Extend your practice

How to build and manage a short-term insurance practice


Recently the FPI Centre for Professional Development hosted a webinar by Kate Zornitta, owner of KM Zornitta Insurance Consultants, on how financial planners can enter the short-term insurance industry. The following summarises some of the key findings.

Registering your own short-term insurance practice has a number of benefits. In addition to the flexibility of being self-employed, you benefit from recurring commission as well as the natural and inflationary growth of your client’s business portfolio: as risks insured increase, so do premiums.

If this sounds good, ask yourself the following questions: Do I have the right knowledge, skills and attitudes to provide a professional service? Am I FCSA compliant? How am I going to prospect for clients? Is my business plan attainable? Do I have sufficient capital to set up and run the business while building it?

Before you start looking for business, though, you need to register with the Financial Sector Conduct Authority (FSCA). Registered FSPs can extend their existing licences to include short-term insurance categories provided they have at least one key individual (KI) with the relevant experience. To register from scratch, you must have an FSCA-approved KI of honesty and integrity, in good standing, who has a recognized qualification, has passed the RE1 exam and has the necessary experience (at least two years’ general management or oversight experience of similar services, and experience in the products for which the FSP is authorized). The KI must also keep up to date with CPD points. You must also have demonstrable operational ability and financial soundness.

Next, you will need to obtain contracts with insurers in order to sell their products and place business with them. Insurers usually require an undertaking to place a certain amount of business with them within a certain period. Small brokers may not get the lower rates bigger businesses can get (eg. group schemes). This can make it difficult to compete on a level playing field, but what sets the smaller broker apart is the personal service and attention to detail you can provide.

Alternatively, you can work through an administrator that represents a number of small brokers and can therefore gain favourable rates based on volume. Administrators’ binding authority and claims-settling mandates allow small brokers to settle claims – and please clients – faster than large, centralised insurers.

Above all, ensure that your relationship with insurers is founded on absolute integrity so that you can gain their trust.

Another decision is whether to be a direct or credit broker. Direct brokers place business directly with insurers, who collect premiums directly from clients and pay your commission thereafter. Credit brokers collect the premium on behalf of the insurer and pay it over to them net of their commission. The requirements for the insurer to authorize you to collect premiums on their behalf are onerous and potentially costly, but you will only have to pay the premiums over within fifteen days after the end of the month the premium was received.

The most important part of running a short-term brokerage, however, is providing good advice to clients. You must know your products inside and out. Referring clients to the terms and conditions isn’t enough – you must highlight the various emphases and critical points yourself. Policies differ in terms of limits and exclusions; you will be held liable if you sell the incorrect product or fail to bring an important exclusion to the client’s awareness.

When considering a policy, then, pay special attention to exclusions and limits, not the premium alone. Do a needs analysis for every client and identify the correct product or policy. Not asking the correct questions can lead to incorrect cover, resulting in problems at claim stage. It may cost you if, for example, the client is using a vehicle as a sales rep, but you insured it for private use and didn’t check up on needs around credit shortfall or car hire.

Consequently, you need to understand your client’s business before you even start talking premiums. Always base advice on the best option for the client – but keep a record of advice, so that you can show that any given client has been shown all the available options and has elected to omit certain covers.

As a rule of thumb, remember that the most expensive cover is the one that doesn’t pay. Cheap premiums that don’t pay out are much more costly than higher premiums that do.

For further information, please contact the FPI.

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