Episode 5: Report on Valuing the Economic Impact on the Insurance Broking Sector

 

In late 2019, the National Insurance Broking Association (NIBA, engaged Deloitte Access Economics to build an evidence base for valuing the economic impact on the insurance broking sector.

 

During this podcast, NIBA Chief Executive Office — Dallas Booth, and EBM Chief Executive Officer — Ward Dedman, discuss the key insights of the report, the role of the insurance broker and the value provided to clients, government, and local community. You may also wish to consult our FAQ page for more information on the role of the insurance broker.

 

 

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0:00 

In this podcast, we have provided general advice only, and not personal advice. In giving this advice, we have not considered your personal circumstances.

 

0:19 

Well, welcome to Episode Five of EBM Insights. Today I'm joined by Dallas Booth, Chief Executive Officer of the National Insurance Brokers Association, and Ward Dedman, Chief Executive Officer at EBM. Thanks for joining me in the pod.

 

We've invited Dallas and Ward today to share their perspective and key insights on the recently released Deloitte Access Economic Report. And this report focuses on the role and value of insurance brokers in Australia. During our chat, we'll delve into the key findings, including a few interesting surprises the report has revealed. So Dallas, to start things off, can you provide a bit of background on the report and why it was commissioned?

 

1:04 

Thanks, Sandy, in the work that I do, we represent insurance brokers right across the country, the big ones, the medium sized ones, the National ones, the smaller ones, and what our job is to take their story and their interests through to government and through to regulators. And I'm talking to members of parliament, to government ministers, to regulators to other peak industry bodies, on quite a regular basis on behalf of the insurance brokers who are our members. The thing that I'm finding quite often is that the people that I'm talking with, they just don't have a good understanding of what insurance brokers do, and don't have a sound understanding of some of the implications of what they might be thinking about, what they might be thinking or proposing. They just don't understand what the impact might be on insurance brokers, but also more importantly, the impact on their clients. So what we wanted to do was to get an external group who's well respected, just to have a look at insurance broking in Australia, and to have a good look at it to see what it does, how it works, and to describe that, and then to look at the value that it adds to society. And so we went to Deloitte Access Economics, they're a bunch of economists, they're not lawyers, they're not accountants, they actually understand economic benefit. And quite often, the people that I deal with on behalf of our members, particularly in government, Treasury departments, they're often economists and they want to know the economic value of, of what they think happens in the economy, and what happens in particular sectors. And so we thought it'd be good to use Deloitte Access to do the work. And the good thing also is that Deloitte did a very good report for mortgage brokers about two years ago, and we thought we'd piggyback on the work that they did in that particular sector. Because we knew they could, they could very quickly pick up, you know, the highlights, and they get that understanding of what goes on in broker world, and be able to then set that out and explain it. So that's what we're trying to do. And that's the main reason why we went for Deloitte to do this project.

 

3:11 

Thank you.

 

3:13 

Did you have anything else you wanted to add?

 

3:16 

Well, I think the core thing for us was to really have that externally qualified, and quantify position rather than just the internal thoughts and, and motions. So I think it was really important for us to get that externally qualified position and having mortgage brokers lead the way we think we've got a really comprehensive report probably more thorough and more considered, and given the role that we play. So that was really the driver from Dallas, and certainly our Board.

 

3:43 

That's right.

 

3:45 

And would were some of the key insights from your perspective? Were there any surprises?

 

Well, I think there's lots of surprises.

 

3:55 

There's many to go through to get a few pertinent ones. From my perspective. Anyway, these are the, I guess, a little bit surprising, and a few regards to the extent of them. The first one being of clients that engage with brokers 40% of them were either uninsured or underinsured. And that's a really astounding number, when you think these people are active, actively move to engage with a broker. So they've actually got a pretty sound starting position about wanting to get some risk advice. Yeah. So that's, I mean, that's a huge number in itself. And so another interesting one was that more than 60% of clients had a really limited understanding of their own risk, coming from their own perspectives, talking to their brokers, when brokers spoke to them about the risks that individuals 60% of them didn't have a sound understanding of the risks and probably how to deal with them.

 

And there and then that proves the value of having a broker just on that one point. Absolutely.

 

4:54 

There's another these numbers are already getting higher as we speak about 90% of existing policies weren’t appropriate to the client's needs. So those policies that were in place that a broker critically reviewed 90% of them weren't appropriate to the client's needs. Okay, and quantify, I guess the degree of that, but there was aspects of them that didn't suit the client's needs. And another really interesting one, I found too, was it 33% of the clients paid more than when they started to use a broker. And I think that goes against public opinion of that brokers are more expensive, that's actually just not true based on a third of them through the survey.

 

5:34 

And Dallas, is there anything else you'd like to add?

 

So inherent in what I was saying, is the role of brokers due to what they call matching. So you're matching the needs of the client understanding, firstly, identifying and understanding the needs of the client, and then matching that to what's available in the insurance market. And that's a really important role, too, to be able to work with clients and understand their risks and their needs, but then to have the knowledge and understanding and the technical knowledge, particularly of the insurance market, and bring those two together. And that's when the real value of the broker comes to the forefront. And I think that was demonstrated in the report very well. That was just adding to I think the geographic reach of brokers is a really important thing that came out through the report to that I think the number is something like a third of the premiums that were looked at come from outside capital city, so that reach of brokers into regional or isolated or remote communities. And that probably goes a step further. Therefore, their understanding of those locations and unique situations that they come across is even more important. That's just not something undirected sure someone else can do.

 

6:52 

It's not just a geographic reach, it's actually a topic reach. So I'm getting really strange and bizarre questions every day. And then almost within 24 hours, I can find an insurance broker in Australia, who's an expert on that topic. And so it's just amazing what they know, and how that level of expertise is available to the Australian market from our members.

 

7:17 

Maybe just a question from myself. So just out of the blue, do you think that goes to the strength of brokers, I guess dominate that business space that gets that understanding of business and the risks of business face on a daily basis and going with the reach position?

 

I think that's right, that said, is that helping the client understand the risks, that the thing that I find in and you see this in surveys is that you know, the SME clients, whether they're the cafe owner, or the hairdresser, or you know, even a small manufacturer, they really know what they're doing, and they're good at what they do. But they might not understand the liability risks that might be associated with that particular business. And what can go wrong if you're in the food industry, if you're running a cafe, and there's all of a sudden an outbreak of food poisoning or something crazy. What happens next, and what are their exposures and insurance brokers understand this. And that's the benefit of that knowledge and expertise that they can bring. And I think that's the value that you can see it in the comments where clients have had brokers helping them for a couple of prolonged standing period, they actually understand the broker value, and they're often rested on because they appreciate what the brokers are doing for them.

 

8:35 

So we've talked about the value of an insurance broker to the client. Can we just now take a look at the value to the economy? So in the report, it states that the industry employs 15,000 FTA workers across Australia, can you expand on how else the value is added to the economy? Just from an economic perspective, you've got an economic contribution of $2.6 billion every year. So this is an industry that contributes very considerably to the Australian GDP. And that's economic value, which is going into the community going into the economy. And that's not a small number by any means. 15,000 workers is employed right across Australia, looking after clients, helping them with their risks and their insurance needs. The real important thing for the economy. For me, though, is the management the overall role brokers play in the management of risk. And the fact that you've got good insurance programmes means that when something goes wrong, either for an individual or for their business, or more broadly, when you have a natural disaster, there the capacity to recover is far greater when you've got a broker helping with that recovery is not just helping the particular client but it helps their own community and their business sector. And we see this, particularly in natural disasters, if there's good levels of insurance, that community can recover very quickly. If there's not good levels of insurance, that community can actually struggle for quite a long period of time. So it's massively important that individuals, businesses, are engaged in this way to make sure that communities can respond and can recover when things go wrong.

 

10:30 

What are your thoughts on the value to the economy and to local communities and broader society?

 

Yeah, I think Dallas just pointed out, there's a terrific situation where brokers help businesses respond to those that businesses surviving, after a disaster that's happened to their business or their premises or with a supplier. So that's business survival, I think it's a really strong element of what we're talking about here. But then there's the reaching of the local communities. And I think the report identified that on average of the brokers survey is a financial contribution. That's one thing of an average of 25,000 per year, which I'm sure it's, you know, valuable to the people that's going towards, but it's also the time that brokers staff spend in these communities. And I think that number is something in the order of 500 to 550 hours, on average. And that's just natural. I mean, that's community work going on in their local environments, which is just excellent, excellent that people are that committed and working their way through. The other part that I was just going to add Sandy was the work that we do for government, there's a big job there about collecting taxes. And that's often overlooked at a federal level stamp duty. And sadly, Dallas, I'll bring it up the New South Wales and Tasmania is ongoing in equitable position on emergency services levy.

 

11:55 

There's a lot of work going on there. And Dallas might have some further comments on the ESL side. But that's a that's a significant role that brokers play for government directly in that levy, seamless collection of taxes that are applied to insurance are no doubt and it's actually it's a very large amount of money. And the sad thing for clients, of course, is that particularly New South Wales, it just adds a massive extra cost to the cost of your insurance. New South Wales commercial insurance clients are paying 60 to 70%, on top of the insurance company premium in taxes, that's just an extraordinary amount. Tasmania's 30 to 40%, and the rest of Australia, it's around 20% is the extent to which the cost of insurance has increased. And this is a, you know, it's a massive impact on people who all they're doing is trying to look after the risks that they carry, and to be able to recover if there's a loss. And I think it's incredibly inequitable and unfair the way that works.

 

12:59 

Can you provide an example of where NIBA or the industry has provided support or advice to the government on something like ESL?

 

So what we do is NIBA as the industry body is to maintain contact with particularly the state treasuries and sometimes senior ministers as well, and just to point out to them the firsthand impact on businesses in their states. And I think, I think New South Wales Treasury just was not aware of the combined impact of the three levels of taxes in that state. Tasmania was pretty similar. And so it's really extraordinary, where you have similar types of businesses, you might have a cafe, in the suburbs of Canberra, and a cafe in the suburbs of Queanbeyan, and one of them is paying 50% more for their insurance, simply because of taxes in New South Wales. And they're both similar businesses, you know, within 10 kilometres of each other, the impact of those taxes is just outrageous. And we, we are regularly reminding governments that this is unfair, and that something needs to be done about it. It's like treated like a sin taxes if it's something you wanted to actually discourage, which is what you do in petrol and tobacco and that sort of stuff, but not so much petrol. But I mean, but things like tobacco, it's like a tobacco tax that trying to discourage things when in actual fact, you should be encouraging people to take out insurance and making it as cost effective as possible. So that's what we do.

 

I'll put this question out to both of you. And based on the findings of the report, where do you see the future of insurance broking in Australia?

 

So, first of all, I think the future insurance broking industry is really broad. Yes, I think there's a terrific future there. As long as advice remains accessible. I think that's a really key element to the conversations we're having with government. Advice needs to be obtainable from people and cost does come to that but it's also the accessibility towards it.

 

15:00 

I think the real future is around that sort of risk advice. So it's sort of analysing the risk to start with helping with treatment solutions with a client that's, you know, suitable for that individual clients to then going and sourcing, negotiating, and, even developing and innovating around what solutions clients need, and then working with the market to get those solutions that are sustainable for a long period of time. And I think the most important thing is really that advocacy work that brokers do in the claims environment, ensuring that clients understand the contractual obligations that exist and how they can maximise the potential of that contractual position. And that's, you know, that's, that's a mutual arrangement with the insurers to ensure we get that position as well. And it's really that understanding, I think there's a pretty good example floating around now the big business interruption situation, and then it's a bit, you know, it's not intended, and it was a pretty unknown situation, but we're working through that, as an industry that makes all the solutions are appropriate.

 

16:05 

And Dallas, do you have anything to add?

 

Look, I think that's absolutely what it's about. And to make that happen.

 

16:13 

The brokers actually develop a strong personal relationship with their clients. And that's the way they understand what's going on in their clients business. So that personal relationship is really critical. And the brokers will see something that the client will quite often forget to mention and it could be really important in the insurance context. But that personal relationship also continues across between the broker and the insurer. And that personal relationship thing, which you cannot get on computer platforms. And you can digitise as much as you like, and bring in and I think, and artificial intelligence is happening as well, there's no doubt but at the end of the day, it's going to be the personal relationship with the client, and the ability to take their risks into the insurance market with their knowledge and expertise, I think it's going to be a very long time, until the role of an insurance broker is under threat. And I and in fact, I think it's got I think they're there for quite a long time, it gets back to that number that was mentioned at the start 62% of clients coming into a broker were underinsured or not insured well enough at all. And so that's, that shows a really lack of understanding of risks by clients. And that's, and that's why the role of the broker is critically important that brokers know what questions to ask, they know how to how to look after a client, and to help them be in a much stronger position if some sort of event happens in their business.

Thank you.

 

I'm just gonna say quickly that I think the role of brokers is essential for competition to not only innovation, delivery, distribution, those sorts of things in the report are the cause of that quite strongly in regards to brokers provide a marketplace that is competitive. And that's super important. I think for clients and insurers are getting opportunities through this brokers environment, but clients are ensuring that this tentatively priced and technical position on the products that are taken to so I think that's an important thing. We don't overlook it with no we certainly will be focusing on.

 

18:15 

Absolutely excellent.

 

18:18 

The report is quite substantial. We've covered off a lot of information today. Have you had any feedback from people within the industry on the findings? Look, I have and it's been overwhelmingly positive. And the reason for that is that in our direct world, we deal with insurance brokers, we deal with insurance companies, their thinking is very insurance thinking which is absolutely fine, because that's their day to day business, but to be able to present the role of insurance broking from an economic perspective, this was new. And the other the other thing which is really revealed for me in the report was, yes, we knew that brokers provided tremendous support and value to their clients, but it was the value proposition to other sectors, the insurers, the economy, governments communities. This was really important stuff. And I'm really pleased that Deloitte were able to draw this out, and to identify some of the broader economic benefits provided by insurance broking not just the value that was provided to clients. And I think that's massively important. And this report gives really, anybody who's interested in the operation of the insurance process gives them a really good understanding of what brokers do and the value they provide.

 

Just a side note, Sandy before we move on, is that NIBA is intending to do a little bit more work around some of those case studies and those you know, sort of the time saved and the economic value proposition NIBA is planning on letting the cat out of the bag that was put quite a lot more work in that study. Obviously, the strength of when we're having conversations with people who are informed around what brokers do, but really, to make it real.

 

So there's a considerable amount of work already gone into that space early in the new year.

 

20:08 

If we consider the findings in the report, Dallas, has this impacted on the outlook for the future?

 

20:17 

Look, it has, and it's been really beneficial because one of our goals is to make sure that government regulators, the broader stakeholders, have a better understanding of what insurance brokers do. And this report gives us the basis, it gives us the grounding and the information. And it gives us an economic analysis to talk to the beyond just looking at insurance or all those sorts of matters. So it's a real, explanation of what brokers do and the role they play. And that gives us a very good basis upon which to continue to, talk to the sort of people that we need to discuss these things with whether it's government, opposition members of parliament, parliamentary committees, regulators, it's quite a broad mix, who are all interested in the world of insurance and the way insurance looks after the community. And so this gives us a way of moving forward. And that's our plan for the next 12 to 18 months.

 

21:19 

And I think the key thing is, is validated the journey that EBM is on and has been on for a few decades, as we will know. But it fits really nicely with their purpose. And I think that's about putting clients first and making sure that it's about not just about insurance transactions, it's about risk solutions. It's very much the focus on our broking team about having client focused risk solutions, and really adding value in that space. So I think there's it's validation and, and there's work to be done, and always will be, but we're very much on that journey and looking forward to those challenges.

 

22:01 

This brings us to the end of today's podcast, and I'd like to thank Dallas and Ward for joining me in the pod. We've discussed a lot of interesting information around the role and value of insurance brokers. For our listeners. If you're seeking more information of what we've discussed, please visit NIBA.com.au and ebm.com.au.

 

Thank you to Ward and Dallas.

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