Why you shouldn’t manage your own insurance
Should you manage your own insurance? It’s a question we get asked all the time! As the internet world progresses and information becomes available it has now become easier than ever for business owners to take on more of a ‘do it yourself’ approach. Although this is fine in most cases, there are a number of sectors within your business that you should outsource to professional service agencies. Similar to the likes of an Accountant and a Solicitor, your insurances should be managed through an Insurance Broker and heres why.
There is noone who can give you tailored advice
Tailored advice to your business is and in my opinion, always will be the number one reason. You can read articles online, speak with friends and family, other business owners however, not one of them will give you specific advice to you and your business. It may get as close as giving advice to your general industry however, not your business – they are different.
The best time to speak with an Accountant is on the initial setup of your business or even in the planning process, this is the same with your insurances. Should you make any error the cost to rectify could be substantial or if it is big enough, may even prevent your business from even getting off the ground.
The whole idea of getting this tailored advice is so that you can identify a suitable risk tolerance for your business, identify any potential exposures and ways you can mitigate these situations. Every client is different as every client starts their business in different ways. Some businesses have $50,000 in funding to start trading so a $5,000 loss doesnt seem anywhere near as significant as someone who has started their business with little to no capital.
What are you worth to your business?
You should take important note and work out what your value is to the business? What would you work out your hourly rate to be? What do you charge your business out on an hourly rate? Is this rate worth your time to manage your insurance?
This is quite a big struggle as a business owner. Everywhere online and in society today the term “business owner” has turned into the concept that you need to be able to do absolutely everything in your business. The truth is, businesses flourish most when owners delegate their duties appropriately.
You’re not saving money
I come across this quite frequently where a prospective client sends me a copy of their current policy that they arranged themselves, I ask them what they currently spend and then gather comparison quotes. These quotes will usually work out cheaper or provide a better level of cover.
The main reason why business owners tend to manage their insurances is because they believe that they can find a cheaper solution. This is usually the key motivation for taking this time constraining task on board. An insurance broker knows their insurers appetite and for any industry, I could approach a minimum of 10-15 different insurance companies. We also have 300 different insurers that we can approach depending on the policy required.
A good insurance broker will also know how to structure your policy. A business package policy is typically added as a convenient option. I quoted a client just yesterday where quoting their property and public liability policy under the same policy was $700 more expensive than an option to split it between insurers. No, this $700 wasn’t saved on a $20,000 policy – the client was currently paying $4,000 per year so a $700 saving significantly reduced their premium. We utilised these funds by taking out additional cover that they previously disregarded because they couldn’t afford to pay more insurance costs on top of what they had.
Saving money doesn’t just have to be on reducing your premium costs, saving money can also be attributed to preventing or protecting the risk of having to pay costs on a future loss.
The fine print
We all know the fine print is there however, some people know more than others. Have you ever gotten a quote, saw that it was 3 times cheaper than everywhere else and you instantly felt that fear and uncertainty of why it was so much cheaper? Theres a good chance that policy isn’t worth the paper that it’s written on for some businesses. However, in some situations a business may fit the specific criteria that would be covered perfectly fine and able to take advantage of the reduced cost. The difference is, having the clarity and understanding of knowing how certain aspects of each policy effects you.
For example, a common exclusion that we see for excavation contractors is a “removal and weakening of support” exclusion applied to their Public Liability policies. In summary, this means that if you are removing soil or dirt near a fixed structure and the soil around it caves in causing damage than you are not covered. If you were a residential excavation contractor digging out garden beds and footpaths around houses to be concreted than this cover is not at all suitable. If you however, work for a land developer and clearing acres of land to be built on in the next 12 months than this cover would be perfectly fine if thats how your business planned to continue operating.
Should a house collapse beside you working, you probably dont want to be thinking whether you or your insurance company are paying the $500,000 in associated costs to rebuild someones house. Furthermore, you probably don’t want to be thinking that it is covered and than later finding out that it isnt.
The constant upkeep
Insurance is never a one off, set and forget situation. When you take out a policy on your own, you are agreeing to take on all of the administration side of the insurance as well. That means, getting the standard 3 quotes every year to make sure you are getting a good deal, calling up to add or delete items to your policy as things change and taking on the management of any claims that suddenly arise. Consider the time and effort that you currently put into your business, do you have time to take on another commitment?
The average insurance claim can take upwards of 30 contacts depending on the size of the claim varying between phone calls, emails and even site visits all of which take up precious time from you being away from your business. Yes, you could delegate this staff but everyone makes mistakes and with your business potentially being at risk this isnt really something that should be palmed off. All stakeholders in the business should be involved in the decision making around your insurances. If you still want to manage your own insurance than be prepared for this to be a constant commitment throughout your yearly activities.
Majority of Insurers and Agencies will only be accessible to Brokers
You are significantly reducing your reach when you take control and manage your own insurance yourself. A large number of insurers and underwriting agencies will only sell their policies to brokers. Most underwriting agencies have backing through offshore insurers through the likes of Lloyds of London. The Lloyd’s market can be extremely beneficial in regards to pricing and cover.
Most of the insurance companies that offer a purchasing platform direct to consumers are typically only the major Australian insurers and let me give you a hot tip, they are extremely conservative.
In summary, we can only provide you with a number of examples as to why you shouldn’t manage your own insurance policies. We can offer free review, free consultations, blog articles on why you should use an insurance broker and multiple examples of customers that we have assisted however, the next step needs to come from you. If you have any questions what so ever, reach out and speak with an Insurance Broker have a consultation, the important part is to find someone who fits within your business and who’s advice you can rely on for some of your most important assets.