Car insurance brokers: what do they do?

What is a car insurance broker?

A car insurance broker is an adviser who compares multiple car insurance companies and products to help their clients choose suitable cover.

It’s important to know if your broker is affiliated with a car insurance company and if they receive any commission in return for selling the products of certain insurers.

Independent brokers for car insurance are not affiliated with one particular company, and theoretically could help you shop around without being biased towards any particular insurer.

Why use a car insurance broker?

If you feel you may need help choosing a car insurance policy to suit your needs and budget, a broker could be worth considering. They may also be helpful if your insurance needs are particularly complex or are likely to be time-consuming to manage. For example, if you are a business owner with a fleet of vehicles, outsourcing the insurance negotiations to a car insurance broker could allow you to focus on other aspects of your business.

If you need to make a claim with your insurance provider, your broker may also act on your behalf and liaise with the insurance company to make sure the best possible outcome is achieved, according to the National Insurance Brokers Association (NIBA).

That said, many car insurers have online claims services and 24/7 customer support available, which theoretically could mean making a claim ends up being less time-consuming than it once was. Plus, there are a range of online services which allow consumers to compare large numbers of insurers and policies for themselves, such as Canstar’s comparison tables.

How do car insurance brokers make money?

In some cases, brokers get a commission from the insurance company whose products they sell. This could be a one-off fee or a percentage of the premium on the purchased policy.

A car insurance broker could also be paid by the buyer on a fee basis, where the person they are helping to find insurance pays them for their service.

Either way, the broker must advise the buyer how they are paid by the insurers whose products they are selling. This should be set out in the Financial Services Guide (FSG), Product Disclosure Statement or Statement of Advice they provide to you.

According to the Australian Government, these guides must be provided to you and “must disclose information about the financial services offered, remuneration arrangements, and any potential conflicts of interest”.

Pros and cons of car insurance brokers

Using a car insurance broker can make sense for some, but before making a decision, you may want to consider the pros and cons:

Pros

• You may get a better deal or better price due to the broker’s knowledge of the insurance industry.
• Save time and effort by having a broker help you apply for cover.
• The broker can negotiate insurance claims on your behalf.

Cons

• If the broker is not completely independent, you might be steered towards a certain set of insurers with whom the broker has a commercial agreement.
• You may be charged a fee, depending on the broker.
• If you’re after a simple car insurance policy (for example, CTP insurance), the broker’s fees mean you may end up paying more than organising it yourself.

Does it cost more to use a car insurance broker?

Not necessarily. A broker’s knowledge of the insurance market and their ability to negotiate on your behalf could mean you get a better deal than you otherwise would have. However, if your broker for car insurance charges a fee for their services, you may need to weigh up whether you are getting value for money or actually paying more out-of-pocket overall.

A broker’s fee can vary depending on the complexity of the policy they are helping you to find. For example, an insurance policy that is straightforward and simple may attract a smaller fee, compared to one that is more complex to arrange.

Are insurance brokers safe to use?

For a car insurance broker (and the company they may work for) to provide any financial services to you, they must hold an Australian financial services (AFS) licence, according to the Australian Securities and Investments Commission (ASIC).

When providing you with personalised advice, insurance brokers also must abide by the Corporations Act, which means they must:

• act in your best interests
• provide you with appropriate advice
• warn you if their advice is based on incomplete or inaccurate information
• prioritise your interests over their own
• prepare and provide you with a Statement of Advice (SoA).

Brokers are also required to be a member of an authorised external dispute resolution scheme (a service that resolves disputes between consumers and financial service providers), such as the Australian Financial Complaints Authority (AFCA). Brokers who are members of the National Insurance Brokers Association (NIBA) must also follow the Insurance Brokers Code of Practice that sets out standards of professional practice and what is expected of them.

Finding the right car insurance broker

According to NIBA, since forming in 1982, there are now over 400 member firms that employ approximately 15,000 individual brokers. With such a wide variety of insurance brokers to choose from, there are a few factors you should keep in mind when deciding on the most suitable one for your car insurance needs.

According to QBE Insurance, there are some key qualities to look out for when selecting a broker:

• Specialty: What is their experience and what insights can they offer relating to your specific needs?
• Responsiveness: How quickly do they respond to your enquiries with helpful information?
• Persistence: If they don’t have an immediate solution, do they continue to try and find the right answer for you?
• Honesty: Will they tell you the truth or what they think you want to hear?

Also, consider checking a broker’s qualifications. Do they hold any specific qualifications such as a financial diploma? Are they a member of an authorised external dispute resolution scheme? And, do they or their business hold an AFS licence? Researching your car insurance broker could help ensure you receive the best service possible.

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