Direct buying is often seen as a cheap and easy pathway, the benefit of personal assistance shines through at claims time, and the pressure is on brokers to prove their value, the latest Vero SME Insurance Index indicates.

While data can jump around from year to year, the eleventh annual edition of the index shows more SMEs are using a combination of direct and advice channels to buy insurance, with a reduction in users relying almost completely on brokers.

Specifically, the percentage of SMEs that buy 90% or more of their insurance through a broker fell to 14%, from 27% last year, with more than half of SMEs choosing a mix of channels.

The rise of user-friendly technology is likely playing a part, supporting the confidence of those who believe the direct purchase of simpler products will provide cover as intended at a favourable price.

But Vero Head of Commercial Intermediaries Anthony Pagano says SMEs may be unaware of the trade-offs and additional risks they are choosing in buying direct, while brokers can benefit if they elect to provide advice across a client’s entire requirements.

Divided buying practices affects the ability of an adviser to have a holistic view, while direct buyers may underestimate policy complexities and potential pitfalls and may overlook the value of claims support.

“When I go to an accountant, I get him to do all my accountancy-type work, when I build a house, I ask the architect to do all the bathrooms and bedrooms, not just part of the house, so why wouldn’t an insurance professional do all of my insurance as well,” he says.

A separate survey in this year’s report of larger companies with at least 200 employees, finds they are also significantly using direct channels for perceived simpler policies. The purchases also included professional indemnity and cyber.

In a Vero broker panel, PSC Insurance Group CEO Australia, New Zealand and Hong Kong David Hosking and Insurance Advisernet MD Shaun Standfield were surprised by the finding.

Mr Standfield says professional indemnity and cyber can be “messy” at claims time if placement isn’t right at the start, while cyber is a rapidly changing area and policies often have client resilience preconditions.

“Cyber wordings are really moving at the moment and so are the limits and the expectations of the clients,” he says. “The world is becoming riskier, not less risky, so why wouldn’t you seek some advice on these particular products.”

When broker advice is sought, their services are appreciated. In a covid-affected year and in a hardening market 84% of SME broker users were satisfied, while for large companies that figure shot up to 96%.

For those that had experienced an insurance loss, 63% of SMEs using brokers were satisfied with their claims, compared to only 42% of direct buyers. In looking at changed actions after an SME experienced a claim, 22% decided to start using a broker.

Other messages from the report include that, in the context of the upcoming Hayne-sparked Quality of Advice review, brokers may have more work to do in showing their recommendations are not commission-driven.

The survey found that SMEs who stopped using a broker did so for various reasons, including a belief that brokers “are more likely to recommend a policy that offers them the biggest commission”.

“It is just an important myth to dispel and to tackle head on,” Mr Pagano says.

The issue separately emerged in the survey of 100 large businesses, when looking at why many choose not to buy all their requirements through a broker.

“Compared to SMEs, large businesses are even more likely to say the price is an issue: 37% say they don’t use a broker because they think they will recommend policies with higher commissions, compared to only 22% of SMEs, and 33% say it would be more expensive to go through a broker, compared to 30% of SMEs,” the report says.

Opportunities are being left on the table when it comes to demonstrating the value brokers provide and in building relationships with clients, with the report stressing that “at its heart insurance broking is a relationship business”.

Over half of SME broker clients report renewing their last insurance without expert advice, with many going it alone or not giving the matter much thought.

Mr Hosking told the Vero panel discussion that while good brokers understand risks and are knowledgeable on the complexities and pitfalls within insurance contracts, that is not enough.

“That in itself won’t win you business or retain your clients, it does get down to servicing,” he said. “The better brokers I have observed are the ones who are legitimately interested in their clients and their clients’ businesses.”

Satisfaction levels may be high but the report shows brokers have to be on the front foot in engaging with their clients and demonstrating why using their services is important and the value that is provided in addressing risks and in providing support throughout the insurance process.

“We know business growth and increased business complexity are the biggest reasons for SMEs to engage a broker,” Mr Pagano says. “With risks and uncertainties associated with Covid-19 still present, it’s never been a better time for brokers to re-connect, re-position or reinforce the strength of their client relationships.”