due cognisance of  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. 

Indeed, the local content must be fully exhausted before resorting to external business arrangements. There is the need for brokers to recognise 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.

The Ghana Insurance Brokers Association (GIBA), which is the Ghanaian national trade association for licensed Insurance Brokers in Ghana and an advocate for insurance clients, must also be firmer in enforcing the appropriate regulations. 

Instructively, one of GIBA’s objectives is “To act as the spokesman of Insurance Brokers and Consultants in Ghana and to negotiate with Government and other organisations with respect to all matters affecting their interest and the well-being of the nation.” 

In this regard, I will like to also make a clarion call on GIBA to intensify their support to the Ghana Insurers Association (GIA) in their quest to negotiate the introduction of a compulsory Group Life Insurance Plan for government workers.

Until next week, “This is insurance from the eyes of my mind.” 

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