Standing tall

Standing tall

Deloitte has compiled a report for NIBA to ensure the role of brokers and their value to the economy is clearly understood

By Wendy Pugh

Creative arts, gas supply and insurance broking aren’t typically spoken about in the same breath, but they have something in common.

Direct contributions from each to the Australian economy are roughly equivalent, even if broking hasn’t received the same level of public attention as the other higher-profile sectors.

Deloitte Access Economics says in a report aiming to give the sector its due recognition that broking provided nearly $2.6 billion in gross added value to the economy in fiscal 2019 and directly employed 15,000 full-time equivalent workers.

“Insurance broking really is the principal way in which commercial general insurance is done in this country from small business up to large corporates,” Partner John O’Mahony said at a report launch event. “I don’t think that is a well-known fact.”

The Economic Value of Insurance Broking report was commissioned by the National Insurance Brokers Association (NIBA) as it arms itself for another regulatory battle.

The Hayne royal commission recommended a financial advice review should include whether the exemption of general insurance from a ban on conflicted remuneration remains justified. The review will be completed by the end of 2022, and action on the inquiry is set to ramp up next year.

NIBA is making sure it is an informed debate and that brokers are not swept up in reforms aimed at problems affecting other areas of the financial services industry.

Chief Executive Dallas Booth says those calling for the abolition of broker commissions haven’t necessarily thought about what happens next or the impact any change could have, and it is not clear what detriment they are trying to remedy.

“This important report confirms the value of brokers to clients, but also demonstrates that broker value goes well beyond that,” he says.

The Deloitte report will be delivered to politicians and regulators and will feed into a NIBA strategic review of the industry. The combined work will lay the groundwork for the association to produce a detailed submission and present its case to the scheduled inquiry.

The Deloitte Access Economics team highlights the importance of broking to the insurance sector, the endto-end value it provides either side of the point of transaction and future considerations as risks evolve.

“The prevalence of broker use throughout the economy and across all types and sizes of businesses speaks to the value that organisations place in them,” Deloitte says.

The value brokers deliver is laid out in the report in the context of clients, insurers, the economy and government and broader society.

The benefits are multi-pronged. Brokers save clients time and resources in navigating an otherwise complex decision, facilitate competition among insurers, increase choice, improve market efficiencies and ultimately help reduce burdens on governments.

In the case of clients, the report outlines the extent of the relationship from end-to-end, pointing out brokers’ contribution from risk assessment through to claims negotiation.

“Insurance broking is not as simple or transactional as walking into a store and buying a good,” Mr O’Mahony says. “It is a relationship-based business that involves up to 10 pre-sales and post-sales services and creates many sources of value.”

The average NIBA broker offers products across 10 different insurers. Comparing three options would take 1-2 hours compared with 2-6 hours for the typical SME client.

Time saved for clients across a standard annual insurance life cycle is estimated at an average of 11 hours, equating to more than $230 million in time-savings for business customers. And there are additional benefits in claims handling.

“Consultees reiterated the value of an insurance broker in helping them to understand the often major implications of minor differences in policy wordings,” the report says.

It’s estimated some 45% of new clients with existing businesses are underinsured or not insured before engaging a broker, while brokers have identified that 62% of clients have limited understanding of the risks they face.

Some 54% of clients pay the same or less on their insurance after engaging a broker, and in some cases may have gained greater coverage.

As a distribution channel, brokers represent a cost to insurers via commissions and where insurer sale margins may be reduced from further market competition.

But brokers also bring value to insurers, particularly by assisting in distribution and tailoring of complex products and supporting insurers to more confidently assess clients’ risks, the report says.

The expanded distribution reach includes accessing clients outside capital cities, with many brokerages located in regional areas and focusing on local services.

Broker input helps insurers understand new risks, such as cyber threats, and the types of coverage sought by clients across industries as trends shift. They contribute support for refinements to wordings and innovations that deliver better outcomes.

“Brokers facilitate better risk management and economic stability, through better product matching, faster claims receipts and broader risk advice,” Deloitte says.

Modelling by the firm shows the contribution to the Australian economy from the sector rises to $3.5 billion if indirect benefits from purchases of goods and services are added to the equation.

But Mr O’Mahony notes that “not everything is going to be measured by gross domestic product and employment figures” when looking at the broader benefits for the government and society.

Brokers ensure timely payouts after natural disasters, advocate for clients and are able to help find cover, including through overseas markets, for those who may otherwise find it tough to get insurance.

“Where brokers can work with clients and insurers to reduce instances of underinsurance or non-insurance for difficult-to-insure risks, this reduces the burden on government and society,” Deloitte says.

“Where risks cannot be placed with insurers, government and society act as ‘insurers of last resort’ by providing financial support to communities for disaster relief recovery.”

The report also recognises the work of the industry in local communities, with surveyed businesses donating more than $25,000 a year to charitable and other social causes and many staff hours spent as volunteers.

NIBA President Eric Harris says the Hayne-triggered remuneration inquiry includes broking despite no evidence of problems in the sector emerging from the royal commission. Experience from the past highlights that education about the role of brokers will be key.

“We think this report will help bring that to the table,” he says. “We are going to share it as broadly and widely as we can to help people understand the value that brokers bring to their clients and the community at large and the economy.”