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Encompass Insurance Brokers
For Business - 'Advised' or 'Non-Advised'.
'Advised' or 'Non-Advised'.
by Damien Cassin 06/21
Not all Insurance Brokers are the same of course but there is one important difference that many insurance buyers may not fully appreciate; Is their Insurance Broker offering a ‘non-advised’ or an ‘advised’ service? This short article looks at the difference between the two and aims to help you decide which service proposition best works for you and your business.
The ‘Non-Advised’ Proposition
I describe this as going to a market and ‘shopping for a can of insurance’. The insurance marketplace provides many products for a vast range of insurance covers. To simplify the transactions, brokers and insurers have worked together to provide insurance packages and wordings that are specific to certain trades or risk exposure – these are especially prevalent in the small business landscape and personal lines areas. The product seeks to provide all of the insurance coverage that you, the buyer, may require in one policy and suit the majority of your requirements in that particular area e.g. a small office, or sole trader’s policy.
The policies may offer various covers – all designed to meet the needs of the average insurance buyer with that business activity.
Most Brokers who provide a ‘non-advised’ service, offer these pre-packaged products – effectively what I refer to as the ‘can of insurance’. The Broker will offer to sell you this can if you want it but, most importantly, the Broker will not be able to provide you with any advice as to whether the contents of the can of insurance suits your business requirements. This decision rests with you. If you start asking questions of the Broker as to whether your business needs are met, the Broker will tell you that they are not permitted by the Insurance Industry’s regulator (The Financial Conduct Authority), to make a ‘recommendation’ to you – and probably read out a long, scripted message in the process. You will have to determine for yourself whether you are buying the correct cover for your business. If you feel that the offer does meet your requirements, you’re free to make the purchase. If you don’t, while some products offer the ability to tailor the cover, you may need to look elsewhere.
The ‘Advised’ Proposition
The Broker offering this service will first seek to understand your business and its likely risk exposures by gathering information about your business and its activities.
The Broker will then discuss the type and extent of insurance cover that might be available to you and approach a limited number of Insurers that the Broker feels will offer the best coverage at an equitable price. Then the Broker will make a ‘recommendation’ to you about what insurance products to purchase and with which insurer. Throughout the process, the Broker will share their knowledge, advise and guide you through the process so you are able to make an informed decision about any purchase you subsequently choose to make.
Unlike the ‘can of insurance’ approach, the insurance you purchase has been bespoke designed specifically to meet the needs of your business and you choose the ‘ingredients’ of your cover to suit you, after having had on hand, a trusted advisor with whom to discuss any technical issues and who has assessed the demands and needs of your business at a granular level.
So Which Option is Best for You?
It depends on your business circumstances but let’s address the ‘elephant in the room’ first, Cost.
The ‘non-advised’ approach is normally cheaper, sometimes dramatically so. The ‘advised’ process of demands and needs analysis, technical guidance and advice, obtaining different options from a number of insurers, having real people who are knowledgeable and accessible – all adds cost. Naturally, this cost is passed on to the buyer which results in higher insurance costs for the Advised service – if the premium spend is low e.g., Micro and SME products the Advised fees may well be a significant percentage of the overall spend.
Is cheaper better? Quite possibly. However, there are several factors to consider:
• When purchasing a non-advised product, you really need to be confident that what you are buying is suitable, so a reasonable understanding of the numerous types of insurance coverage that are available and how they work from a technical standpoint, is desired to make an informed purchase. See below* for our view on whether the requisite knowledge is prevalent among buyers.
• Be cautious of the TGTBT (too good to be true) offers online. The insurance marketplace is highly competitive so, for simple requirements, there should be many providers offering a similar product at a similar price. If one provider seems particularly cheap by comparison, it’s probably cheap for a reason!
• Check the small print! I deliver training to insurance industry employees and one of the questions I start by asking is: How often do people read what they’re agreeing to? It probably won’t surprise you that the responses show ‘almost never’! Our online life is littered with ‘Terms and Conditions’ for every service we utilise and very few people ever read these, hence the surprise when they realise that they have agreed for all their data to be sold to marketing companies! When purchasing insurance, the buyer is entering into a contract with the Insurer – the contract is the policy document which is why it is always signed by the Insurer. Most of these contracts are not only lengthy but also, can be quite technical for those without a solid foundation knowledge of the topic.
• For simple requirements like, say, a small Public Liability policy, an hour on the internet can yield a very basic understanding of the cover, a few options from various suppliers of ‘cans of insurance’ and you may well find a product that suits your needs. For many businesses, it may well be that the product being offered is fit for purpose, especially if their business activities ‘fit the box’ nicely, relative to the package being offered. Also remember that any questions you answer or statements you agree to will form part of the contract you are entering.
• There might be a ‘safety in numbers’ approach. For example, if there is a trade association of ‘widget’ installers and that association has an affinity with a Broker and Insurer to offer a bespoke insurance policy to thousands of its members, market forces dictate that the value and coverage of the policy is probably pretty good. Such partnerships with a captive audience are fiercely fought over by Brokers and Insurers and this competition yields decent products at low cost for the buyer. Be cautious if any of your business activities do not ‘fit the box’ as it is possible that the product may not offer the appropriate cover.
• Non-advised products are often available for purchase online or over the phone as they tend to be simple transactions; The buyer provides some basic information, the can of insurance is offered and, providing your business can ‘tick all the boxes’ and you confirm that you are happy to take on the assessment of whether the cover being offered meets your requirements, cover be purchased on-the-spot, sometimes 24/7 via online services. Given the way the ‘advised’ process operates, it might take weeks to go through the process as it can be very detailed and involve numerous parties.
You have probably already worked out by now that they key factor is whether you know enough about the subject material to be able to make an informed opinion. Only you can decide of course! However, there are not many of us who know what we don’t know. Therefore, in my opinion, the percentage of buyers that enter contracts that are not fit for purpose is high, possibly even spectacularly high. It’s virtually impossible to measure of course, to do so would involve auditing every insurance purchase but, it is something that I’m prepared to posit based on just one simple statistic - there are other reasons (see our technical articles for more info) – but this one estimate from RebuildCostAssessment.com is both enlightening and scary at the same time:
79% of UK Properties are underinsured and of these, the average building is covered for just 69% of the amount it should be….
*Now, forgive me for sounding harsh here but why should I think that the average buyer can accurately assess their liability exposures, their required indemnity period for Business Interruption, the importance of A.I.C.O.W. as opposed just I.C.O.W. and the impact that Conditions and Warranties might have on their cover (the list could go on….), when 79% of properties are not insured for the correct value? Whilst not easy to get right, setting the correct property sum insured is certainly one of the easier things to get right.
(For more information on how to declare an accurate building sum insured, click here.)
(For more information on what happens if you are underinsured, click here.)
O.K. so rant over. Sorry! There is a spot of good news; not many people have claims so most of the time, policyholders live in blissful ignorance. However, bearing in mind that, on average, there is £16m paid out by insurers in the UK per day (….for just Property claims!) claims are not exactly rare.
What then, should you do? Fortunately, it may not cost you anything (other than your time) to obtain some advice from an ‘advised’ Broker as most Brokers are more than happy to have an informal chat about your options and cover requirements so there’s no harm in making an enquiry with a suitable Broker – just check that they offer a fully advised proposition as it’s not always clear from the outset if they don’t.
Thank-you for taking the time to read this article and I hope you found it useful.
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