Here’s an industry statistic; 84% of UK commercial insurance premium is controlled by insurance brokers....
....and for professional indemnity insurance the percentage is even higher. So only a modest percentage of commercial insurance premium is placed by policyholders directly with insurance companies.
In this guide we explain why this is the case and why using a good broker is such a huge benefit to both the Insured and the Insurer. The key points covered include;
- Why do I need an insurance broker?
- Access to 'closed' markets
- Is the premium lower through an insurance broker?
- Product suitability
- The onerous obligations of the Insurance Act
- Claims support
- Your advisory team
Comparison websites offer excellent value if you are a very small business and just want to buy basic insurance cover quickly and cheaply online, without any advice. But for other businesses it's more complicated.
If you are responsible for arranging the insurances for your company then you'll 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 decision, but if for example you are an accountant, a solicitor or a complex service provider, buying professional indemnity insurance based on premium alone is not good business practice. There are other factors which need to be right if the product is going to work correctly.
So here are six good reasons why businesses use an insurance broker.
First and foremost, the majority of the 900+ commercial insurance companies active in the UK will not deal direct with businesses. They are closed and will only accept enquiries presented to them through an insurance broker.
Why is this? The broker is the insurance company's main route to market and this arrangement reduces expensive marketing and administration costs for the insurance company. They will be open to business with many different brokers and so this 'network' will deliver a steady stream of lucrative new business.
Brokers are insurance experts and speak the same insurance language as the underwriter. It’s therefore much easier and more cost effective for the insurance company to work with an insurance broker than it is dealing direct. This arrangement justifies lower premiums as well as the cost of the broker commission.
Contrary to popular belief, using a broker is almost always cheaper than going direct to an insurance company.
Why is this? Refer to point 1 above, but also with such a huge choice of insurance companies in the UK, a good broker will know the market and the best rates available much better than you. It's what they do.
A good broker will negotiate a premium with an insurer/s using a combination of technical arguments, auctioning, commercial weight and of course their business relationship. Trust and respect is an important part of the relationship between the broker and insurer and can make a big difference to the terms agreed.
There are hundreds of different professional indemnity insurance policies on the market and they are usually complex documents, full of insurance terminology and legal jargon.
Although they may look similar, you shouldn't judge the book by its cover as a trained eye is needed to fully understand what is covered and what's NOT covered.
Most professional services businesses require some tailoring of their policy to ensure it meets their specific requirements. This could perhaps be to cover a legacy issue, accommodate certain terms of business or sub-contracted arrangements etc.
A broker will undertake these tasks, reducing the burden on you to be the insurance expert. Buying through an insurance broker gives you an experts eye and the tailoring to fully protect your business, so you have peace of mind.
Full disclosure for insurance purposes has always been something of a minefield and under the new Act it's 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 the person or 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 good broker will explain the requirements and obligations under the Act and also share in the information gathering and risk presentation process.
A professional indemnity claim can be an unpleasant and stressful experience. The amounts involved can be significant and there are reputation risks because someone is alleging negligence and challenging the competence of your business. An insurance broker will provide invaluable advice and support throughout the whole process.
And wouldn't it be marvellous if every claim notified was willingly accepted by the insurance company! But the reality is 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 or unfair ‘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.
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 or a solicitor to advise on the law. 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. A good insurance broker gives you value for money.
To find out what we can do for your firm, or for some professional indemnity insurance advice, do please get in touch.
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. © 2019 All copyright is owned by Professional Indemnity Insurance Brokers Ltd