Buying commercial insurance cover to protect a business can be riddled with complexities – even for the smallest company. However, many business owners could come unstuck because they believe that they are receiving advice as they buy their insurance when in reality all they are getting is information, according to research commissioned by the British Insurance Brokers’ Association (BIBA).
Advertising would suggest that going online or direct to the insurer for commercial cover is a straightforward and cost-effective way of buying cover. Worryingly, BIBA’s research found that a third of the micro SMEs not using the services of an insurance broker failed to realise they were not being advised and were probably only being offered products limited to a single insurer or provider.
This lack of understanding has to be of concern. This cover may not be the best for the purchaser’s business. Business owners are often far too time pressed to read all of the conditions of an insurance policy. Businesses as a result could find themselves unwittingly unprotected if they have not had certain terms and exclusions pointed out to them or understood security requirements, for example. Sadly, all too often, that happens when a business needs the protection offered by their policy the most – when a claim has arisen.
Having suitable insurance in place is vital. Business owners should always check that adequate cover is being purchased by asking if the policy offered is a recommendation, if it is suitable for their specific needs or by obtaining advice from a broker.
Brokers take time to learn about the insurance needs of a specific business and can offer a full range of professional services including risk management, recommending insurers for their quality and not least, provide assistance in the event of a claim. There are many occasions, where had it not been for the intervention of a broker a claim would have either been refuted or reduced payment made by the insurer.
The research confirmed high satisfaction levels with those businesses that chose to use the services of a broker, with 95 per cent of SMEs saying they are likely to do so again for their business insurance when their policy next falls due for renewal.
How the broker gets paid for those services has been a source of much discussion in the insurance industry recently. The Financial Services Authority (FSA), which is responsible for regulating the activities of the insurance industry, has been seeking greater transparency about the level of commission earned by intermediaries when selling insurance, the type of services they provide and the relationship that they have with insurers.
The FSA argues that this information is needed to ensure that the buyers of commercial cover make a better informed decision about the most appropriate insurance product for their business.
The upshot of all this has been the publication of industry guidance which aims to ensure that the buyers of commercial insurance are provided with clear information about the capacity in which their chosen intermediary is acting i.e. are they working for the insurer or the customer or in some cases for both, the services being provided and the remuneration they have received for them. The development of this guidance has been led by BIBA in co-operation with the other trade bodies in the insurance market such as the ABI, IIB, LMA and LIIBA.
Customers buying commercial insurance should be made aware of their right to request commission information by their intermediary. The guidance gives brokers direction on how they can give prominence to this right as research from the FSA has shown that a significant number of commercial customers are unaware that they have the right to know how much remuneration their broker receives on their particular policy.
The guidance also seeks to ensure that commercial customers have clearer and more comparable information about the commissions that brokers and intermediaries receive as well as the services that are being provided. This includes information about the breadth of search that the broker has undertaken in order to find an insurance product for their customer. Where a broker has used the services of another intermediary in the placing of the insurance then the commercial buyer should also be made aware of their presence.
The FSA’s rules require all authorised firms to take all reasonable steps to identify conflicts of interest between themselves and a client. Brokers will face a conflict where their own interests conflict with those of a commercial customer; or a broker is unable to act in the best interests of one commercial customer without adversely affecting the interests of another commercial customer. Consequently, a large part of the guidance is devoted to helping brokers to manage the conflicts of interest that may arise from commercial relationships.
To find BIBA broker visit www.biba.org.uk
A copy of the industry guidance can be found at: www.biba.org.uk/PDFfiles/IndustryGuidanceFINAL.pdf