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B) Introduction to Insurance Brokers

1. What is an Insurance Broker?

Insurance Brokers are professional advisers who are appointed by their Clients and therefore work on behalf of the Client, protecting the Client’s best interests. Insurance Brokers offer their Clients professional assistance in analyzing the ‘risks’ present in a Client’s business or situation to help the Client decide which risks require insurance coverage, which risks can be managed or mitigated in other ways, and what other risk mitigation steps can be taken overall.

A good Insurance Broker has a thorough knowledge of the insurance market, the procedures and processes of the various Insurance Companies, and is able to cut through much of the red tape and interpret the jargon commonly found in most contracts / Insurance Policies.

Hence, once the Client has decided on which risks to insure, the Insurance Broker approaches Insurance Companies to source for suitable insurance policies and quotations, and negotiates with Insurance Companies on the Client’s behalf in order to prepare a suitable Insurance Program for the Client. In some cases, the risks involved can be so unusual or specialized that the Insurance Broker may even custom-make an Insurance Program for the Client – sometimes involving several Insurance Companies in order to leverage on their different strengths.

As the nature of work can get quite technical, requiring a reasonably high level of expertise, experience and industry knowledge, Insurance Brokers are required to hold and renew a license from the Central Bank in Malaysia, Bank Negara Malaysia (“BNM”).

2. What is the Difference between an Insurance Broker and an Insurance Agent?

Insurance Brokers are professional advisers who are appointed by their Clients and therefore work on behalf of the Client, protecting the Client’s best interests. Insurance Brokers, by definition, are independent from the influence of any Insurance Company.

Insurance Agents, however, are appointed by the Insurance Company to act as their representative – much like an outsourced salesperson.
By law, Malaysian Insurance Agents can only represent a maximum of two (2) Insurance Companies – and are thus restricted in their knowledge of the different players in the insurance market. In contrast, Insurance Brokers can and do work with any Insurance Company – locally and globally – and as such are required to maintain up-to-date knowledge of the strengths, weaknesses and product offerings of the various players in the insurance market.
3. Are there any Costs or Fees to Appoint an Insurance Broker?

The fee structure of Insurance Brokers is unique in that they are paid in 2 ways:

* A commission based on the premium charged by the insurance company for the Client’s Insurance Program. This commission factor is already built into the premium rates of all Insurance Companies and is the same regardless of whether the Client is using an Insurance Broker, an Insurance Agent, or dealing directly with the Insurance Company.

* A pre-agreed consultancy fee. This situation is less common and most appointments do not incur any such fees. However, if such a fee is payable, a good Insurance Broker will notify the Client upon receiving the Client’s request for the specific consulting services.
4. Does Using An Insurance Broker Increase My Cost?

NO! All Insurance Companies build the commission factor into the premium rates that they charge to the Client. These commission factors are the same regardless of whether the Client chooses to use the services of an Insurance Broker, an Insurance Agent, or to deal directly with the Insurance Company.
5. Why haven’t I heard about Insurance Brokers before?

It is possible that you have never heard of Insurance Brokers before. This is mainly because Insurance Brokers tend to deal with businesses instead of consumers – which reduces their visibility to the normal consumer. That said, as consumers become increasingly educated and sophisticated in their choices, there is a growing realisation of the value that Insurance Brokers bring, resulting in more and more consumers choosing to work with Insurance Brokers.