During the 1995 film Blue Juice, the “troubled” freelance journalist played by Ewan McGregor gives a tablet of ecstasy to a naïve friend who is complaining of a headache. “Trust me,” he tells another pal who rumbles the wheeze. “I’m a professional.”

“Doctors are professionals, lawyers are professionals: drug dealers are not professionals,” comes the steely reply.

My reaction was similar when, six years ago, the British Insurance Brokers Association (BIBA) launched a campaign to have its members recognised as “the new profession”. Before the nation’s insurance intermediaries unite against us in a class action, let me make it clear that I’m not implying any equivalence between their trade and that of the dancefloor pharmacist – simply that they are sales-driven, some have considerably more knowledge than others about the products they sell, and their form of remuneration leads to a certain ambiguity about whose interests lie at the heart of their business model.

There is some argument that specialist commercial brokers who charge a fixed fee for risk management advice should be recognised as bona fide business advisors. The majority of insurance brokers, though, make the lion’s share of their income from the commission they get from insurance companies for selling you a policy.

There is no real choice about employing some sort of intermediary. You can try your bank or trade association, which might have set up a competitive scheme acting as an agent for an underwriter. However, while domestic insurance has embraced direct selling to the public, commercial lines insurers are not set up to deal with clients directly, preferring to concentrate their resources on their back-office and underwriting departments.

In a new (free) insurance buyers’ guide available from its website, the Association of Risk and Insurance Managers (AIRMIC) lists all kinds of questions smaller businesses should ask their brokers. At their most basic these include whether, when a policy comes up for renewal, they actually take quotes from a number of different insurance companies to make sure you’re getting the best deal.

In truth, though, you cannot be certain that any deal is the “best” on the market, because different brokers deal with different panels of insurers.

Worse still, the same insurance company may provide different rates through different brokers, dependent on the volume of business generated by each intermediary.

Another question AIRMIC urges companies to ask brokers preappointment is how much commission they receive – both “basic” and “contingent”. The latter is an additional sum paid out by an insurer to a broker based on the total volume or profitability of the business that broker puts their way.

Because of the clear conflict of interest arising from the receipt of contingent commission, AIRMIC believes brokers should renounce any such remuneration. However, its executive director, David Gamble, stops short of saying that clients should never do business with brokers who are paid in this way, telling EN, “You should ask the question, get full details and make a judgement.”

Appointing a broker, he continues, should be approached in the same way as any other major supplier. “Ask two or three to tender, and carry out a beauty parade,” he says. “Brokers can have very different remuneration systems so get them to quote in such a way that you are comparing apples with apples.

“The most important thing, though, is to see who shows the greatest enthusiasm for understanding the business you’re in. If you see that light of understanding in the eyes of two or three individuals in the same firm you know you will be OK if one of them leaves later.”

David Ireland, head of insurable risk at Vinci, the £639 millionturnover Widnes-based construction group, agrees with this point. “I don’t necessarily go for one of the top four or five brokers,” he says. “They might have a huge team but have they got the specialist knowledge of our market, and will there be any continuity of knowledge of our business if someone leaves?”

As with many other services, it’s also worth looking at the certificates on the walls. Gamble says brokers should have, as a minimum, a qualification from the Chartered Insurance Institute (CII). If they are telling you how much cash their risk management expertise will save you, it could also be worth checking whether they have completed any of the qualifications run by the Institute of Risk Management (IRM).

Employer’s liability and thirdparty motor insurance are the only forms of cover UK businesses are legally obliged to buy, with premiums for the former calculated on a combination of total payroll and whether staff are office-based or engaged in manual labour.

Other species of insurance, including professional indemnity and public liability, may well be stipulated in contracts with clients while, even if good sense isn’t enough to make you insure your premises against the possibility of burning down or taking out business interruption cover, the chances are your bank will have something to say on the subject.

The modern insurance market has, since its inception in the coffee houses of post-restoration London, been cyclical. It is described as “soft” at times of plentiful capacity and, therefore, competition. It becomes “hard” when, often through a process of consolidation of major insurance companies such as that of the late 1990s/early 2000s, capacity is reduced and premiums are driven up.

As sure as night follows day, thus far, hard premiums have tempted new entrants into the market, undercutting the established players and increasing overall capacity, therefore renewing competition and heralding softer conditions.

The Financial Services Authority, which regulates the sale of insurance in the UK, has no statistics on inflation or deflation of premiums and the Association of British Insurers, while happy to provide figures on the amount its members pay out in claims each year, is less keen to produce research into the rates they charge customers.

Even AIRMIC, which represents 75 per cent of FTSE 100 insurance buyers, has no statistics on this area. According to both AIRMIC’s Gamble and Vinci’s Ireland, though, we are currently in a soft-ish phase of the market, in which good deals are to be found across all lines of insurance. However, these deals are not always easy to come by for smaller clients, so how far should entrepreneurs go to keep their insurance spend to a minimum?

“It’s possible to shop around and find a deal that will save you £100 on a £600 policy,” says Jason Orrock, a former broker who now runs Webefficient, an internet design business, and speaks for the Knutsford-based Forum of Private Business on insurance matters.

“But you have to read the small print, because the exclusions it puts in place could lose you thousands when you need to make a claim. You shouldn’t buy any financial product based on savings, but rather on the needs of the business.”

This is a point taken up by Ireland. He says, “Our philosophy is to look at what could be a companybreaking situation rather than just attritional losses. We take care of the latter through risk management and insure against the former.”

An example of this, he continues, is the company’s fleet of vehicles, which are only insured for third-party claims. “Instead of insuring them comprehensively we invest in vehicle security and driver training to make sure that, if they are involved in an accident, it’s the other guy’s fault,” he explains.

For those risks that you would prefer not to leave entirely uninsured, Ireland suggests that SMEs might prefer to take on as big an excess as they can bear, in a bid to reduce premiums. Orrock, however, says that “Insurers don’t particularly reward excesses for smaller businesses. If you aren’t big enough, unless you can club together with other companies to create a pool of risks, they won’t help.”

He also points out that, even if you want to reduce the level of cover you have for lines like public liability, this might not be possible. “A few years ago the average small business might have had £250,000 public liability cover – now many insurers won’t provide less than £1 million. Partly that’s a response to the level of claim settlements, but it could also be a way of getting more premium in.”

Even Gamble says there is no direct correlation between risk management efforts and reduction in premiums. However, one local businessman has a different experience.

Andy Sagar, who led a management buyout at Irlam-based drinks distributor Kingsland Wines & Spirits in late 2004, says that implementation of the risk management procedures his £100 million-turnover business has developed in consultation with its insurance broker, Caunce O’Hara, has “had tangible returns in terms of reduced premiums”.

He says that the business, which supplies own-label booze to major supermarket chains in addition to its own ranges of wine, has to have risk management high on its agenda: “We’re primarily a manufacturing business that deals with glass bottles, so material damage and anything that could affect the consumer are our two main risks.”

He says that the business is currently looking into ways to minimise the threat of business interruption, including disaster recovery measures (not quite so straightforward for a bottling plant as for office-based businesses).

“The proof of the pudding is in your claims record,” he continues. “We have brought that down for our employee liability cover. This was partly through making sure all the health and safety procedures are just right but also by explaining to employees that they need to be careful because any claims ultimately lead to increased premiums and cost the company money, while fewer claims means lower premiums.”

While lower premiums may be the Holy Grail for most entrepreneurs, AIRMIC’s David Gamble believes – unsurprisingly, given his job – that insurance is more than just a necessary evil. “Insurance is a great enabler,” he says. “If you have cover for certain areas of your business, it means you are able to take commercial risks in others.”

That may be the case but, as Ireland points out, insurers aim not to pay out more than 70 per cent of what they receive in premium – so there’s no point buying cover for anything you can afford to lose. Insurance actuaries can make great racing tipsters, and there are many similarities between underwriting and bookmaking – most notably that, however much insurers bleat on about hurricanes and plane crashes, the house always wins.

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