Are brokers truly trusted advisors?

A 2021 survey by business finance specialist ScotPac (Scottish Pacific) found that 4 years ago 40% of SMEs (small to medium enterprises) had no trusted advisors.

Global data providers Statista reported in December 2021 that the number of SMEs in Scotland in 2021 was about 342,000. Not bad for a country too wee stand on its own feet? Maybe, but that number was a fallback from the 10 year high of almost 370,000 in 2020. That’s a frightening 28,000 Scottish SMEs lost in a year. A year of deep uncertainty, with lockdown and Brexit to shake out businesses too young to qualify for furlough support, and show up the weak spots in the business plans of others.

The bigger the enterprise, the more likely it is to have in-house expertise on matters which aren’t its primary business. But many major businesses started out as a man and a van (Eddie Stobart’s trucking and logistics empire) or a couple of guys in a garage with a bright idea (Larry Page and Sergey Brin, Google search engine) and were SMEs for a long time.

As the Statista figures show, not every small business will survive. Almost by definition, every day in the life of a young business brings new challenges, which may lie on a spectrum from threatening survival to problematic to exciting. If you thought dealing with change meant checking it before putting it in your pocket, then Greek philosophy probably wasn’t on your reading list. Philosopher Heraclitus is credited with the saying “change is the only constant”. When he was around over 2,500 years ago, insurance wouldn’t even be a thing for another 750 years, but he definitely hit the nail on the head.

Like the expansion of the universe, the pace of change is accelerating. It’s widely believed Leonardo da Vinci was the last person to know all there was to know in his time, and there has been 500 years of change since then. The need to specialise has driven the growth of SMEs, but it has also driven the need to consult specialists.

The regulatory and fiscal landscape in which businesses operate is changing, the way they interact with customers, suppliers and advisors is changing and businesses involved in export seem to be the guinea pigs for an operating manual whose author sometimes appears to be only a page or two ahead of them.

The insurance market itself is changing. Usage-based models of cover and distribution are shaking things up in the industry. The technology that has allowed these developments is also driving client demand for more digital services and an expectation of increased customisation, not to mention value for money.

Business relationships can be fraught with unseen quicksands, especially for smaller or less experienced businesses. Only last week, the website CreativeBoom.com, aimed at UK freelancers and small businesses in the creative industries, warned of unexpected terms in contracts. They advised carefully reading any contract, even if general terms have been less formally agreed at a meeting or on the phone. By the way, this is also key advice for those insurance contracts!

Some forms of contract are pretty much “set in stone”, for example in the construction industry, so there’s little room for negotiation of terms. One benefit is that it’s widely understood in the industry who is responsible for what. However, other contracts, especially ad hoc contracts between smaller businesses may attempt to transfer liabilities or seek warranties which make it onerous on one party.

Landing a new contract can be a big deal for SMEs, but contracts may bring complex liabilities or insurance requirements and the advice of a trusted advisor can ease the stress.

It should go without saying that a trusted advisor should be an expert in his field. That in itself doesn’t rule out the McD’s server with the 5 stars on his badge, the takeaway guy or trendy barman, but it takes time to establish a reputation for quality service. By now, some budding trusted advisors are dropping out with the definition. But not the qualified insurance professionals at Taveo.

A trusted advisor needs to have his ear to the ground, his eye on what’s changing and a wet finger in the wind. It’s an image of which Hieronymous Bosch would be proud. A trusted advisor understands his clients’ businesses and may spot pitfalls or opportunities before the clients themselves. “Seek first to understand and then to be understood,” said Steven Covey in his acclaimed bestseller “The Seven Habits of Highly Effective People”. This degree of understanding enables engagement with clients at a strategic level, and not merely in a reactive way.

So insurance brokers are trusted advisors? As the great Benny Hill once said, “Not nessa-celery”, to continue the Chinese takeaway analogy. They all have a fiduciary duty of care to act in their clients’ best interests, but commission-based products can blur the line. It bears repeating that not all sellers of insurance are insurance brokers. Solicitors, accountants, garages, mortgage brokers and similar professionals can often offer the convenience of arranging insurance, but they act as agents for the insurer, not the client.

The fee-based model allows trusted advisors to focus on the advice rather than the product. Transparency of costs is a key factor and the fee structure is provided to clients. Hard-pressed businesses looking for value for money appreciate the clarity of the charging model. Usage-based broking also allows an individually tailored service, customised to clients’ needs. Clients pay only for services used.

At Taveo, the advanced 360° always-on technology model takes care of routine administration, allowing the team to concentrate on sharing their expertise and adding as much value as possible to the relationship. Some aspects of insurance are capable of being made transactional and may benefit from that, in terms of simplicity and cost reduction. However, SMEs are such a large and diverse sector that there will always be a need for the kind of relationship offered by a truly trusted insurance advisor.

A survey cited by business transformation and development experts Kissing With Confidence had a response suggesting that a relationship with a trusted advisor should “get to the point where if I was in town I’d feel comfortable to ring you and ask you out for a beer”. Maybe at that little place with the great mixologist, followed by a burger or a takeaway?

If Carlsberg did trusted advisors, they’d probably look like Taveo.