A moving market, disclosure worries and scepticism from both FDs and brokers mean buying insurance can be a fraught business at the best of times.

1 Take the measure of the market.

The cyclical nature of the insurance market means you need to know how it’s doing when you renew cover. As Peter Hollingsworth, interim FD and Real FD.net stalwart, says: “The market does seem to go in cycles – the past six to nine months appear to have been quite competitive and there have been some decent deals out there. So shopping around is key.”

Stephen Palles-Clark, UK divisional director at broker UIB, says the way the broker presents the risk to the insurance company is not always connected with the price of the premium. “The bigger the risk, the better the rates. However, there is an argument that if the broker does nothing in a soft market, the rate will still go down. If he works hard when the market is hard, the price will still go up.” In other words, you need to hope for the best rate, while preparing for the worst.

Stephen Netherway, a partner at law firm CMS Cameron McKenna, says it’s important to acknowledge market limitations, even while trying to get the best deal. “You need to be sure about what you want and where to get it. If the market can only deliver X and Y, there’s no point looking for X, Y and Z. Look at what can and can’t be delivered and why.”

Otherwise, he says, problems can arise: “When there’s a legal problem, it often results from a difficulty in getting coverage in line with market requirements – where clients’ aspirations can’t match what is available, or when they’re not getting coverage on what they assume they are.”

2 Don’t be too loyal.

Loyalty is a wonderful thing, but not at the expense of your business. When you start to think that you could get a better deal elsewhere, get some quotes, and if they’re good, take the plunge.

Greg Almond, managing director of Sygma Engineering, initially had qualms about changing brokers. The company had a long-standing relationship with its insurance broker, but didn’t feel like a significant client.

“I tried to play fair – I wanted a good service at the right price,” he says. “Our business is based on relationships – we were not just chopping and changing to get the cheapest price. That we were able to get better service at an improved cost was a bonus.”

If nothing else, the competition will hopefully stir brokers into action. As Palles-Clark says: “You need to put your broker under competitive pressure to see what happens.”

3 Give yourself time to review the rate.

A favourite ploy of brokers is to wait until renewal time comes round before re-quoting. This is actually illegal – they are supposed to allow 21 days before renewal to give clients time to consider the options – but it does happen, so the only option is to stick with the original broker.

Ben McGinn, FD of Robinia, a care homes operator, has only a few sector-specific brokers to choose from, which allowed his previous broker to try and paint him into a corner.

“We didn’t have an alternative quote from our original broker, who hadn’t got back to us because they were waiting until renewal was due, so we couldn’t hunt around,” McGinn says. “He then offered a very similar quote to before and I put the phone down on him and called Alexander Forbes instead.” This saved Robinia £100,000 on a £370,000 premium.

Almond’s original broker had made him feel grateful for maintaining the price of the previous year. “When we queried the broker, we did get the same package and the same price as before, which we’d thought was good.” After deciding to move brokers after several years of dissatisfaction with increasing rates, a new broker quoted him considerably less.

4 Shop around discreetly.

If your broker finds out you are considering getting your cover elsewhere, prepare for them to play dirty. One common trick is to obtain quotes “on your behalf” so that when you actually go to find a better deal, the insurers believe they have already done the running on your behalf and consider you a time waster.

McGinn was on the receiving end of this ploy. “After my broker failed to offer a good price, I attempted a rebrokerage, but the existing broker found out and flooded the market with requests for quotes. When I went to other brokers they were already irritated,” he says. “This experience broke my trust in them – although apparently it is standard practice.”

Stephen Perkins, FD of Hawksmere, adds: “Always get them to compare quotes, but be careful about using alternative brokers to get different rates – it’s a small world and as soon as the market sees you trying to get the best price from alternative sources it will clam up and the best prices will not be offered to you.”

5 Meet them face-to-face.

Palles-Clark says he believes FDs should meet face-to-face with their broker at least once a year to help eliminate problems with disclosure when making a claim. “It is surprising what comes out of the discussion – the client might well not know what is relevant to the cover being negotiated. For example, new industrial equipment, which you might not have remembered, the broker can pick up as you’re walking around,” he says.

Gordon Duncan, FD of Kellys office supplies, reckons the face-to-face approach is the way to go. “We have an annual sit down to review cover and the broker does shop about for the best deal. We have experience of about four brokers over the years due to takeovers, and so on, and I have no real complaints about any of them.”

6 Go for the new kids on the block.

Several of the FDs we spoke to suggested looking at brokers new to your sector, who have not yet established a reputation and therefore may be keener to take on your business.

When they have the business, the ‘hungry’ broker is a definite advantage. One thing that impressed McGinn was the willingness of his new broker to fight his corner. “They were ruthless on my behalf, driving every advantage home when it came to some disputed claims,” he says. “This was a stark difference between them and our previous broker – Alexander Forbes was hungry for our business because they were new to our sector, whereas the other brokerage didn’t seem bothered at all.”

After a few years, this keenness can mysteriously evaporate. Hollingsworth says: “Brokers generally, although I know I’m oversimplifying, want to be complacent. They are good at insuring for a couple of years but because they have usually shopped around initially it takes a lot for them to shop around again.”

7 Getting to know you.

Make sure the broker is willing to take time to get to know your business. If they are the wrong size for your company, they might not offer the dedication you need. Hollingsworth refers to a company he was brought in to assess, which had had a bumpy ride with one broker before finding another it was much happier with. “First, they took the effort to understand the business – it wasn’t just seen as another transaction. It was not the easiest business to provide cover for – a new business and not in the easiest sector.”

For Almond, the service was more important than the size of the premium. “We did go to other brokers when the prices started going up, to see whether they understood our business and if what they were offering was like-for-like. But it was never presented in a way that enticed us into changing,” he says. “We got them to respond to us but when we had a question, we were never clear about what was covered and what was in the policy.

Palles-Clark adds: “In all these situations the FD should be comfortable that the broker understands the FD’s business. Find the right sized broker for your needs: some of the bigger brokers really struggle with their smaller clients.”

8 Look at fee-based payments.

If you can find a broker who accepts fee-based payment, rather than the traditional commission structure, it can do wonders for both their motivation and your trust in them.

The broker is under a legal obligation to choose the most appropriate cover, even if it means they receive less commission. CMS’s Netherway says: “Nowadays, there is more transparency in remuneration, unlike with the historical commission-based structure. The broker must look at the appropriate cover and if the premium charged is lower and thereby lowers his commission, so be it.”

McGinn advises: “Find out about the way insurance companies operate and make sure they are ‘on the same side of the table’ as you when they are negotiating with the insurance company. Our previous broker was definitely nearer the middle of the table when it came to getting kickbacks from insurance providers. The experience really showed me the value a good broker can get.”

Palles-Clark says it is important that everybody concerns knows where they stand. He explains: “When the broker is on commission it is paid by the insurer, not the client of the broker, who is the insured. If remunerated on commission, the higher the premium the more the broker earns so it is in everyone’s best interest for the broker to work on a fee paid by the client, so everything is transparent. Equally the insured knows that the broker, working for them, will be keen to push the premium as low as possible as it will not impact on earnings.” Another plus with the fee is that there is no insurance premium tax to pay as there is with commission.

John Batch, senior vice-president of Marsh’s financial and professional risks practice, offers some tips on recent insurance developments. “Recent headlines have made FDs think harder about extradition cover as an addition to directors and officers insurance (D&O). The premium covers three areas:

- The cost of resisting extradition.

- The cost of ensuring you have cover for a bail bond in the US if resistance is unsuccessful.

- Cover for the cost of defending a court case.

“You might think that, with no offices or business in the US, this insurance is not relevant to you. However, a business with no immediate exposure to the US, with no shares or operations out there, still needs to make sure it is covered. You may well have an exposure which is not immediately obvious, especially if you have US-based suppliers. One action was based on an email which had gone via a US-based server.

“The D&O should include a clause to make sure the policy can’t be rescinded for non-disclosure. The wording needs to be looked at to make sure the insurers can’t get out of paying. It needs to cover all directors separately so that one individual cannot void the policy for the whole board and all the non-execs.

“Get an additional policy in place, called Side A Broad Form that acts as a ‘safety net’ and protects individuals when the company is unable to indemnify them, sitting at the top of the standard D&O policy. This cover has become very popular over the past few years, especially with non-execs.”

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