“But I thought it was covered under my insurance policy…?” Unfortunately, this statement is heard all too often when an insurance claim is denied, or not paid out in full…

When purchasing a policy directly from an insurer, you alone are responsible to ensure the type of cover is suitable, and sums insured are sufficient to protect your assets in a claim.

Avoid costly insurance errors that could come back to bite you in a claim. Insurance brokers provide professional advice and insurance placement solutions designed to align with your risk profile.

The value of a broker… let’s start with some interesting stats!

• “40% of clients are underinsured or not insured at all before engaging an insurance broker” (Deloitte Access Economics)
• A recent SME client survey on insurance claim outcomes unveiled that clients who use an insurance broker are more than twice as likely to be fully covered in a claim as opposed to those who do not (Vero SME Insurance Index, 2019).
• Studies have revealed that people who use insurance brokers had a higher amount of losses covered in a claim. 87% of broker users were covered for more than half of their claim. This is compared to just 74% for those who bought their insurance directly from an insurer (Vero SME Insurance Index, 2019).

It is common to hear stories where individuals and businesses thought they were covered by their insurance policy, only to read the fine print in a claim and discover they are not. It is also commonplace for people to find they are significantly underinsured, where they experience losses way over and above their level of coverage.

Unfortunately, if you have arranged your own insurance through a direct insurer, you are responsible for interpreting whether the policy is suited to your circumstances, and whether your level of cover is sufficient. You are also the one who must deal with the financial fallout in a claim if you don’t get it right.

Avoid this risk by engaging the services of an insurance broker.

The below case published by the Australian Financial Complaints Authority (AFCA) is a prime example of the risks an individual undertakes without an insurance broker.

Case Study

The claim scenario

A woman lodged a claim with an insurer after her business and home were tragically destroyed in a bushfire (the home and business were located in the same building).

The woman held two policies with an insurer, and had done so for seven years:

• a business policy for the building, business contents and liability, and
• a home contents policy for her personal possessions.

After lodgement, the insurer accepted the claim, paying the woman her full policy entitlements as stipulated in the schedule of insurance. Unfortunately, the claim payout was substantially less than the total replacement costs because the building was significantly underinsured.  

Upset that her insurance did not cover the total building replacement, the woman made a formal complaint to the insurance company alleging:

• the insurer failed to increase the property’s insured value even though she had requested this on numerous occasions, and
• the insurer failed to provide sufficient advice or recommend suitable coverage to her.

Insurer response

The insurer denied the complainant ever requested an increase in the sums insured. They also argued that insurers are not brokers, and therefore their representatives cannot legally provide advice on which type of cover is best suited to an individual’s personal circumstances. It is the responsibility of the individual themselves to ensure the insurance cover meets their needs.

Dissatisfied with the insurer’s response, the woman took her complaint to the Australian Financial Complaints Authority (AFCA).

When assessing the case, AFCA considered the following:

• If the complainant was dissatisfied with the offering from the insurer, she had many years to seek alternative cover that was “better suited to her needs.” AFCA felt the woman had sufficient time to review her building sum insured on multiple occasions and yet she had elected not to increase it.
• There was no evidence the complainant requested the insurer to increase her sums insured. The insurer’s representatives are not brokers, and do not give advice about suitable cover. It is up to the individual buying the insurance.

AFCA’s outcome:

AFCA’s panel delivered an outcome weighing heavily in favour of the insurer. “Based on available evidence, the panel is persuaded the woman did not request an increase to the sum insured value of the property.”

Despite this, AFCA ordered the insurer to pay some additional benefits on top of the sum insured e.g. discharge of mortgage, seasonal increase period, removal of debris and catastrophe escalation costs.

Note: The details of this case have been simplified for ease of explanation. For further information and details this particular case – click here to read the article in full.

Based on this example, it is evident that the expertise and advice of an insurance broker would have been incredibly valuable to ensure the woman had the right level of cover in place.

The benefits of using an insurance broker

There are 6 of advantages to harnessing the expertise of an insurance broker.

1. Transfer the risk to a professional for greater protection

Insurance is complex, and understandably it can seem like a different language! Using a highly specialised insurance professional, can help alleviate the financial risk of choosing the wrong cover or simply not having enough coverage!

Upon engagement, insurance brokers are appointed to act on your behalf. They assume a legal responsibility to ensure the advice and insurance solutions provided align with your risk profile, to deliver adequate protection in a claim. This takes the onus away from you.

Note: General insurers are only legally allowed to provide general advice, or factual information about what their products cover. They cannot make any recommendations or provide advice on what is suitable for your needs. This leaves you exposed should you make a simple misjudgment when buying cover.

2. Personal advice and tailored insurance solutions

Fact: In a recent survey, insurance brokers identified that 62% of clients had limited understanding of their risks (Deloitte).

If you don’t have a comprehensive understanding of your risk exposures, how can you be expected to have adequate or suitable insurance in place?

Brokers often work with clients over a number of years, gaining an intimate understanding of their risks and inner workings of their business.

Insurance brokers perform a needs analysis for each client to gain a complete picture of their risk exposures and the assets requiring protection. A broker then provides specialist recommendations on the most suitable insurance coverage. This personalised approach ensures clients have adequate insurance coverage designed to respond to their specific exposures, offering the best possible protection in a claim.

3. Brokers are cost effective 

33% of clients were previously paying more on their insurance policy before they engaged broker (Deloitte).

Competition: Insurance brokers have access to a large number of insurers (local and international) and insurance products not available to the general public. The increased choice can lead to greater competition and lower premium rates with numerous insurers vying for the client’s business.

Benefits through economies of scale: A broker is often able to create economies of scale with some insurers, meaning clients receive superior coverage features and policy limits compared to those available to ‘non-broker’ clients. This ultimately delivers better value for the client using an insurance broker.

Smart policy structures: When it comes to structuring tailored insurance programs for a client’s specific risks, an insurance broker’s specialist knowledge, can ensure that coverage is only applied where needed, and the client does not pay for features or excessive cover that isn’t required.

Obligation free quotes: To engage a broker, there are no upfront costs. The broker can provide you with some obligation free advice or recommendations before you decide to take out an insurance policy through them.

4. Brokers are your advocate in a claim

Claims are the point at which your insurance investment comes to life. In the event of a claim, insurance brokers act on your behalf leveraging insurance market relationships to negotiate and achieve the best possible claim settlement.

5. Choice – Multiple quotes & policy comparisons

On your behalf, insurance brokers source multiple quotes and policy options that align with your needs. This gives you choice on coverage levels, policy features and the cost.

To help clients evaluate different insurance options, brokers analyse complex policy wordings to formulate detailed policy comparisons. This ensures clients are fully informed and best placed to make smart insurance purchase decision.

6. Save time & resources 

Arranging insurance – By engaging an insurance broker to arrange insurance, each client saves around 11 hours on average! This equates to more than $230 million in time savings for business clients (Deloitte)

Claims – On average, it is estimated that brokers save their clients AT LEAST 2.5 hours during the claims process.  Research has also found that 41% of SME clients feel their claims process would have been ‘much harder’ without the support of a broker (Deloitte).

Insurance brokers give you an extra layer of security to help ensure your policy comes through for you in a claim.

For professional insurance advice, connect with a CBN Authorised Broker.

Connect with a CBN Broker

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