A recent survey by Vero found that SMEs (small to medium sized businesses) in Australia have a better experience when they purchase their insurance through a brokerage firm than direct from an insurer. In fact, SMEs that use brokers or insurance advisers are twice as likely to have their claims paid in full compared to those who directly approach an insurer.
So should you choose an adviser or an insurer? What if you make the wrong choice? What would happen if you have to cover shortfalls from claims that are only partially met or even knocked back, because your business was underinsured? Would your cashflow or even your business be dangerously jeopardised? To help you with your decision, lets look at the pros and cons of using a brokerage firm (adviser) versus going direct to the insurer.
Pros and cons of using a brokerage firm
An adviser must abide by the Corporations Act and provide you with suitable insurance advice for your business. They will examine your business risks, compare the different policies that are available and give you a Statement of Advice that details their recommendations, specific to your situation. You can also find advisers who specialise in your type of business, which might be the best strategy for your situation (depending on your industry).
On the other hand, a brokerage firm may charge you a fee for their advice (in addition to your premiums) and they may also receive a commission from the insurers for your business. In either case, they should inform you of these fees and commissions.
The bottom line is that a brokerage firm is ideal if your knowledge of the insurance industry is limited and you want a specialist to guide you through the process. They can explain aspects of the policies you don’t understand and basically perform all the research on your behalf.
Pros and cons of going direct to insurers
If you have a good knowledge of the insurance industry and feel quite capable of selecting the right types of polices to reduce your business risk, then a direct approach might be more suitable for your situation. However, you will need to compare different policies, as well as their limits and exclusions yourself, which can take up a serious amount of your valuable time. This approach can also pay off if you are able to negotiate lower premiums directly with the insurer.
The flip side is that if you make a mistake, your business might pay a hefty price in the not too distant future. For example, if you don’t really understand all your business’s risks and select the wrong policies or you underestimate the value of your assets and are underinsured, the financial costs to your business can be monumental.
In fact, if the worst happens and your claims aren’t met by the insurer (because you are underinsured), your business can suffer a critical loss in cash flow and close its doors; all due to a lack of knowledge and expertise in selecting the right type of insurance.
In the end, the decision is yours, but it pays to remember that the insurance industry is very complex and the wrong choices can have a huge impact on the success or failure of your business. Just imagine trying to fund a rebuild or the replacement of equipment/stock from your capital, simply because you didn’t get the right advice when you took out your insurances.
General Advice Warning
The information provided is to be regarded as general advice. Whilst we may have collected risk information, your personal objectives, needs or financial situations were not taken into account when preparing this information. We recommend that you consider the suitability of this general advice, in respect of your objectives, financial situation and needs before acting on it. You should obtain and consider the relevant product disclosure statement before making any decision to purchase this financial product.