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BIBA
The Value of Advice
Eric Galbraith, Chief
Executive of the British
Insurance Brokers’
Association (BIBA) explains
some of the complexities of
buying commercial
insurance cover, and the
pitfalls SMEs should
beware
B
uying commercial insurance cover to protect a business can be type of services they provide and the relationship that they have with
riddled with complexities – even for the smallest company. insurers.
However, many business owners could come unstuck because The FSA argues that this information is needed to ensure that the
they believe that they are receiving advice as they buy their buyers of commercial cover make a better informed decision about the
insurance when in reality all they are getting is information, most appropriate insurance product for their business.
according to research commissioned by the British Insurance Brokers’ The upshot of all this has been the publication of industry guidance
Association (BIBA). which aims to ensure that the buyers of commercial insurance are
Advertising would suggest that going online or direct to the insurer provided with clear information about the capacity in which their chosen
for commercial cover is a straightforward and cost-effective way of intermediary is acting i.e. are they working for the insurer or the
buying cover. Worryingly, BIBA’s research found that a third of the micro customer or in some cases for both, the services being provided and the
SMEs not using the services of an insurance broker failed to realise they remuneration they have received for them. The development of this
were not being advised and were probably only being offered products guidance has been led by BIBA in co-operation with the other trade
limited to a single insurer or provider. bodies in the insurance market such as the ABI, IIB, LMA and LIIBA.
This lack of understanding has to be of concern. This cover may not be Customers buying commercial insurance should be made aware of
the best for the purchaser’s business. Business owners are often far too their right to request commission information by their intermediary. The
time pressed to read all of the conditions of an insurance policy. guidance gives brokers direction on how they can give prominence to
Businesses as a result could find themselves unwittingly unprotected if this right as research from the FSA has shown that a significant number
they have not had certain terms and exclusions pointed out to them or of commercial customers are unaware that they have the right to know
understood security requirements, for example. Sadly, all too often, that how much remuneration their broker receives on their particular policy.
happens when a business needs the protection offered by their policy The guidance also seeks to ensure that commercial customers have
the most – when a claim has arisen. clearer and more comparable information about the commissions that
Having suitable insurance in place is vital. Business owners should brokers and intermediaries receive as well as the services that are being
always check that adequate cover is being purchased by asking if the provided. This includes information about the breadth of search that the
policy offered is a recommendation, if it is suitable for their specific broker has undertaken in order to find an insurance product for their
needs or by obtaining advice from a broker. customer. Where a broker has used the services of another intermediary
Brokers take time to learn about the insurance needs of a specific in the placing of the insurance then the commercial buyer should also be
business and can offer a full range of professional services including risk made aware of their presence.
management, recommending insurers for their quality and not least, The FSA’s rules require all authorised firms to take all reasonable steps
provide assistance in the event of a claim. There are many occasions, to identify conflicts of interest between themselves and a client. Brokers
where had it not been for the intervention of a broker a claim would will face a conflict where their own interests conflict with those of a
have either been refuted or reduced payment made by the insurer. commercial customer; or a broker is unable to act in the best interests of
The research confirmed high satisfaction levels with those businesses one commercial customer without adversely affecting the interests of
that chose to use the services of a broker, with 95 per cent of SMEs another commercial customer. Consequently, a large part of the
saying they are likely to do so again for their business insurance when guidance is devoted to helping brokers to manage the conflicts of
their policy next falls due for renewal. interest that may arise from commercial relationships.
How the broker gets paid for those services has been a source of
much discussion in the insurance industry recently. The Financial Services To find BIBA broker visit www.biba.org.uk
Authority (FSA), which is responsible for regulating the activities of the
insurance industry, has been seeking greater transparency about the A copy of the industry guidance can be found at:
level of commission earned by intermediaries when selling insurance, the www.biba.org.uk/PDFfiles/IndustryGuidanceFINAL.pdf
14 SGB OUTDOOR JULY 2009
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