Cedric Stephens, Contributor
QUESTION: I own and operate a small business. After many years of struggle and, in spite of the difficult economic environment, I am now beginning to see some light. The business is now at a stage where it is becoming viable. I am now in the process of seeking the services of an insurance broker. I need help to identify and manage some of the many risks that threaten the company's future. What are some of the things that I should and should not do in selecting a broker?
- B.S., Kingston 10.
HELPLINE: There are no simple answers - or, to quote a cable TV ad, an Angie's List - to your question. That said, it came at a most convenient time.
The study manual of Chartered Insurance Institute - the insurance equivalent of the Vatican - on Insurance Broking, which was first published in the United Kingdom in 2005, came into my hands quite by chance early last week.
An article I wrote in this newspaper on November 12, 1997, 'Select your broker with care', was another source of information. I hope that my many critics in the insurance industry who accuse me of consistently 'waging war against them' will pay particular attention to the fact that most of the input for the latest article came from a very respected and reliable source.
I hope that that will add some authority to the comments that follow!
Do your homework
The main point of the earlier article ago was that insurance buyers need to do their homework when they select a professional insurance adviser. Those words are still relevant today.
I am very glad to note that you are doing exactly what I suggested even though it is most unlikely that you read that article 16 years ago.
The study manual on insurance broking says: "Attitudes to buying insurance vary. For some businesses, insurance is a distress purchase, only bought because it is required by law or because banks, shareholders or customers require them to buy it ... most businesses see risk management and insurance as important to their business and will be interested in building relationships with their broker and their insurers."
You fall in the second group. Risk management and insurance are essential to the long-term success of businesses in Jamaica. Companies that ignore this fact will find it impossible to recover in the event that something untoward was to disrupt their operation.
Twenty-five companies were authorised by the Financial Services Commission to act insurance brokers as at June 30, 2013. This is according to information on the FSC website - www.fscjamaica.org.
Eighteen were licensed as facultative placement brokers. Facultative placement licences allow brokers to trade in overseas insurance markets. Brokers who have access to local and overseas markets have more flexibility in meeting customers' needs than brokers who are limited to trading in Jamaica. In my opinion, your choice, is therefore limited to finding out which of the 18 companies meet the requirements of your business.
There are brokers and brokers. Some of them are merely outlets where insurance policies are sold. There is another group that provides a full range of brokerage services.
The first group exists solely to sell the next policy to earn commission, to sell the next policy to earn commission. They are not in the business of building relationships with clients. Providing advice and information to help customers manage their risks and assistance in the negotiation and settlement of claims functions that some of them promise, but fail to deliver.
In some cases, employees, even though they are licensed by the FSC, operate without being formally accredited by a professional body.
Look at qualifications
Pay attention particularly to the professional and other qualifications of the service providers and also to what continuing professional-development activities they are engaged in.
Professional brokers perform at least six of the core functions that are listed on the accompanying chart. Notably absent is the provision of information and advice in the management of risks, which I would argue, is a totally separate function from the provision of insurance advice.
Most local companies select their broker based on only one consideration: price. This is a mistake because insurance protection is only a promise.
That undertaking is only fulfilled when a claim is paid. As a result, factors other than price are just as important as price. The manual was also very helpful when it described service excellence. Here are a few examples from it which may prove useful as you go about the job of selecting which broker to avoid and which one to select.
The broker should:
1. Have a thorough understanding of your business and the sector in which it operates.
2. Be aware of and be familiar with developments in your business industry and how they are likely to affect it and your insurance and risk-management programmes.
3. Plan thoroughly for meetings and follow up quickly with minutes and supporting documents.
4. Anticipate problems, brief you fully and provide you with options.
5. Complete all tasks within reasonable deadlines.
6. Seek ideas about best practices internally and externally.
7. Adopt a professional approach.
I hope that you understand the scope of the job that you are about to undertake and, more importantly, have a much better idea what to expect from the broker that you select.
Cedric E. Stephens provides independent information and free advice about the management of risks and email@example.comSMS/text message to 812-7233