Here’s a statistic; 78% of all commercial insurance premium is controlled by insurance brokers....
....and for professional indemnity insurance in isolation it's higher.
So only a modest percentage of commercial insurance premium is placed by policyholders directly with insurance companies.
In this short guide we explain why this is the case and why using a broker is a huge benefit to the Insured and the Insurer.
Why brokers control 78% of the commercial insurance market
Comparison websites offer excellent value if you are a very small business and just want to buy basic insurance cover at the cheapest possible price and without any advice. But for other businesses it's far more complicated. If you are responsible for arranging the insurances for your business, you have a duty to ensure it’s done correctly which is almost impossible without the necessary insurance knowledge and expertise.
A competitive premium is an important purchase driver, but if you are an Accountant, a Solicitor or any complex service provider, buying your professional indemnity insurance based on price alone is dangerous. Certain other factors have to be right for the product to work correctly.
So here are six good reasons why businesses need a broker.
1. Access to markets
First and foremost, the majority of the 900+ commercial insurance companies active in the UK will not deal direct with businesses. They will only accept enquiries presented to them by a broker.
Why is this? As well as being an insurance company's main 'route to market' (reducing marketing and administration costs), brokers are insurance experts and speak the insurance language.
It’s therefore much easier and less work for the insurance company to work with the broker than it is dealing direct. This arrangement justifies lower premiums as well as the cost of the broker commission.
2. Lower Premium
Contrary to popular belief, using a broker is almost always cheaper than going direct to an insurance company.
Why is this? With such a huge choice of insurance companies in the UK including many specialist insurers, a good broker will know the market and the best rates available much better than you. It's what they do.
A broker will negotiate the premium with insurers by using a combination of technical arguments, auctioning, commercial weight and their business relationship.
3. Product suitability means peace of mind
There are hundreds of different professional indemnity policies on the market and they are are all complex documents, full of insurance terminology and legal jargon. Although they may look similar, you can't judge the book by its cover and need a trained eye to fully understand what is covered and what is not covered.
Most businesses need some tailoring of their policy to ensure it meets their specific requirements. This could perhaps be to cover a legacy issue, accommodate terms of business or contract / sub-contracting arrangements etc.
A broker will undertake these tasks, reducing the burden on you to be an insurance expert. Buying through a broker gives you the experts eye and the tailoring to fully protect your business so you have peace of mind.
4. The Insurance Act
Full disclosure for insurance purposes has always been something of a minefield and under the new Act is now even more so.
Why is this? The Insurance Act came into force on commercial insurance policies in 2016. Under the Act you owe a duty of disclosure to the Insurer, which includes your duty to make a fair presentation of the risk. You must disclose all material information known to senior management, as well as those persons responsible for the insurance.
The Act increases the obligations on an insured and places a significant responsibility on the person responsible for arranging the insurance.
A broker will explain the requirements and obligations under the Act and also share in the information gathering and risk presentation process.
5. Claims support
A professional indemnity claim can be an unpleasant and stressful experience. The amounts involved can be significant and there are reputational risks because someone is alleging negligence and challenging the competence of your business. A broker will provide invaluable advice and support throughout the whole process.
And wouldn't it be marvellous if every claim was willingly accepted by the insurance company! But the reality is statistics show that well over 50% of commercial insurance claims are challenged by the insurer in some way. A broker will be able to help remove any unnecessary ‘reservations of rights’ to ensure your claim is fairly accepted and paid by your insurer.
A broker is always working on your side to achieve the best possible outcome on claims.
6. Part of your advisory team
So to sum up, a business needs an insurance broker to advise on them on insurance every bit as much as they need an accountant to advise them on their accounts. The broker service is highly cost effective and if you choose the right one, they will be an essential part of your business advisory team. An insurance broker gives value for money.
This guidance note is intended for information purposes only. It is not and does not purport to be legal or accountancy advice. Whilst all care has been taken to ensure the accuracy of the guidance note it is not to be regarded as a substitute for specific advice. This guidance note shall not be reproduced in any form without our prior permission. © 2017 All copyright is owned by Professional Indemnity Insurance Brokers Ltd