Do I need a car insurance broker?
A car insurance broker uses their expert knowledge to get a policy for you, but you might need to pay a service fee.
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A car insurance broker works on your behalf to arrange and assist with car insurance. Most car insurance brokers are independent and don't work for any insurance company. Instead, they use their knowledge to shop around for car insurance deals and negotiate with insurers on your behalf. The catch? They sometimes charge a fee for their service.
There are two different types of insurance brokers, and they are required to explain which category they fall into if you ask.
- The first type is an independent broker who helps clients out with a broad range of insurance issues, and compares options from all available providers. They usually get paid directly by their clients for services rendered, but may also earn commissions for signing clients up. They will often have a portfolio, or list, of all the different insurance companies they work with and look at options from.
- The second is an agent for a particular insurance company. Their services are sometimes free, but they will only find you deals and offer assistance for that one particular company. They usually get paid a commission for helping customers sign up.
Regardless of which category an insurance broker falls into, they can provide the following benefits:
- They use extensive knowledge of the marketplace to find deals and savings
- They do all the legwork for you in comparing policies
- They warn of insurance traps, pitfalls and legal requirements
- They can represent you expertly when dealing with insurers
- They often have access to policies that the average person does not know about
- They are often able to negotiate better deals than you could alone. Due to a broker’s position in the industry, many companies extend them special offers to pass onto their clients
- They know and can advise you of any discounts or exemptions you may be entitled to
- They remain impartial and committed to the best outcome. Insurance brokers are strictly governed by industry regulations which require them to act in your best interests and disclose any conflicts of interest they may have
The cost of using an insurance broker depends on which kind of broker you use, and how expensive your insurance policy is. It might cost you nothing, or it might run into thousands of dollars all up.
- The bulk of a car insurance broker’s income will typically come from commissions paid by insurers. This can range from 0-25% of your premium paid. It does not directly cost you anything, as this sum is paid by the insurance company, but it might mean your broker has an incentive to direct you to more expensive policies or certain insurers that pay bigger commissions.
- Some brokers may directly charge you a fee of a certain proportion of your premium. For example, they might charge you 10% of premiums paid, so if you are paying $500 annually in car insurance premiums then the broker is costing you $50 per year.
- You may have to pay additional flat fees when you sign up for a new insurance policy, an hourly rate or flat fee for time they have spent working on your behalf such as when making a claim, an annual management fee if you are maintaining policies through them and more. They can charge fees at their own discretion, but are required to be clear and up-front about them.
As such, a broker with more fees but no commission may be more motivated to find you a good deal in the hope that you decide the fees are worth it, while a broker with no fees but higher commission might cost you a lot less or nothing at all directly, but might steer you towards unnecessarily expensive policies.
Fortunately, car insurance brokers are required to disclose their fees and incentives if you ask. In other words, you have the freedom to pay as much or as little for a car insurance broker as you want, but should be aware of the pros and cons of each. If you already have an insurance broker, find out how much it’s costing you by looking at their Statement of Advice or the Financial Services Product Disclosure Statement (PDS) that they have sent you.
When assessing the cost of a car insurance broker, you need to decide whether the time and money they will save you is worth the fee for their services. Just like comparing insurance policies, getting value for money rather than finding the lowest possible price should be your main goal. If you are using a broker to organise and manage all of your policies, including car insurance, then paying for their time could be money well spent.
A good car insurance broker should be:
- Transparent. They should disclose all fees upfront and any affiliations or conflicts of interest they might have. They are required to inform you of these when asked, but should do so unprompted.
- Proactive. They should be in touch with you regularly and actively working on your behalf to secure and manage your policies.
- Empathetic. They should be open to your concerns or queries, patient while you consider your options and should never try to force a policy on you that you don’t want or aren’t sure about.
- Knowledgeable. They should have extensive knowledge and industry experience, and have a wide range of insurers in their portfolio.
All brokers must be:
- Licensed. The minimum licensing requirement for insurance brokers in Australia is an Australian Financial Services (AFS) licence. Beyond this, more highly qualified brokers may also hold Qualified Practising Insurance Broker (QPIB) or Certified Insurance Professional (CIP) certifications.
As with everything, there are both pros and cons to using a broker.
On the plus side:
- A car insurance broker has access to a lot more insurers and options than you do. They will generally find a better policy and/or better price than you would get without using one
- An insurance broker can save you a lot of time and effort
- A broker can negotiate a better deal for you
- A car insurance broker is better able to represent your interests
- Car insurance brokers are a valuable source of information and advice
- Brokers can negotiate claims with the insurance company on your behalf, which can be particularly useful in tricky areas like third party liability claims
- Car insurance brokers are recommended when insuring business vehicles, trucks and vehicle fleets, rather than private cars
On the downside:
- A car insurance broker may charge you a fee for their services, and may cost more than you save
- An insurance broker who is not truly independent may steer you towards insurers they are affiliated with, although they are required to disclose this when asked
- If you are only buying car insurance, particularly more simple third party-only options, a car insurance broker who charges a fee may not be worth your while
Because car insurance brokers are providing financial advice, they are subject to regulations that govern the conduct of all financial services. They must hold an Australian Financial Services (AFS) licence, or be an authorised representative of an AFS licensee. The Australian Securities & Investments Commission (ASIC) is the industry watchdog that monitors the conduct of AFS licence holders.
Brokers must also abide by the standards of the Corporations Act 2001, which require them to:
- Act in your best interests
- Provide appropriate advice
- Warn you if their advice is incomplete or inaccurate
- Put your interests ahead of theirs when there is a conflict of interest
- Provide you with a Statement of Advice (SoA) documenting the advice they have given you about the insurance policy
As a condition of their licence, brokers must also be a member of an external dispute resolution scheme and in the event of a dispute with a client, must abide by the decisions of the Australian Financial Complaints Authority (AFCA).
Brokers who are members of the National Insurance Brokers Association (NIBA) are also required to abide by strict rules of conduct set out in the Insurance Brokers Code of Practice. In short, the rules and regulations surrounding brokers require them to always act in your best interests, and to clearly say when they might not be able to.
In the unlikely event that a conflict should arise between the insurance broker and yourself, you will always have somewhere to turn.
- Word of mouth: Recommendations (or otherwise) from people you know who have had experience with a car insurance broker can provide a good insight into how they operate. If you want to hear from a broker’s former customers, the broker should be happy to offer references.
- Online: Some brokers advertise online, and visiting their website or social media can give you an indication of their experience, professionalism and level of customer service. There are also online car insurance broker comparison sites where you can compare the options side by side.
- The National Insurance Brokers Association (NIBA): The peak body representing more than 90% of Australia’s insurance brokers has a “Need-a-Broker” service, where you can locate a registered, qualified insurance broker and NIBA member in your area.
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