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SME survey: brokers confront their trust issues

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Brokers have received some tough feedback in the latest Vero SME Insurance Index, with declining trust levels and small businesses increasingly buying cover from the direct market.

The trust issues indicate brokers have been caught in a slump in confidence around financial services following the Hayne royal commission.

Vero’s SME survey was conducted after the sixth round of hearings, which focused on life and general insurance, and after mortgage brokers, financial advisers and banks had been hauled over the coals. Insurance brokers were barely mentioned, but the inquiry showed meeting expectations and delivering for clients is paramount and there’s no room for complacency.

Brokers need to be proactive in promoting their track record and the value they offer, particularly because the Hayne challenges add to the trend for circumspect views around professional practitioners, while more business is transacted online amid generational change.

This year’s index takes a closer look at the use of brokers versus the direct market, and finds a steady trend around recent purchases is reassuring on one level but only part of the picture.

The number of SMEs buying through both channels grew to 60% this year from 42% previously. Non-users of brokers declined to 24% from 31%, while heavy users fell to 16% from 27%.

Buying through both channels is common and increasing, with many different purchase options available, the report says. For respondents aged under 40, the picture is even starker, with 78% mixed users, 13% non-users of brokers and 10% heavy users.

Typically, hybrid users are likely to buy policies regarded as more simple, such as motor, through direct channels, while more complicated covers are bought through brokers.

SME bosses who think brokers are not up to date with current ways of working tend to use a combination of channels, while those that eschew broker services are also more likely to view the process as easy.

This year the number of SMEs saying they use brokers because of their expert knowledge and advice fell to 32% from 39%.

The belief that it’s simple affects perceptions of insurance brokers as experts, while the split between direct and intermediated also affects brokers’ ability to take a holistic view of customer risks, just as they are stepping up efforts to provide a broader advisory role.

Vero Head of Commercial Intermediaries Anthony Pagano says the figures point to the risk of SMEs being underinsured or buying cover that doesn’t meet their needs.

Respondents who say evaluating insurance needs is easy are more likely to have never conducted a formal risk analysis, and the risk of misunderstandings is highlighted because only 39% of respondents say policy wordings are simple.

“It is a complex product, no matter what people say, no matter what people think, particularly for commercial insurance,” Mr Pagano tells insuranceNEWS.com.au.

“There are so many different variables.”

Complacency during the purchasing process often comes home to roost at claims time – another area in which the SME index findings deliver mixed results for brokers.

Only 49% of respondents are satisfied with their claims experience, with dissatisfaction up in both channels – but 60% of medium-sized SMEs feel their experience would be worse without their broker involved.

Mr Pagano says the increased scrutiny and rising community expectations seen over the past year has flowed into the perceptions SMEs have of the claims process.

“When I meet with brokers across Australia, I see first-hand the value and support they are delivering for customers, particularly during claims time, so I’m encouraged that this trend should reverse next year,” he says.

The Vero report came as two companies launched campaigns to support brokers and their work. Premium Funding has mounted a $500,000 campaign that is understood to focus on social media channels.

Hollard Commercial Insurance (HCi) last week launched a year-long support campaign.

“We believe brokers are now more important than ever. And with intermediaries a core part of our business model we must look for ways to support them,” CEO Richard Heilig said.

About $11.5 billion in general insurance premiums were invoiced by intermediaries in the second half of last year, and the share placed by intermediaries continues to grow.

Mr Pagano says brokers must discuss with clients why they might want to go direct for some purchases, find out the types of assistance and services SMEs want to receive, and be transparent about their processes.

Brokers must also be active in demonstrating their expertise and the value they offer through broader risk assessment and providing confidence that a business can survive should something go wrong.

“SMEs are more confident of their risk preparedness when brokers are involved,” Mr Pagano says.

“SMEs are more likely to trust brokers that provide that in-depth analysis and risk profiling and are checking up with the insured on changes to their business.”

But while the Vero report reveals 41% of respondents believe a broker’s role is to advise on the type of policy to choose, only 22% see brokers as trusted risk advisers.

Brokers are typically proud of the role they play and the service they deliver. But the report suggests there’s work to be done and, in some areas of the market, messages are not getting out.