Author Archives: hesty

Commercial Insurance Distribution Channels on the Internet

If you worked for a UK Insurance company just twenty years ago or anywhere else in the world for that matter, you would not have heard the term Internet distribution channel, except perhaps in the idle chat of the IT department boffins and analysts in the company cafeteria.

There were only two main distribution channels, or ways of moving insurance products to the market and the Internet as a serious sales and marketing contender would have to wait another ten years to appear.

At the time, the main channels were the direct channel, which meant producing insurance products that could be sold directly to the public from a call centre, thereby cutting out the costs and expense of managing a middleman, and the broker or intermediary channel.

The broker channel was further sub-divided into insurance brokers, agents, tied agents, consultants, sub-brokers, managing agents for Lloyds and the affinity corporate market.

Both channels offered different propositions for the same products dependent upon the way a policy was sold.

At the time only personal lines insurance products such as car and home insurance were available via the direct channel.

It was also considered that commercial insurance and business insurance were too complicated a product to sell direct over the phone, would take up too much time and would require a bank of approved underwriters with scripts to man the phone lines, as no commercial insurance autoquote systems existed. Consequently nearly all commercial insurance was sold via the intermediary channel.

This dual path situation for the sales, marketing and deliverance of insurance polices continued until Insurance finally became a product that could be bought and sold on the Internet. The earliest offerings around the turn of the Century were for personal lines insurance and there was barely a mention of Commercial insurance, save for the odd contact us button.

Ironically as personal lines insurance developed over the Noughties and became a much larger channel of distribution, the two previous direct and broker channels re-established themselves online, this time in much closer competition.

However both the insurance companies and the insurance intermediaries were caught napping as a new distribution channel emerged on the Internet; the aggregator or price comparison site, and in record time accounted for over 90% of online Internet insurance sales.

The public love to compare prices and the fact that most personal lines products could autoquote without the intervention of an underwriter, meant they could all be aggregated into an online insurance price comparison site, such as we see everywhere in the media today. This is a testament to the comparison sites success as a channel in its own right.

Commercial Insurance in the meantime was still in its infancy as a channel on the Internet, until very recently.

The inertia was mainly due to the reluctance of the large general insurance companies to standardise and autoquote for commercial products. They felt the risk was too high and underwriters resisted the change.

The change came about by market forces as the Broker channel started to sell commercial products using its own web-enabled back office systems.

This meant that online business insurance brokers could collect information about a businesses insurance requirements on a website form, and pass the data to its internal systems. These back office comparison systems are composed of a panel of insurers and providers that provided autoquotes.

Straight through processing to an insurance company could be carried out by the existing EDI or electronic data interchange mechanism.

The single broker business and commercial propositions soon became the target of the price aggregators and the large and now very rich comparison sites, who started to offer online insurance comparisons using broker panels in 2009, which rapidly became popular with small business.

The large composite commercial insurers were forced to respond and last year released a string of autoquote products into the Internet channel including packages for shops, offices, pubs, commercial let property, tradesman, professionals and commercial liability to name just a few.

The fact that it is nigh on impossible to watch television for more than an hour or two today, without seeing an advert for a builders public liability and tools policy from a dotcom is proof that the Internet has finally arrived as a commercial insurance distribution channel.

Risk Management – How Commercial Insurance Brokers Can Help

Commercial insurance brokers are among the most prominent and relevant players in the modern insurance panorama. As the entities most often called upon to deal with business insurance, these types of offices tend to deal with a variety of aspects within their field of expertise, and are often crucial in ensuring an office, business of company retains or regains its financial health and is protected against any costly eventuality.

One of the many fields these companies are often requested to look at in the context of corporate and commercial insurance, as well as one of the least understood by layman business owners, is risk management. This article will seek to provide a little more insight into what exactly is meant by that term, and how commercial insurance brokers can help companies and businesses deal with this aspect of their insurance.

What is Risk Management?

As the name indicates, risk management deals with assessing and managing potentially risky situations in everyday life. In the context of a business or company, this may involve identifying potential loss situations, devising solution meant to prevent said situations from occurring, and drawing up a plan to implement those solutions. The task commercial insurance brokers are usually entrusted with involves ensuring the client’s risk-benefit ratio remains as consistently positive as possible, and that any potential risks are dealt with quickly and efficiently.

Risk management is usually carried out in a three-step process. The first step involves understanding the risk, and the consequences it might bring about if allowed to occur. The next step is to assess and analyse the risk, and to come up with potential solutions to prevent or minimise its impact. Finally, action must be taken to implement or apply the solution or solutions thought to be more effective in taking care of the issue. This three-step process is applicable to any area of human life, and remains unchanged when transposed to the context of corporate and business finance. The only difference is that, rather than be carried out by the business owner or its board, it is usually up to commercial insurance brokers to take care of this three-step plan and ensure any risks to the business are dealt with.

How Can Commercial Insurance Brokers Help?

As noted above, the main way in which commercial insurance brokers can help companies with risk management is by carrying out the three-step process described in the first section of this article, while transposing and adapting its structure to fit a corporate or business context.

This is usually done with the help of a series of internationally recognised standards and procedures, put in place to standardise and streamline the risk management process for commercial insurance brokers worldwide. This is the template most commercial insurance companies start from when undertaking risk management, and it is flexible enough that each broker can adapt it to fit the situation at hand. As such, it is no surprise that this is the mould followed by most insurance companies the world over when dealing with a request of this type. There are, however, exceptions to this rule. Certain companies prefer to set their own individual standards and practices, or come up with techniques not accounted for by the international rules.

Whichever way they choose to go about it, however, commercial insurance brokers tend to have a common goal when dealing with risk assessment: to help companies pinpoint, prepare for and eventually deal with potentially dangerous or financially harmful situations brought about by their circumstances. It is the variety of measures and ways through which this is achieved that is commonly understood as ‘risk management’.

Cheap Commercial Insurance Can Be Costly

Saving money by obtaining cheap commercial insurance for your business may actually end up, in the long run, costing your business money. Unfortunately, many business owners do not think of insurance as one of their most basic operational expenses such as inventory, shipping and payroll. Rather, they think of it as something that is necessary, and, of course, some of it such as commercial liability insurance is required by statute, but to most beginning business people, just a basic bottom-rung general commercial insurance package is all they will budget for.

We can all understand this line of thinking as our today’s business economic environment demands that every business examine every category of its expenses, and one of the major expenses to any business is commercial insurance. While it is understandable to think about saving money by purchasing low cost or cheap commercial insurance, it probably is not the prudent choice to make.

The first thing you must consider, as a business owner or would-be business owner, is how much coverage do you actually need to protect all your assets against possible claims? While you can sometimes buy commercial insurance that will meet the coverages required by law for less money, will those coverages actually protect you adequately should some unforeseen event occur. For example, your commercial liability pays claims up to one million dollars, but you are liable for a million and a half.

Your business would have to cover the difference between what your liability policy covered and what was actually awarded by the court. Would you have this additional five hundred thousand, or would it ruin your business?

Admittedly, getting commercial insurance quotes can be a daunting task, but considerations that will help you avoid falling into the trap of buying cheap commercial insurance just for the sake of saving money are:

1. Remember that insurance companies like all other businesses are in business first and foremost to make money. While the commercial insurance agents representing these companies portray themselves as individuals concerned only with your welfare, they have to make a living just like anyone else, and sometimes they will sell you a policy that does not really afford you the coverage you actually need.

2. Sit down and take the time to add up all your assets. How much commercial insurance do you need to replace those assets if something unexpected were to happen? Also, consider how much you would need to pay your expenses if your business operations were interrupted for a period of time. For example, lets say your building partially burned, how would you pay your expenses until you were fully operational again?

3. Interview several different licensed insurance brokers, and carefully compare coverages and rates. Remember, that different commercial insurers describe their various coverages differently. If you don’t understand the confusing and sometimes tricky lingo, ask the brokers what it means.

While the whole idea of pouring over insurance terminology and all the various available commercial coverages can make you want to bang your head on your desk, as a responsible business person, it is, in the end, up to you to educate yourself regarding commercial insurance.