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SMEs need to take care in the complicated insurance arena

“Small businesses are experts in their particular field but are often not experienced in buying insurance. That is why they need to be able to trust their insurance intermediary to act in their best interests. If there are conflicts of interest that are not identified or properly managed, that trust is put at risk.” (Clive Adamson, Director of Supervision at the Financial Conduct Authority)

The FCA has focused a recent review on insurance selling to small business customers. It stated that they have more complex insurance needs than retail clients but are not always more sophisticated buyers of insurance. Small businesses often rely on insurance intermediaries for advice, where actually an independent adviser may be a more suitable source of assistance. The FCA wanted to establish how the flow of revenue from insurers or other sources to intermediaries could affect how customers were treated. It found that:

  • there was increased risk of conflicting interests where firms fulfilled multiple roles in the distribution chain and acted as agent for both the customer and insurer in the same transaction;
  • the control framework and management information in some firms had not developed in line with changes in the size and complexity of the business;
  • some intermediaries relied on disclosure as the main way to address conflicts of interest rather than having effective control frameworks in place;
  • disclosure provided to customers was sometimes very generic and unlikely to meet their information needs or enhance their understanding; and
  • conflicts of interest were not always effectively mitigated in relation to add-on insurance or services, premium finance or where the cost of insurance is borne by a third party.

Consumer research also revealed that small businesses are not aware of the differing roles intermediaries can perform. Many (68%) believed that intermediaries acted as their agent when selecting and placing their insurance. Further, a large majority (86%) of small business policyholders expected their insurance intermediary to search for more than one quote, which was not consistent with placement processes within some intermediary firms.

The FCA is concerned that if conflicts are not properly managed there is the risk that decisions are made in the interest of insurance industry firms rather than their small business customers. This could result in some small businesses over-paying or buying products they don’t need. Whilst the FCA’s review has focused on larger firms, all intermediaries should take note of the findings and ensure any conflicts are appropriately managed. The regulator will be working closely with the industry to communicate the results of the review and, with the firms involved, will use appropriate regulatory tools to address specific issues.

Sources: http://www.fca.org.uk/news/fca-calls-on-insurance-intermediaries-to-better-manage-conflicts-of-interest



That’s why at Concept we collaborate with Executive Insurance – they hold values true to our ethos of looking after the client – should you wish to contact them just call 01323 444999 or email   admin@execinsurance.co.uk

Does my small business need insurance?

Not having the right kind of insurance coverage can put your business at risk. Without adequate insurance; a fire, theft, employee accident or lawsuit could destroy your business and might even consume your personal assets.

In fact, your business may be legally required to have certain kinds of insurance. For example, if you have employees you have liability and you may also have to prove you have specific cover in order to trade. In addition, people such as landlords or suppliers may require you to have cover as part of a contract.

What can I do if I can’t afford business insurance?

According to the US Insurance Information Institute, about 40 percent of small business owners in the USA have no insurance at all because they claim they are cash constrained. They may be buying into a common misconception that small business insurance is not worth the expense. The truth is that not having insurance can cost a lot more than annual premiums, you can end up losing your livelihood to a disaster.

The cost of cover might be less if you work out what excesses on claims you feel you can afford. You may find yourself paying higher out-of-pocket costs should you make a claim but you will be protected from larger cost impact.

What can I do to keep my insurance costs under control?

An effective way to control your insurance costs is referred to as “risk management.” Using risk management methods, you determine the probability of your business facing a loss and consider whether or not it needs cover for that loss.

Risk management is basically a four-step process:

1. Identify sources of potential losses. Examples would include casualty and theft losses, fraud and embezzlement, injury claims, etc.

2. Evaluate the financial risk posed by each exposure. How frequently might the event occur? How severe would its impact be?

3. Determine how to treat the risk. Can it be eliminated or controlled?

4. Monitor the results of your analysis. You may need to review steps 1-3 annually

By using risk management to avoid or reduce losses, you can lower the number of insurance claims your business may make. This, in turn, lowers your cover rates, which are based on your claim history. You may also find that your out-of-pocket expenses for uninsured claims are lower.

How often should I review my insurance policies?

A small business’ insurance needs may change frequently. You don’t want to find yourself suddenly underinsured, nor do you want to pay more for insurance than necessary. Take stock of your policies and premiums at least annually, and, if possible, twice a year, to ensure they still meet your needs. Also, re-evaluate your coverage whenever your circumstances change.

We understand that this is a very specialised market place and only companies with experience and qualified individuals with a  true understanding can take you through this maze – that’s why we use Martin Davis at Executive Insurance.

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