Value of Advice
Buying commercial insurance cover to protect a business can be riddled with complexities - even for the smallest company. Eric Galbraith, Chief Executive, of British Insurance Brokers' Association (BIBA) explains how insurance brokers can help you and how changes in the industry are providing clarity on the services that brokers provide.
By Eric Galbraith
Insurance brokers can help businesses by taking the 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.
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.
This industry guidance should provide more clarity for your business when purchasing insurance from a broker and will help you to understand the work that the broker carries out on your behalf and how the broker is remunerated for these services.
To find BIBA broker visit www.biba.org.uk.
A copy of the industry guidance can be found here.