Business insurance generates huge premiums

One of the biggest potential areas of sales for risk advisers is the business market, but be warned it's slow and hard.

Thursday, July 4th 2002, 6:52AM

One of the biggest potential areas of sales for risk advisers is the business market, but be warned it's slow and hard.

The reason the business insurance market is attractive is that there are more than 300,000 small to medium sized enterprises in New Zealand.

Christchurch-based Russell May, who specialises in this area, says that most of these firms require some sort of cover, whether it is to protect against the loss of a key person in the business, or has to do with succession of the business should the owner die or be disabled.

May, who operates a firm called Momentum Group, says the average deal he does generates annual premium income of $7,000 each year. While that is big compared to personal insurance, it also takes a long time to close a sale.

By his reckoning each one can take up to six months to do.

May reckons that the people who specialise in business insurance are some of the top risk writers in the country.

Hamilton-based adviser John Erkkila is another person who practices solely in the business market.

"We produce big business for the (life) companies," he says. "We have clients who pay up to $50,000 a year in premiums."

One of the big issues raised by advisers who operate in the business market is the imperative to get things right.

A number of advisers write policies in the business market but they make fundamental mistakes such as having a policy in the wrong person's name, or not putting together proper documentation.

There is a saying in insurance that the real test of a policy is at claim time. Because the size of the cover in businesses is so large, compared to personal insurance, there is the potential for mistakes to be amplified at claim time.

Erkkila says although it is a very specialist area, it's not that hard to do. The important thing is to understand how businesses operate.

"Business people will suck you in and spit you out (if you don't get it right)," he says.

One of the reasons, in his view, that advisers only dabble in this area is because the underwriting process is harder than with personal insurance.

"The underwriting process is quite detailed and that is what scares off quite a lot guys," he says.

Both May and Erkkila use traditional life contracts for business insurance purposes including life, total permanent disability (tpd) and trauma cover.

Erkkila says there is a "massive need" for new products in this area. One of the major problems is that underwriters limit the amount of cover they will provide on trauma and disability income policies.

He says that in many cases it's hard to get cover totalling more than $1.5 million in a business (even if it is spread across a number of people).

In many cases $1.5 million isn't enough to cover anything but the smaller types of firms.

Erkkila says although business insurance is a huge market not many advisers offer a specialised service.

« New issues arise with management of family trusts

The ideal business insurance product »

Special Offers