Steering through insurance maze
You're running a small business and therefore need to carefully control every expense, but the effort of shopping around for the best deal runs into the other small business given: you're chronically time-poor as well.
So wouldn't it be nice to put your insurance out to tender, to have the insurance companies bid for your business instead of you having to chase insurers for what might or might not be the best offer. More important, wouldn't it be nice to understand what that complex insurance policy might mean.
And that's pretty much what using a good insurance broker is supposed to deliver - the services of an impartial professional to steer through the insurance maze.
The looming stock exchange listing of Steadfast Group - likely to be the biggest float of the year - might serve as a thought provoker for small business people who haven't tried using an insurance broker.
Which is why I rang a tame broker on a no-names-no-pack-drill basis to suss out the alleged benefits of not going directly to underwriters and perhaps to understand why small businesses often don't.
My suspicion is that many small businesses, especially start-ups, think they're too small to be worth a broker's while. Not so, says Tame Broker - if I call him the Insurance Stig, will Top Gear sue over naming rights?
"We can do a single car, a single house," he says . "A broker should have the expertise to know what the most suitable policy will be for a client. We can put the business out to half a dozen underwriters who then effectively compete for it.
"More importantly, your broker should understand the detail in policies that the layperson may not. It's not just a matter of price for what might seem similar policies - various inclusions or exclusions can make a big difference to which policy is the better buy.
"Insurance policies are complex contracts between you, the insured, and the insurance company. There has to be an evaluation of needs before entering into the contract to obtain appropriate coverage and someone who will respond when a claim is made.
"A successful contract of insurance requires impartial evaluation, industry knowledge and appropriate placement - price should not be the sole reason you enter into the contract."
Insurance Stig says you don't want to be having an argument with the insurer at the time of making a claim, when nothing can be done about the contract - it's a matter of getting the contract right in the first place.
Given the variety of events and risks for which an SME needs cover, the broker will tend to come back to the client with a recommendation among a range of offerings from underwriters. "We might recommend the policy from Company X as being better quality, but the client might still prefer to go with Company Y because they can't afford X. In the end, it's the client's decision, but we can help make that an informed decision."
Brokers are paid by the insurance companies for placing business - a commission that must be disclosed to retail clients. Depending on the complexity of the policies, there also can be direct fee for service.
Large brokers say they have the joint buying power to get better deals than individuals can find from underwriters, but Insurance Stig says that sometimes an individual can get a lower price dealing directly with an insurer, in which case, that's what the broker will recommend - as long as the policy is what the individual needs, not what the insurer is selling.
Brokers are government-licensed and fall under the supervision of ASIC, such as it is. Membership of the National Insurance Brokers Association requires brokers to keep up to date with legislation and industry developments. "In the end, it's a professional service, like using an accountant for your tax, a lawyer for your legal issues.
"We deal with insurance day in, day out, so have a much better chance of understanding it than someone who just faces a policy renewal once a year. You're buying some peace of mind by having your insurance policies independently evaluated."
And that is pretty much an unpaid advertisement for insurance brokers, which is what you'd expect to get from an insurance broker, tame or otherwise. And we still don't know who is under that helmet.
Michael Pascoe is a BusinessDay contributing editor.
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