Brokers slash their commissions to help clients

Brokers slash their commissions to help clients | Insurance Business

Brokers slash their commissions to help clients
Brokers in Far North Queensland (FNQ) are reducing their commissions in a bid to help their clients purchase adequate insurance.

The issue of rocketing premiums has again been thrust into the spotlight, with the Queensland Chamber of Commerce recently accusing the insurance industry of “deliberately pricing themselves out of the northern Queensland market to avoid further exposure to the risk of natural disaster-prone regions”.

While insurers have denied the claims, Insurance Business spoke to brokers at the coalface of the FNQ market dealing with the very clients who are affected by this issue to find out their experiences.

Helena Blum, principal of Big Tree Insurance in Cairns, and authorised representative of NAS Insurance Brokers, said it was clear policyholders in FNQ are struggling with premium rises.

She explained that clients are reducing the value of their home and contents when they run out of excess options, and that rising premium costs - coupled with businesses closing down - had resulted in policyholders eliminating sections of their policy.

“All parties know this means inadequate insurance and long-term pain for the client in the face of adversity, but what does a broker do when their client says: ‘I can’t afford to pay this premium?’

"Personally, I have reduced the commission we make from policies to assist our clients through this hardship and I know that many of the NAS brokers in areas of Australia impacted by significant price increases have also adopted this approach - we all need to do what we can when times get tough.”

Blum said that FNQ is "structurally sound"  following Cyclone Larry and Yasi, and claims from Cyclone Ita have not been excessive. She also spoke of reinsurance rates starting to come down.
However, the market had clearly shrunk, and insurers have been “quick to respond with premium increases and restrictions in appetite in the face of adversity”, meaning the client is paying for bad weather that has not happened.

“If an insurer wants to be in insurance, they need to be open for business on a national level, and work their spread across a national level, not just cherry pick the areas or the brokers that provide the best return for their shareholders."

Furthermore, the withdrawal of written business in FNQ is dependent on reinsurers covering the high risk of claims.

“Some of these reinsurers do not have an understanding of the area, our building codes and weather patterns, given many of these companies are based in the UK, USA or Bermuda. The past few years has favoured a trend towards "science" when it comes to pricing and claims assessment, somewhat at odds with the moral and social obligations/commitments these companies make in their annual returns and marketing.”

Blum warned that the insurance issues in FNQ can happen in any part of Australia.

Asked what the solution might be, Blum referred to the USA where it is legislated that insurers are required to cover all regions.

“A national approach like this might be something our governments will have to look at, if the insurers can’t work it out for themselves.  Where the ICA say that they are working on solutions with local and state governments, a lot of people in our area are unsure of what that really means.”

She also offered the possibility of multi-agency collaboration, the accurate assessment and pricing of risk, the appropriateness of taxes and levies, the accessibility of insurers, and risk mitigation.

“Only then can change happen,” she added.

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  • realist 2014-04-22 11:23:49 PM
    Wasn't there recently another cyclone in FNQ? I'd say insurers and re-insurers have it pretty much right on this one.
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  • Bruce 2014-04-22 11:33:46 PM
    Helena I think is ignoring the fact that these events are very likely to occur again. The insurance companies can't be expected to keep forking out for homes that are in cyclone prone or flood prone areas and either of substandard construction or in areas where NO flood mitigation works have been performed. Insurance is there to protect against fortuitous losses ...not inevitabilities. The pricing is based on inevitability - the question now remains is what is the policy holder going to do to reduce the risk? Most I suggest will do nothing and bleat to the State & Federal Governments.
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  • Monty Sheridan 2014-04-22 11:50:46 PM
    Humbling to see that this broker is wearing some of the burdening costs, however forcing all insurers to operate through out Australia still puts the power in 'insurers' hands in respect of pricing, terms of cover etc. Surely businesses closing down is not solely due to insurance costs - nothing to do with a high dollar, lack of tourism? I think Australia needs to follow New Zealands lead (of 1946) and introduce a defined event disaster pool / levy, that works on a first loss type basis capped to a realistic level for residential property. Which in turn will flow through to create more reinsurance capital for commercial risks. Its also ironic that this timed, after a near Cat 5 hit FNQ. Although Cairns was predominately unscathed, a few degrees South and this may have been a different story completely!
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