Insurance brokers are regulated professionals who act as intermediaries between the insurer and insured, acting on behalf of the policyholder to source coverage which best meets their needs.
They work with their clients to assess their requirements, diligence the insurer landscape to recommend suitable matches for the risk, negotiate a policy agreeable to both parties and once signed, oversee administration of the contract.
Transactional roles will simply not guarantee growth and success. Instead, insurance brokers need to play to their strengths and becoming trusted advisors that deliver a superior customer experience.
Insurance brokers are facing an increasingly challenging environment. Their industry and customers are changing along with increased competitive pressures from big tech companies and Fintech companies (see our review Top Challenges facing Insurance Brokers).
Technology will play a core role in this process. While more and more customers are ready to buy standard insurance products online and expect fast and sometimes contactless service, brokers can advise them about their risks and then help them locate the right products. To do this, they need to focus on creating attractive digital experiences that create customer loyalty and drive satisfaction.
Insurance Brokers typically make money from commissions as a percentage of premiums written throughout the life of the policy.
The advantage of using a broker is often positioned around relying on their market perspicacity to find the best price for the policy seeker but their role extends far beyond saving money for clients and encompasses all stages of the insurance cycle.
As an insurance broker, you’ll work on behalf of multiple insurance companies, usually in an independent capacity. You’ll connect clients with the insurance company that meets their needs and offers them the best value. Depending on the customers’ specifications, you could help them find the cheapest insurance or the insurance that provides the best coverage.
To determine your clients’ needs, you’ll gather necessary information, such as the type of insurance they need, their desired coverage and their requested deductible rates. You might also collect credit reports, as well as medical and insurance coverage histories, to ensure they qualify for a particular policy or company.
You’ll then obtain quotes from potential insurance companies and process applications for the clients. You’ll could also make recommendations to help clients lower their insurance costs and manage policies by assisting with changes, renewals and cancellations.
Insurance brokers have many roles and responsibilities, which include handling the transaction of insurance products from different companies.
They also mitigate different risk types. These insurance brokers can either be self-employed or salaried, which may affect their range of roles and responsibilities.
What exactly does an insurance broker do?
Although the role of insurance broker is based around the sole aim of finding suitable insurance packages for individuals and companies, there are other tasks that they are required to carry out too.
- advising clients on how they can become eligible for certain insurance packages
- building an understanding of a client’s wants and needs
- carry out administrative tasks
- conducting extensive research into insurers and their packages
- helping clients make insurance claims
- identifying key opportunities for offering different types of advice and adding policies onto existing insurance packages
- maintaining an understanding of current insurance standards
- offering expert to clients
- working alongside other professionals on the behalf of clients.
As there are different types of insurance, some insurance brokers may choose to specialise in certain areas while others may provide knowledgeable, expert guidance on a range of products such as life, car, pet or travel insurance and much more.
Skills, Responsibilities and Roles of Insurance & Reinsurance Brokers
Brokers interview prospective clients to collect information on their financial resources and requirements. They also carry out an assessment of the physical condition of a person or property to be insured.
Insurance brokers are looking at a bright future if they adapt to the changing landscape. Digital transformation should be the top priority. Without it, the knowledge, the regulatory know-how and customer relationships will not count for much as customers shift to more agile start-ups and big tech competitors that deliver a better experience and more value.
By offering industry expertise, deep partner relationships and trusted intermediation, Insurance & Reinsurance Brokers are able to optimally place risk and streamline insurance at all stages of the policy life cycle.
With increasingly complex risks and evolving insurance needs, brokers continue to occupy a valuable central position in the insured-broker-insurer trio.
1. Advocating for clients
Brokers can capture subtleties of the risk including reporting on the policyholder’s overall disposition and highlighting measures they have taken to mitigate the risk. Brokers advocate on behalf of their clients and are able to effectively pitch proposals based on their experience with insurers in the space.
2. Technical skills
Broker expertise also extends to more technical skills like catastrophe modeling and risk management. Brokers may assess their client’s eligibility for risk management bursaries or premium rebates which further reduce the cost of their contracts as well as offering independent advice on risk management strategies.
Reinsurance brokers (also called reinsurance intermediaries) can provide the reinsured multiple field-specific services including:
- Drafting treaties and slips in accordance with contract certainty guidelines
- Exploring and implementing alternatives to reinsurance such as captive insurance company formation if more suitable to the cedant’s capital needs
- Helping the insured to understand their reserve requirements under regulatory mandates
- Assisting cedants with buying back reinsured policies if their retention limit increases
- In some instances, particularly in facultative reinsurance, brokers are even able to do their own underwriting before approaching reinsurers
3. Optimizing risk placement
Brokers have broad expertise in their insurance sector including familiarity with the key insurers, products, industry trends and the most effective methods to secure the best contracts. ‘Best’ here comprises not only obtaining competitive rates but also maximizing coverage, optimizing excess structures and speeding up the entire process for clients.
Like any good diagnostician, brokers thoroughly examine prospective policyholders, assessing their needs and risk profile. They then diligence the market to shortlist suitable insurers with a complementary risk appetite. Brokers subsequently assist their clients in assembling the (re)insurance proposal/placing information and in presenting premiums and loss data to the insurer. Optimized risk placement also benefits the (re)insurer by helping them acquire appropriate counter-parties.
4. Contract Administration
Reinsurance brokers will produce the reinsurance slip and later orchestrate finalization and signing of the treaty by both parties. Once signed, broker accounting and claims administration divisions continue to manage transmission of data from insured to reinsurer throughout the policy period, maintaining transparency on premiums, loss payments requested/dispensed and reserves.
In addition, in P&C insurance and reinsurance and to some extent in health reinsurance, the broker acts as a trusted escrow, receiving and disbursing premiums and benefits to each party. Once the policy is bound, brokers continue to meet with clients and check on policy suitability as well as managing addenda to the contracts.
One of the insurance broker responsibilities is to maintain good relationships with photographers, financial institutions, engineers, surveyors and insurance companies. In this role, they represent their clients by handling administrative tasks such as correspondences with the insurer and other professionals. They also attend to the required paperwork.
5. Market Intelligence
Brokers also use their unique vantage point to provide both clients and insurers market intelligence on sector trends, sources of claims and how these can be minimized and can relay learnings from conversations with insurers. These insights increase the probability of their clients’ risks being written.
6. Increasing Market Efficiency
From an economic perspective, it could be argued that brokers help to make the insurance market more efficient. Brokers enable less expert clients to obtain competitive deals, help to promulgate information by increasing accessibility to specialist, boutique or foreign insurers and encourage greater competition among risk takers.
7. Negotiating power
Brokers have extensive networks within the insurance landscape which afford them the ability to negotiate better deals than would be available to the general public through price comparison sites or through direct contact with the insurer or their agent. These latter avenues tend to be inflexible and provide a more limited selection of offerings.
8. Assessment of Risk
Brokers are able to leverage their relations to provide insight into the trustworthiness of (re)insurers. Reinsurance brokers are obliged to diligence the financial health of the reinsurer and communicate this to the reinsured. In this way, brokers ensure business is placed securely.
Insurance brokers have the role of helping insurance companies assess the different types of risks they encounter. These include natural disasters like hurricanes, floods, and tornadoes. Others include car accidents, credit risks, legal liabilities and cash flow problems.
They also help clients understand risks and the best ways to manage them. This is commonly referred to as risk management. Brokers may also suggest alternative risk mitigation mechanisms such as the formation of a captive in a company or placement with risk retention, or even a risk purchasing group.
Brokers can considerably expand accessibility for their clients:
- Complex risks – Through their connections, brokers can source quotes from specialists unavailable to the general public or for idiosyncratic risks not usually covered by generic policies. Finding coverage for complex risks necessitates deep relationships with an insurer’s BDM and underwriter and requires highly involved back-and-forth negotiations.
- International access – Reinsurance brokers, particularly those with transnational footprints are better able to provide access to foreign reinsurance markets for their insurer clients.
9. Communication & Linking Clients and Re/Insurers
It is an insurance broker’s responsibility to represent an insurance company or companies, mostly in an independent capacity. He or she brings the clients and insurance companies together.
Depending on the customer’s needs, he or she assists the client in finding the cheapest and best insurance coverage for their requirements. It’s the responsibility of the broker to present a buyer to various underwriters and obtain quotations and commitments based on a client’s offer.
An insurance broker has the role of a liaison between the insurer and client. The broker ensures the smooth flow of communication both ways. In the case of claims, he or she ensures the client is up to date on the decisions and progress of their applications.
They monitor and ensure these claims are settled amicably between the insurer and client. In cases where a client loses policy documents, the broker follows up to help them get a replacement.
10. Division of Labour
Brokers handle the insurer diligence, contract negotiations and contract administration for the insured, thus freeing up the policyholder to focus on their core business and strengths. Using brokers can be a form of efficient division of labour ensuring work is outsourced to a party who is more specialized than the policyholder’s team.
- Duty of Disclosure: Brokers have a duty to disclose all material information from the insured to the (re)insurer both in the proposal and during the life of the contract. They assist their clients in making appropriate disclosures and relay questions and requests for supplementary information from the (re)insurer. In doing so, they prevent unforeseen loss of coverage or fraud.
- Contract Certainty Guidelines: Brokers not only work on reinsurance treaty drafts but also help to uphold Contract Certainty Guidelines such as those stipulated by the London Market Group. They ensure contracts follow these standards to provide clarity for both policyholder and insurer prior to contract inception or renewals.
11. Increase Sales
An insurance broker negotiates and sells insurance policies. They do comparison shopping to find the best deals. They manage huge portfolios from different insurance companies to make sure a client receives the best deal they can get.
Besides selling insurance premiums, they also offer consultation services, claims assistance and benefits issue resolution. The broker is required to inform the buyer if the financial rating of the quoting carrier is marginal. They should also establish if the carrier is licenced in the region where the buyer is located.
It’s the responsibility of the broker to make sure all policy requirements are met, including medical examinations and filling out the necessary paperwork.
12. Regulation & Licensure
Brokers are regulated by the FCA in the UK and by FINRA in the US alongside state licensure which requires biannual renewal. These standards help to maintain a high quality of service by the profession.
13. Professional Advisers
As advisers, insurance brokers work in consultation with clients to collect all the required information for them. They negotiate with the insurance companies to provide the best terms and premiums to their clients.
Insurance brokers also advise clients on how to improve and maximize insurance premiums.
14. Scheduling Meetings
Since insurance brokers work with both commercial organizations and private clients, it’s their responsibility to schedule and attend meetings with either their clients or the insurers, or both. Some of the meetings assess the current and future insurance needs of clients.
They make calls to policyholders to deliver and explain the policy, analyze it and make additions or apply corrections such as changing the beneficiaries.
15. Legal requirements in jurisdiction
An insurance broker must comply with all legal requirements in their jurisdiction. They should obtain the licences required to sell insurance and to renew them as stipulated in the law. They also help clients access and understand regulatory and legislative changes that become active after the policies.
Insurance brokers must be open and honest. They should avoid fraudulent transactions. A reliable broker puts the interests of their clients ahead of theirs.
What is a commercial insurance broker?
For businesses, insurance brokers can offer two services: retail insurance brokerage and commercial insurance brokerage. While retail insurance brokerage offers the necessary coverage for a retail business such as general liability and commercial property insurance, commercial insurance – also known as wholesale insurance – applies to businesses that need coverage that applies to their entire franchise. For example, if a company had multiple potential risks to employees, the insurance would be broken down to cover every member of staff but within an overarching package from a single insurance provider.
What is an independent insurance broker?
In some cases, an insurance broker could work on behalf of a specific company, bank or building society or hold relationships with certain insurance providers. However, an independent insurance broker isn’t tied to any company or insurance provider. Not only does this mean that they’re able to act in an unbiased way, but it also gives them the opportunity to choose from a wider range of insurers.
What is a car insurance broker?
A car insurance broker can offer suitable options to clients looking for the right car insurance deals for them. Sometimes confused with a car insurance agent, the key difference between the two is that a car insurance agent will work on behalf of a car insurance company whereas a car insurance broker will be independent and look to find a package that suits the client based on a wide range of options on the market.
What is a health insurance broker?
Just as a car insurance broker helps clients to find a car insurance provider and package that is right for them, a health insurance broker does the same but with life insurance. Health insurance brokers often help individuals with finding life insurance and other forms of health insurance, but they may also help companies identify similar types of insurance for business reasons. As with many forms of insurance brokers, health insurance brokers work independently and offer options from a selection of insurance providers.
AUTHOR: Oleg Parashchak – CEO Finance Media & Editor-in-Chief at Beinsure Media