Brokers are facing a multiplication of threats in an ever-changing market. How can they survive? Ellen Bennett explains
Tim Wilson summarises the mood in the market: “These are the toughest times for brokers that I can remember. It’s been a soft market now for two or three years, with internecine fighting within the market.”
Wilson, sales and marketing director of Close Premium Finance, adds: “SME is very crowded, premiums are at an historic low – brokers are very squeezed at the moment and it’s hard to make a living.”
It’s a gloomy assessment, but arguably a fair one. Brokers face unprecedented competition on all fronts, from direct providers eyeing commercial lines to the booming aggregators and behemoth consolidators swallowing vast chunks of business. So how can the smaller or medium sized business defend itself?
Of course, competition is nothing new. “Brokers have been living in a competitive environment for many years,” says Eric Galbraith, Biba chief executive. “We have always seen threats from other channels of distribution coming in and commoditising insurance products, or accessing our customers in different ways.”
But the multiplication of threats, and the new forms of communication which make it easier to access the customer, mean that brokers cannot afford to be complacent. A recent survey by Insurecom found that 56% of leading broker respondents described the future of the industry as “adapt or die”.
As well as consolidators, brokers were concerned about changing business models, including the growth of direct insurers, and the total absence of customer loyalty.
“Customers are better informed about where they can go, and what the differences between different distributors are
Tim Ablett, consultant
Regulation was also a concern, with three-quarters of respondents worried about complying with FSA rules. Add to this the worries about business inefficiencies and the challenge of new technology, and it seems a lot of brokers must be having a lot of sleepless nights.
“A few years ago, the whole of the competition was between brokers and insurers,” says Tim Ablett, a consultant to Project Consulting Partners.
“But with supermarkets coming more into distribution, and the internet, particularly in personal lines but now increasingly in commercial lines too, there is a new, multi-channel competition.
“There has also been a change in the attitudes of customers – before, they saw themselves as the customer of the broker, whereas now they are slightly more promiscuous, and they are better informed about where they can go, and what the differences between different distributors are.”
But the market is adaptable, and there are as many ways of responding as there are challenges.
1. Sell a stake to an insurer
With insurers such as Norwich Union and Allianz in the market to buy, there can be few brokers out there that have not felt tempted to sell a stake in their business. Though this may raise concerns over independence, it provides much-needed cash for development, and a strong relationship with a key player.
Ã¢â‚¬Å“I would be lying if I said it hasnÃ¢â‚¬â„¢t crossed my mind,Ã¢â‚¬Â admits Lyndon Wood, chairman of Moorhouse, though he has no current plans to sell. Ã¢â‚¬Å“ThatÃ¢â‚¬â„¢s the nature of the business world. We have our own frustrations Ã¢â‚¬â€œ we want to quadruple the size of the business, but we need financial backing.
Ã¢â‚¬Å“The simplest solution seems to be to sell part of your business to an insurance company Ã¢â‚¬â€œ they have the deepest pockets.