Grant Ellis says independent brokers can acquire the power to negotiate with major insurers by joining a network
A dozen years ago there were some 10,000 provincial brokers, which between them controlled around £6bn of premium, 40% of which was in personal lines. There were a dozen large insurers, mostly
UK-owned, and at least as many international brokers.
The largest provincial broker handled £10m premium income, and the top 250 together controlled about 25% of the market. All were family owned and networks were just starting to appear. The only regulation was from the Insurance Brokers Regulatory Council (IBRC) and all aspects of the market were highly competitive.
The landscape today is somewhat different. Now there are only 3,500 provincial brokers, which together control around £11bn of premium, where less than 20% is personal lines. There are now only five large insurers and five international brokers. The largest independent broker controls almost £1bn of direct premiums, the top 10 £2.5bn, and the top 250 almost 75% of the market.
It’s not surprising therefore that it is to this group that insurers turn when it comes looking for business. The Top 10 get a particularly attentive service, with insurers dedicating a growing share of their meagre resource to this lucky few.
The knock-on effect is that the remainder unfortunately have to put up with an increasingly ‘take it or leave it’ approach to their needs and aspirations.
It’s not too long ago that a broker could overcome this obstacle by growing his business through acquisition. Doubling from £5m premium to £10m enabled a broker to significantly improve influence in his local market overnight.
However, with the advent of consolidation there have been a couple of very significant changes to this landscape. Consolidators are national organisations, and negotiation between insurer and broker now, more often than not, takes place at a national level. As a result the autonomy of insurers at a local level has been much reduced.
Equally influential is the pace of change. This is now so rapid, it’s impossible for the vast majority of brokers to contemplate trying to keep their place in the pecking order by acquiring the competition. This is now the preserve of those with only the very deepest pockets.
And these pockets get deeper. The large brokers have been able to use their size and influence to leverage big increases in commission.
Norwich Union recently admitted in its accounts that its commission bill has increased by about £130m in the past 12 months alone.
For brokers outside the top tier, therefore, life can often be very frustrating. Getting ‘air time’ with the main insurers, and the opportunity to engage with them, is now virtually impossible unless you are one of the lucky few.
“Getting â€˜air timeâ€™ with the main insurers, and the opportunity to engage with them, is now virtually impossible unless you are one of the lucky few
There is however another way: join a network.
Members of the four main networks now collectively control over £1bn – with the largest managing almost half this figure – in fact more premium than all but one of the top independent brokers.
The best networks have succeeded in bridging the gap between the aspirations of insurers to engage only with organisations of size, and brokers who individually do not have the necessary scale.
And that scale is significant – you need at least £30m of premium to get into the top 50 broker chart these days, and over £100m for the top 10. Inevitably each of these bands is moving ever higher as the impact of consolidation continues apace.
A good network should add value to all parties, not detract from the value chain. Insurers appreciate the scale and are prepared to pay for it.
And network members appreciate the opportunity to compete on equal terms, in relation to both service and remuneration, with organisations that are individually much larger and better resourced than
It’s a myth that joining a network reduces a broker’s independence, requiring it to toe the party line when it comes to placing risks. Nothing could be further from the truth.
Members of a network have an improved choice due to the sheer scale of the organisations they join – huge influential accounts with all major insurers are a given. There are no difficult conversations here for brokers about a lack of account growth.
It’s generally accepted that a fiercely competitive market is a good thing – good for customers as they have choice, and it’s good for suppliers as they have to be lean, fit and honest to remain successful.
The advent of professional and successful broker networks helps to ensure that competitive intermediated commercial insurance remains within the reach of all customers, not just a significant few.
Grant Ellis is chief executive of Broker Network Group