Question: My business has grown rapidly over the past 24 months. Turnover will increase this year by 40 per cent to nearly $12 million. The outlook for the next two years is also positive. The business will be relocated to a new site in September. I am also thinking about buying insurance even though I know very little about the subject. What types of coverage are necessary? Should I buy direct from an insurer or, should I use a broker?
- E.D.S., Spanish Town, St. Catherine.
Answer: The menace of Dennis and the issues I raised last week provide some answers to your first question. It is the duty of insurance buyers to assess the risks they face. The process starts with identifying their need for protection. The job cannot be farmed out. Others can help, but in the long run, the buck stops with the boss or - in the jargon of Oliver Samuels - the "owna for de yard." This week I will look at your second query.
WHAT INSURANCE BROKERS SHOULD BE DOING
Brokers match the needs of insurance buyers with those of sellers. That task is carried out under three headings (says the International Federation of Risk and Insurance Management Associations). They are: advisory, transactional and servicing and administration. The first one involves the broker giving information - not selling insurance. The aim is to help the buyer select the best risk transfer (insurance) strategy. This function cannot be properly done unless the broker understands the client's business.
A good adviser can also help to assess the buyer's needs.
The second task includes [a] selecting potential insurers; [b] selling your company's risks to those insurers; [c] agreeing to the general terms of the insurances; [d] comparing insurers' offerings; [e] presenting the buyer with information to make a decision and [f] placing the contracts. With 12 insurers in the non-life market with different contracts and attitudes to risk taking on this part of the broker's job could prove difficult for average layperson.
Servicing and administration begins after the contract has been placed. It involves many things. Some include: checking the wording of the policy; paying the premium; reporting claims; negotiating the settlement of claims; sending periodic reports to insurers; making changes to the contract and negotiating renewal. It also involves being ready, willing and available to lend support and assistance to clients at a moment's notice.
Brokers control over 50 per cent of the nearly $14 billion market. Many persons and big buyers of insurance use their services. You are unlikely to go wrong if you follow their lead. Bear in mind also that it is very probable that you may not have much time to handle these tasks yourself, given other demands.
TIPS FOR SELECTING A BROKER:
The regulators have issued licences to over 20 brokers. The fact that brokers have licences provides no guarantees to buyers. There are brokers and there are brokers. Some are strong in some areas and weak in others. At the other extreme some are weak in all three. Here are a few things you can do in order to choose which one is likely to meet your needs:
Carry out background checks about the company before entering into any arrangement. Who are the main shareholders? What qualifications and experience do their management and senior staffs have?
How long has the firm been established?
Has the firm any experience in your line of business?
Have there been any claims against made against the company for giving wrong advice or for failing to give proper advice?
How is information and communication technology deployed by the firm to enable employees to respond quickly and effectively to the demands of customers?
Ask two or three firms to provide you with written proposals for handling your business.
Do not make your decision based solely on the basis of price - you often get what you pay for.
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. If you need free information or counsel to help you solve a problem write to The Financial Editor or contact Mr. Stephens at aegis@cwjamaica.com.
