Dallas Booth
The National Insurance Brokers Association (NIBA) has launched a first-of-its-kind report, prepared by Deloitte Access Economics, detailing the economic value of insurance broking.
The study represents the most comprehensive analysis of insurance broking ever undertaken in Australia. As well as examining the economic value, the report describes and quantifies the elements that comprise the industry’s value: to customers, insurers, governments and broader society.
“In 2018-19, insurance broking collectively contributed nearly $2.6 billion in gross value added (GVA) to the Australian economy, and directly employed 15,000 full-time equivalent (FTE) workers,” NIBA CEO Dallas Booth explained.
“As a point of reference, these direct economic contributions are roughly equivalent to the economic activity in each of the, gas supply, and creative arts industries in Australia,” he added.
“The industry also indirectly supports economic activity in other businesses, worth almost $900 million in 2018-19, supporting over 5,000 extra jobs.”
Insurance brokers help business clients during crises, like the 2019-2020 bushfire season and the COVID-19 pandemic, but also to better understand long-term emerging risks to business, such as from climate change and cyber security threats.
Insurance broking also provides wider economic benefits:
- encouraging greater competition in insurance, with the average NIBA broker offering products across 10 different insurers,
- reducing underinsurance, with 45% of new broker clients being underinsured prior to engaging a broker,
- using their experience to provide advice and save clients’ and insurers’ time, regarding risk assessment, policy selection or claims.
“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,” Mr Booth said.
Fifty-four per cent of clients pay the same or less on their insurance after engaging a broker.
The author of the report, John O’Mahony, Partner at Deloitte Access Economics, said: “Insurance broking is not as simple or transactional as walking into a store and buying a good. It is a relationship-based business that involves up to 10 pre-sales and post-sales services and creates many sources of value.”
“We analysed information provided by 421 individual brokers, 78 brokerage businesses, and the six largest insurance broking businesses. We consulted senior staff at three insurance companies, two small business clients and representatives from the LMIGroup, to help understand the stories behind the statistics. All up, we consulted almost 100 different articles, reports and data sources about the sector.”
The report highlights the key role brokers play in the market for general insurance in Australia and provides evidence of brokers facilitating a more efficient insurance market, which supports risk management and economic recovery across society.
Key findings
Value to clients
- Quality of advisory service: ranked as the number one factor by clients.
- Tailored risk management solutions: 40% of clients are under insured or not insured at all, before engaging a broker (on average).
- Greater choice: the average NIBA broker offers products across over 10 different insurers.
- Time savings: saving each client an average of 11 hours, which equates to more than $230 million in time savings from business customers.
- Claims support: saving each client an average of 2.5 hours in the claims process, and where 41% of SME clients agree that it would otherwise have been ‘much harder’ to process.
- Understanding and managing risk: noting that brokers identified 62% of clients had limited understanding of their risk.
Value to insurers
- Saved resources: saving each insurer an average of 3.3 hours, which equates to 1,380 FTE staff each year.
- Product distribution and client reach: 38% of broker premiums written for clients outside of Australia’s capital cities.
- Product Innovation: 13% of a broker’s policies sold represent new market opportunities (on average), with ‘cyber risk’ commonly identified.
Value to the economy
- Market efficiency: reducing uncertainties for insurers and closing information gaps, which allow for more appropriate pricing and product matching, and encourage greater competition.
- Risk management and economic stability: to facilitate better product matching, faster claims receipts and provide broader risk advice.
- Brokerage businesses employed 15,000 FTE workers, and contributed $2.6 billion directly to the Australian economy (2018-19).
Value to government and broader society
- Disaster relief, advocacy and policy advice: supporting clients with claims preparation, assessment, lodgement and negotiation processes.
- Helping to obtain insurance for difficult-to-insure clients.
- Supporting local communities: surveyed brokerage businesses donated over $25,000 per year to charitable and other social causes, and volunteered more than 550 staff hours to charities and other organisations (on average).