Buying insurance for your business can be a daunting task. What type of insurance do you and your business need? Should you buy it directly from an insurance company, from an agent, or from a broker?
For the business owner, these are million-dollar questions. And in Canada, these questions can be even more complicated than they initially appear. The landscape of insurance has changed dramatically over the last decade, and many business owners aren’t even aware of the change.
Which way to go?
Historically, business owners could buy insurance directly from the insurance company. They could also buy it from an agent, who represents one insurance company and offers the buyer only that insurance company’s products. Or they could buy from an independent broker, who can offer a choice of many different insurance companies’ products.
There are many reasons to buy insurance from an independent broker [1]. A broker:
- Is a licensed professional who is an expert in risk assessment
- Acts as your personal insurance advisor
- Makes impartial recommendations to best meet your insurance needs
- Has access to a variety of insurance companies, including companies that don’t sell directly to the public
- Can act on your behalf if there’s a claim against the insurance company
“In short, the broker’s role is to represent the buyer,” says Larry Lineker, President of Hub International, Canada. “It’s the agent’s job to represent their insurance company, to sell the policies from that company. But it’s the broker’s job to survey the market and find the best insurance product for its customer, regardless of where that product may come from.”
That’s why many business owners choose to buy from a broker. A broker is an insurance expert who can assess a business’s needs impartially. The broker researches all the available and relevant policies and makes a recommendation based on the business owner’s specific needs. The broker essentially serves as a personal risk management advisor to the business owner. Brokers receive a commission for their services from the insurance company, but only once the policy has been purchased.
The Changing Brokerage Landscape
Once you’ve decided to purchase through a broker, it can still be challenging to decide which one. Over the last decade, an increasing number of Canadian brokerages have been purchased by insurance companies.
When a brokerage is owned by an insurance company, there may be some unintended consequences of receiving advice from those brokers. Some are worried that those brokers have become de facto agents of the insurance companies employing them.
Lineker says, “It’s becoming a confusing business here in Canada. If a brokerage has been acquired by an insurance company or has a significant financial interest from an insurance company, the insurance company may get a disproportionate amount of business from that brokerage.” In other words, a brokerage owned by an insurance company may favor its owner’s products over other insurance companies’ products.
Business owners need to be careful when purchasing insurance through these brokerages. “If your brokerage is owned by an insurance company, can they provide you with an unbiased view? Can they act in your best interest? Or will they be biased toward the insurance company’s product—to your detriment?” Lineker asks.
Finding an Independent Advisor
When looking for insurance, it is important to do your homework and be aware of the potential pitfalls of using a brokerage owned by an insurance company.
Lineker suggests questioning the broker thoroughly about the brokerage’s management and owners. Some questions to ask are:
- Does any insurance company have a financial interest in this brokerage?
- Can you demonstrate that you’re providing me with an unbiased opinion?
- How do I know you’re representing me and not your brokerage’s owner?
The answers to these questions can help clarify whether this brokerage is truly independent or if it has a special interest in one insurance company’s products.
Unbiased advice is invaluable to a business owner. Contact your Hub International broker for information and advice tailored specifically to your business.
[1] Insurance Brokers Association of Canada, http://www.ibac.ca/Why-Use-A-Broker/The-Broker-Advantage.aspx