Are you a broker?
Russell Hutchinson ponders who is a broker under the new adviser rules and what it means to be a broker rather than an adviser.
Monday, May 28th 2012, 6:00AM 2 Comments
by Russell Hutchinson
This old-fashioned word has a specific legal meaning these days, and therefore cannot be applied to a couple of its traditional users: insurance brokers, whether they sell life and personal lines or fire and general insurance. This has earned more than a couple a friendly letter from the FMA suggesting, much to their surprise, that they should stop using the word.
But what it used to mean was that the adviser would take the client’s insurance requirement ‘to the market’. While brokers that actually took every potential case and approached the entire, eligible, universe of all insurers are probably every bit as mythical as, say, Unicorns, the practice is becoming very rare.
But what does taking a case to the market mean? The NZMBA, now merged with the PAA, used to require that members could deal with six lenders before they could claim to be ‘brokers’. But there are two problems with this definition.
For example, access is pretty easy these days. Many life insurance advisers would argue that they can access almost any company. One I spoke with last week actually has agencies with ‘only’ five companies – yet he cheerfully presents comparisons of nine to his prospects, rationalising that should a client choose one of the others then he can obtain the cover for them: either by quickly setting up an agency or by asking a colleague to handle the case.
On the other hand holding an agency agreement may mean nothing: many advisers have agencies with companies that they haven’t written business with in years. Although the marketing material from the jilted insurer may still clog their mailbox they may know no more about them than the adviser with no agency.
In fact most do most of their business with two companies, and have one or two other agencies for small amounts of business in specific products. That’s a fact of life as an insurance adviser in a modestly sized business – it’s also entirely reasonable that for most modestly sized cases. They are simply too small to spend masses of time offering to many insurers. Clients themselves would object to the needless paperwork. Their expectation is that the adviser knows the market reasonably well and can therefore guide them. Consumer research shows that very few seek alternative quotes after consulting an adviser that claims to offer ‘the market’.
But just in case that tempts you to promote yourself as offering ‘the market’ while quietly placing 90% of your business with one insurer, remember two things; one: the FMA might be watching – and accurate disclosure is easy to test. Two: consumers get a lot of confidence from evidence such as seeing that you have actually quoted a number of companies, and the reverse is true, so if your close rates are poor it might be a trust problem.
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