Brokers claim they have a strong relationship with SMEs, but have cracks started to appear?
It is taken for granted that SMEs and brokers are a match made in Heaven. The broker gives crucial policy advice that the SME would not get anywhere else. But challenges exist to this scenario. Much has been written, and said, about the influence of the internet removing the broker's influence.
But this has evolved into a red herring, at least as far as stepping on the SME brokers' toes, the reason being you cannot get advice from a computer...at least not yet. So is the SME/broker marriage a long-term relationship or a passing fling? And do both parties really need each other?
Tom Ernoult, managing director of Heath Lambert National, supports the view that brokers and SMEs are a solid marriage because the broker takes the hassle out of the decision-making process so that SMEs can concentrate on what they are good at.
"For example, SMEs need to look at employers' liability, D&O cover and public liability among other things and SMEs do not have the time to deal with this. That is why the knowledge and expertise of the broker is needed because you cannot get that through the internet."
Although it is inevitable that a broker will support the work an SME does, Ernoult concedes that brokers have become complacent in the marriage with SMEs, taking for granted their SME partners.
He says: "Some brokers have in the past been blinded by the size of the SME client and its returns rather that the reality of what a client wants and needs and what the broker can do for the SME business as a whole.
Brokers need to make SME clients aware of the whole range of polices to allow clients to choose."
Looking at the broker/SME partnership, it can only work if the anonymous third party - the insurer - is willing to make a menage a trois work.
Worries pervade that some insurers are offering generic, standard polices rather than the bespoke type cover that different SMEs' need.
But Ernoult says this offers opportunities for the broker. "With contract certainty and the FSA regulatory environment most policies have had to become more standardised to fall in line. But brokers have the knowledge to influence polices to become less standardised for the client. They can make a policy industry specific, area specific and it is better for the broker to create more bespoke polices as it shows the true value of the broker in such situations."
But Adam Boakes, UK development manager from broker-only SME insurer Evergreen, believes it is a key part of the insurer's work that the broker/SME marriage remains strong by making sure every insured risk in the SME sector is unique and requires specialist understanding and placement.
"The broker's role is therefore critical in ensuring that the risk is placed on an appropriate basis with a suitable insurer. The use of the internet and a 'tickbox' approach is not suitable for the reasons stated."
Therefore, each risk underwritten at Evergreen is tailored to suit the individual requirements of the insured. "We have looked at internet technology before, but are not confident that it would be suitable for the individual requirements of SMEs," says Boakes.
Broker Swinton attributes its growth and success in the SME sector to its responsibility of satisfying individual SME desires to keep the various marriages alive.
It has taken the personal high street broker approach, offering bespoke policies but combined with the convenience of telephone brokering - with, interestingly, an element of online application available to those who like to do business via the web.
But this dual approach, the high street touch delivered by phone, has raised its own issues of recruitment and skills needed. "Many of the best SME brokers are experienced face-to-face operators not comfortable with being desk-bound," says Carolyn Callan, head of Swinton Business Insurance.
To address, this Swinton has invested heavily in specific sector training for its SME brokers to get under the skin of the individual client and its particular market. The sheer diversity of what an SME actually is in terms of size, commercial activity and particular needs means SMEs are rarely suited to a 'one size fits all' approach.
"Swinton deals with many retailers in the convenience sector but understands a traditional, suburban newsagent with jars of sweets behind the counter and a couple of paperboys has very different needs to someone running a mini-mart selling alcohol on the fringes of a busy city centre," says Callan.
One service Swinton has noticed increasingly being sought by many of its SME clients, regardless of size or sector, is commercial legal expenses cover. Nearly 70% of all Swinton's SME policyholders opt to take this additional cover to guard against potential employment tribunals and other liability issues.
"The blame and claim culture means that many employees see disciplinary action or sacking as a potential cash bonanza and, even if the employer is victorious, a lengthy legal process can have a very damaging effect on their business. And, if unsuccessful, could be out of business altogether."
Swinton has found that many internet packages aimed at SMEs are not tailored to meet individual client needs at all.
Although speaking to SMEs, Swinton has discovered that many who have tried to apply for a one-stop-shop package via the net are eventually referred to a call centre anyway, frustrating the applicant and defeating the object of web-based brokering.
Swinton's solution is to encourage those that visit its website to submit some relevant background information using online forms which is then followed up with a phone call from one of its SME specialists.
"Small businesses prefer this approach because, when making a commercial transaction, they prefer spending money with a real person rather than through a piece of automated software," says Callan.
This is one example of how the broker can use the internet to deal with SMEs rather then seeing the internet as just a threat. As very busy, stressed out owner-managers are increasingly seeking fast, convenient solutions to all of their business needs, the web can surely be a powerful tool for the delivery of such services.
In response to this Swinton is currently looking at developing an online 'quote and buy' service for SMEs, but wants to ensure it has the same degree of integrity and personalisation built in.
Until that time it believes its call-based, yet personal approach, with elements of internet information gathering, offers SMEs the best routes to the right cover at the right price.
But Premierline Direct offers a different perspective, disagreeing entirely that SMEs and brokers are a match made in heaven.
As evidence, Premierline says since its inception, it has received 300,000 SMEs calling in for direct-to-SME quotes. It says it has produced 25% of Allianz Cornhill's SME business by going direct to the market.
"Many SMEs are unhappy with the broker relationship," says Premierline chief executive Barrie Wells. "They feel they are treated as too small and the premium is too small.
"Brokers don't deal face-to-face unless the premium is above £1,000.
The rest they just deal with over the phone, so what is the point of using a broker in that situation?"
Wells says he can see the SME market becoming more like the motor insurance market with a greater drive towards direct selling.
"Once one insurance company goes down the direct route for SMEs the rest will follow. That will break up the broker's influence in this area. I can see the SME market being reduced from 95% broker to about 60% over the next four to five years."
If Wells is right, the broker must avoid complacency. The broker will have to show exactly where they offer SMEs real advantages. Only time will tell if brokers are up to this challenge.