A business insurance broker is a licensed adviser who arranges cover for you and can approach more than one insurer. Buying direct means you deal with a single insurer and its own products. Neither route is always better. The right one depends on how complex your risks are and how much time you have.
What a broker does
A broker takes your details and finds cover that fits your business. Many can ask several insurers for a quote. A broker can also help you fill in the forms and explain what the policy covers and what it leaves out. When something goes wrong, a broker may help you lodge a claim.
That help matters most when your business is not simple. Think of a trade with staff on site, a firm that holds client money or data, or a company that owns stock and equipment. Each of these has more than one risk to cover. A broker can tie the pieces together.
Brokers are not free to you in every case. They may be paid by the insurer, by a fee from you, or both. Ask how before you agree to anything.
What buying direct means
With a direct insurer you deal with one company. You get a quote on its products, and you arrange cover yourself. This can be quick for a small business with a plain risk, such as a home office or a single shopfront.
The trade-off is range. You see only what that one insurer sells. You also do the comparing, the form filling and the reading of the policy wording on your own. If you buy from several insurers for different risks, you track each renewal yourself.
Check the licence first
In Australia, a person who gives advice on a financial product generally needs an Australian financial services (AFS) licence from ASIC. General insurance is one of those products. A broker can hold its own licence, or it can work as an authorised representative of a licensee. ASIC says the licence covers the licensee and its representatives.
You can check this yourself. ASIC runs a Professional Registers search. It lists AFS licensees and other financial professionals. Search the firm by name. Look at whether the licence is current, and whether the person you are dealing with is listed under that licence. ASIC also warns that anyone who offers you financial advice must hold an AFS licence, and that you should make sure they have one.
If you are buying direct, the insurer is itself an organisation you can look up. The same check is still worth five minutes.
The duty of disclosure applies either way
The Insurance Contracts Act 1984 sets a duty of disclosure. Before you take out a policy, you must tell the insurer about matters that are relevant to its decision on whether to accept the risk and on what terms. That covers what you know is relevant, and what a reasonable person in your position would know is relevant.
The Act also lists things you need not disclose. These include a matter that lowers the risk, a matter of common knowledge, and a matter the insurer already knows or ought to know. The insurer is also meant to tell you about the duty in writing before the contract is made. If an insurer asks a question and you leave it blank, or give an answer that is clearly incomplete, the insurer is treated as having waived that point.
This is why a broker is not a shortcut around honesty. A broker can help you work out what to disclose, but the duty is yours. Keep a copy of every form you send. If you buy direct, read each question twice and answer all of it.
Questions to ask a broker
- What is your AFS licence number, or whose licence do you work under?
- Which insurers can you approach for my type of business?
- How are you paid: a fee, a commission, or both?
- Who will handle my claim, and who do I call?
- What will you need from me each year at renewal?
Questions to ask a direct insurer
- What does this policy leave out? Ask for the exclusions in plain words.
- What are the limits, and what is the excess for each claim?
- Can I read the policy wording before I pay?
- How do I make a claim, and who decides it?
- What happens at renewal if my business changes?
How to choose
Start with your risks. If you have one or two simple ones, a direct quote may be enough. If you have many, or if the cost of a gap is large, a broker is worth a conversation. In both cases, do the same three things. Check the licence, answer every disclosure question fully, and read the exclusions before you pay.
It also helps to get a second view. Ask a broker for a quote and ask a direct insurer for one. Compare the cover, not just the price. A cheaper policy that leaves out the risk you worry about most is not cheaper.
The limit of this guide: it explains the general picture, not your policy. Cover, price and rules vary by insurer and by business type.