Why Insurance Broker

ِDate: 2014/10/07

Insurance products which are nothing but a promissory note are sold against cash collected at the time the product is being purchased.

The promise of compensation by the insurer is based on the probability of the risk actually occurring.

In most cases, the risk never occurs and in rare cases when they actually take place, the insurers invariably base their settlement on the fine prints in these promissory notes seldom reviewed or even understood by the buyers.

 

The fine prints usually contain grounds for arguments, and if the insurer’s fairness is questionable, they can always find reasons to decline the claim or at least negotiate it down as much as possible.

The  charge  for  transfer  of  risk  is  to  create  “peace  of  mind”  for  insured  by  shifting  the uncertainty of loss to insurer, and not necessarily for the insured to get some monetary value out of the insurer. However, most buyers of insurance do not see the value of “peace of mind” and expect to get something back in return.

 

The objective of Insurers is opposite to the Insured’s objective.

Insurers’  objective,  like  any other  commercial  entity,  is  to  maximize  profit  which  is  only possible by maximizing their intake (premium income) and minimizing their outgo (payment of losses).

Whereas, the objective of insured is to minimize what they pay for transfer of  their risk

(premiums) and maximize their claims for compensation at the time when they suffer losses.

All Insurers are well equipped with all sorts of professional expertise to achieve their objectives, whereas the average insured is left to protect his own interests.

No wonder why insurance image worldwide is negative.

Fortunately, a solution for this unfair relationship was discovered couple of centuries ago by introduction of insurance brokers.

Definition of insurance brokers:

Insurance brokers are knowledgeable insurance experts having been licensed to act as independent professional eyes and ears of the consumer of insurance in protection of their

interests in transfer of risks. They can assist them in collection of their legitimate claims from insurers.

Today, the profession of insurance brokers is available in most of the countries of the world.

In sophisticated markets of free world, insurance brokers are so popular that the majority of insurance placements are done through brokers.

Due to the fact that they serve the interests of the consumers of insurance, the service of the

insurance brokers is to be considered a profession with a “public service” associated with it.

In order to promote the use of this service by the public, the industry has established a system

of remunerating the insurance brokers with commission making it look to the consumer that they are receiving this service free of charge.

The compensation for insurance brokers comes as a part of the premium they wind up paying. The consumer is not charged directly by the broker.

The regulators in the sophisticated insurance markets have made it illegal for insurers to give incentives to the public to deal with them directly. And the brokers in these markets have to utilise the competition in such a way that the premium the consumer winds up paying (including his commission) is the lowest he himself could get for the same cover.

Majority of insurers worldwide are far-sighted enough to render full cooperate to the insurance brokers because of the following reasons:

  1.  Insurance brokers minimise the administration cost of insurers
  2. Insurance brokers are a free source of bulk marketing for them
  3. Professional communication with them is much easier.
  4. Insurance companies leave the burden of collection of premiums from their clients to the insurance brokers.

The profession of the insurance brokerage requires fighting for the interests of their clients while maintaining a respectable cordial and professional relationship with insurers. This is not an easy task. The broker’s integrity and credibility should be safeguarded at all costs while protecting the interests of their clients.

We should not forget that the actual product of insurance is “promises”. If the giver of promise in insurance business fails to keep the promise, its integrity and credibility will be immensely damaged.

 

This applies to both insurers and brokers alike.  This is why the “utmost Good Faith” has become an integral principle of insurance. “Honesty” coupled with” transparency” is a must especially in insurance business.

The value and impact of insurance brokerage has not been fully recognized or grasped in the third world countries, neither by the public nor by the insurance companies, nor by the governments.

Even in countries where this profession is allowed, the tendency is to consider them as mere

“intermediaries”, therefore not demanding much professionalism from them.

To practice the profession of true insurance brokerage requires much more than just mere understanding of insurance. The broker is expected to be the professional arms of the buyer of insurance.

The degree of professionalism of insurance Brokers should be comparable with insurers they work with so that both the insurer and their clients feel they are dealing with professionals and not just an intermediary.

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