UK media is currently inundated with advertisements from direct commercial insurance companies aimed at small business owners, as a way to convince them to change their provider of business coverage.
The slogans of these companies include “Get 12 months coverage for the price of 10” and “You won’t see us on price comparison website’. These are phrases more appropriate to selling car insurance than to the more traditional, professional, almost stoic approach of selling business insurance.
The price of all goods and services has been the dominant factor in the current recession. In this environment, insurance is no exception. The large direct insurance companies know this and are trying to help small-business owners be more cost-efficient.
Large insurers also know that there are over five million small businesses in the UK, of which a fifth is sole traders, self employed, and workers from home. Many of these people are comfortable with buying their personal insurance directly with the provider by phone or online.
Three types of providers are available in the UK’s current market for business insurance.
Intermediaries, such as agents and insurance brokers, price comparison sites, and direct commercial or business insurers.
Each channel has its own advantages and disadvantages. However, whether one channel is more affordable than the other is often subjective. This is because it is dependent on many factors that cannot be quantified in price.
Because they cut out the middleman, direct insurance companies claim that they can offer lower-priced polices. Although it is true that direct insurance companies do not need to pay an intermediary to cover the cost of lead or introduction, it is doubtful that this cost savings is reflected in the price offered to the public.
Although there are many benefits to centralising the policy’s life cycle from sales point through renewal and claim, the intermediary functions still need to be done in-house and have a price.
Large composite insurers may have separate divisions that each target a different market or offer premium rates. One company might also have a broker or intermediary channel.
A large broker who has a large client base, such as small builders liability, will often receive preferential rates than the direct channel of the same company. This is because the insurance company wants to keep its clients.
The advantage of commercial insurance brokers is that they are able to offer lower rates than direct channels because they have more flexible arrangements and schemes.
The main benefit of working with an intermediary or insurance broker to purchase commercial insurance for small businesses is not quantifiable in price. It is well worth the commissions or fees they may charge. These include advice, market and product knowledge, access and assistance in the event of a claim.
A broker who is a commercial or business insurance broker can often negotiate better settlements than an individual dealing directly with the insurer. This is because the insurer wants to keep the broker’s share of the total risk pool. They will often pay out to brokers on an ex-gratia basis. This service’s cost is not quantifiable at the quotation stage. Small business insurance may be valued based on the price paid or the coverage purchased.
Small business owners have another option: they can visit a price comparison site to purchase insurance. Online coverage has been made available by all the UK’s major comparison websites. This is especially for small businesses with fewer than 50 employees. This online coverage is directly competitive with direct insurance companies for TV and media advertising space. It is geared towards self-employed tradesmen or women who need business liability insurance, and possibly commercial van cover.
The comparison price proposition states that they can search the entire market, or at most a portion of it, to find business insurance at the lowest prices. They don’t often offer any assistance with purchasing decisions. The reality is that small business and commercial insurance are cheaper through other channels.
Small businessmen should shop around and compare all available offerings, including premiums and covers. There is an enormous variation in prices between the comparison, broker, and direct markets. In order to save large amounts of money it is important to find the provider or supplier that is the market leader for a particular trade or business type.