The Insurance Market and Art & Collectables
Some clients get confused about who/what Self Super Insurance is and who is actually going to pay their claim. In under 500 words, I’ll explain how insurance operates, where we fit in and who will actually pay your claim.
Clients (like you) contact an Insurance Broker (like us). We deal with Insurance Companies (like QBE, CGU, Lloyds) to get you a quote (coverage, price etc). Behind the scenes, Insurer’s ‘insure’ their own risk with other Insurers – these are the reinsurers (e.g. Swiss Re, Munich Re).
For some classes of insurance you may prefer to deal directly with the Insurer – think Motor Insurance with RACV. However, when you deal with an Insurer directly then you are on your own.
The relationship between Insurer and Reinsurer is handled one of two ways: treaty or facultative. A treaty means that the Insurer and Reinsurer have pre-agreed details upfront. For example, for every $1 of risk (and premium) the Insurer accepts, the reinsurer takes 40c of it. Facultative means that the deal is separately negotiated (happens on deals that fall outside of treaties).
What do we do?
As an Insurance Broker we act as your agent, representing your interests in negotiation on coverage and price. We are Insurance experts that you outsource the process of obtaining insurance to.
An Insurance Broker has several ways to operate, including:
1. Approach the open insurance market. The Broker contacts several Insurers to get the best deal. Typically the number of Insurers most Brokers approach depends on how large and complex the client is.
2. Pre-negotiate a deal with an Insurer. The Broker negotiates a deal with an Insurer for a specific risk type. The Broker then sends each client to the one Insurer for them to quote. This is what we do for Art Insurance for our clients. We have a pre-negotiated deal with Lloyds for Art & Collectable Insurance.
3. Binder. This is a variation of the method above. The Broker pre-negotiates the deal but instead of having to send to the Insurer to quote, they get authority to quote and accept risks on the Insurers behalf. In this situation the Broker is now an Agent of the Insurer not you.
4. Some Brokers go a step further than a Binder and actually own their own Insurer.
Who pays your claim?
The Insurer pays the claim not the Broker. In your case a Lloyds market pay’s the claim (they then seek recovery under their treaty from their own reinsurer).
What is Lloyds?
Contrary to most people’s understanding, Lloyds is not an Insurer and it’s not a company; it’s a market where Insurers (members) join together as syndicates to insure risk.
To use an analogy it’s the Victoria Market. When you shop at Vic Market, it’s the various stall owners you buy from inside the Vic Market that matter. Vic Market is just the location, banner and structure they all fall under, ensuring they all adhere to rules and regulations.