John Lincoln says that while ticking boxes online cannot give an SME confidence its business is properly covered, a broker can

Direct Line’s announcement (News, 27 September) that it plans to introduce four new internet products aimed at sole traders and partnerships in the autumn raises a number of questions for policyholders.

Buying insurance over the internet has boomed in recent years, due in part to the phenomenal amount of advertising.

Take motor insurance for example; it seems there are hundreds of insurers and brokers all pitching for my motor policy. We are all bombarded daily through television, radio, newspaper and magazine adverts telling me that they can provide cover cheaper than anyone else. This applies to home and travel insurance and, to a lesser degree, pet insurance.

Frankly, I don’t believe any of them – direct insurer prices are not always the cheapest. Some promote the fact that they “cut out the middle man”, implying costs are saved. But what about the huge advertising budgets required to maintain awareness and drive traffic to the phone or website?

The policyholder is understandably led to the conclusion that insurance is a commodity – cheap and easily bought online or over the phone at any time.

Now this may be largely true of motor and home insurance for private individuals where aggregators’ quote engines can calculate premiums based on a common question set. But I would ask, can a small businessman really be sure he is buying the correct level of protection for his business online?

Due to the very nature of online systems, the question set is invariably restricted to cover the key areas through general statements, which the policyholder has to agree with. This is to provide the user with online forms that are not too daunting and can be completed quickly and easily without the need to gather supporting information that may be required by the system. The quote engine then applies preset rules based on the answers and cannot take into account other material facts.

Is the SME customer prepared to answer a set of complex internet questions? Providing the correct level of insurance cover for any business requires a clear understanding of the risks associated with the business and then the expertise to know which markets offer the most appropriate policies.

In order to make an informed decision when buying online, the business owner needs to have expertise across many areas. It is unlikely he will understand fully the risks he faces and the covers available.

“In order to make an informed decision when buying online, the business owner needs to have expertise across many areas. It is unlikely he will understand fully the risks he faces and the covers available

John Lincoln

None of us is an expert in everything. So who is going to provide the advice that will be needed? Who will be available to explain the differences? What are the exclusions and what do they mean?

Would you represent yourself in a court of law? No – you would seek expert advice. Similarly, in dealing with tax and VAT you would employ an accountant. When you buy something, it is generally evident how it performs straight away. With insurance, performance only shows itself when a claim is made, which may be several years down the line.

This is where the commercial broker adds value – it’s the broker’s expertise and service approach that will help secure a beneficial business relationship for both parties.

To compete with the SME online offerings, brokers will have to decide how best they can retain a profitable share of this business without committing too much expensive time or resource to win it. A balance has to be struck between the effort required to win and retain SME business and the time involved in servicing the account.

The development of online systems for SME business is creating distinct ‘playing fields’. One is where the customer is prepared to take the risk of buying online and do without the advice and service that brokers offer. Another scenario is where the customer recognises the value of service and advice and will appreciate the efforts of the broker.

I suspect the price differential to be minimal as brokers generally secure the best terms available for the business or risks being covered.

The opportunity for brokers is to continue to promote themselves as expert providers of insurance and risk management and also, where appropriate, take advantage of the online systems that can be integrated with their own website.

The SME customer can only benefit from working with a commercial insurance broker. Most small businesses will still want to deal with their local broker, which provides a full service and covers a client’s total portfolio – liability, commercial vehicle, PI, home and travel.

John Lincoln is founder and managing director of the Cobra Network