Amanda Blanc says the threat posed by direct writers should not be ignored, but brokers are in a strong position to grow their SME business
The SME sector is big and it is pretty tasty. There are nearly four million firms and all are in need of risk management advice and insurance protection. With an estimated worth of around £6bn, it is no wonder that everyone wants a slice.
Brokers dominate, with around 90% of the market, but banks, building societies and direct writers want a greater share. So, what can intermediaries do to defend what they have and strengthen their presence?
We can certainly be upbeat about the prospects for intermediaries and supporting insurers. According to Datamonitor, over 65% of SMEs are very satisfied and over a quarter are satisfied with their broker. In other words, fewer than 10% have any motive to change.
More good news from Datamonitor: over 80% of SMEs have been with their broker for more than two years and over 60% for more than five years. Juicy, long-term relationships that are the Holy Grail of broking.
But we must avoid complacency. Direct sellers may be fringe players now, but the majority of SMEs would consider buying from them. SME bosses have no sentimental attachment to intermediaries. They simply want the best deal.
Many SMEs are technology-savvy. Over two-thirds use email for business contact and almost half are on the internet for over 30 minutes a day. A third use it for up to two hours a day for research and gathering information.
If they look for insurance online, will they not fall into the clutches of direct sellers? Possibly. But what about brokers? If they are smart, there is no reason they can't compete online.
Intermediaries should embrace technology as a vital weapon in their marketing armoury, especially for small-ticket, straightforward commercial risks. Not to do so would be to leave doors (or maybe Windows) open for the enemy.
We've already seen the emergence of internet brokers, who are tapping the vast potential of this distribution mechanism. They've seen the future, and it works.
Let us not forget imarket, the market portal designed to help brokers reduce cost and increase efficiency. Intermediaries can now write certain classes of business on to an insurer's books from their office system using straight-through processing.
The key to success for intermediaries will be to add value. They need to promote the importance of advice. They can offer alternatives, tailor cover, and build flexible and responsive programmes.
They can also leverage their independence and extol the benefits of being regulated professionals who have a statutory obligation to offer best advice.
The broker's ability to demystify insurance is deeply appreciated by SMEs. Insurance terminology and processes can be baffling to an outsider (and even to some insiders). That is why direct selling is not sweeping all before it as it did with personal lines. Intermediaries should cement their reputation as experts.
Fortunately, the reputation of banks and insurers is hardly glowing when it comes to their expertise. The perception is of remote call centres and staff who know little and care less about the nitty-gritty of the business. Brokers can and should be the polar opposite.
Intermediaries should also be in regular physical contact with their clients, and not just at renewal. As they say, a local service for local firms.
Price remains key. SMEs want low costs. But they also want the right cover backed up with expert advice. They do not want the lowest cost if it means an inferior product.
Brokers must develop a competitive proposition that combines advice, protection, service and support while achieving a profit. Easy-peasy? Well, no, actually. But if it were easy it wouldn't take a professional to do it.
Transparency may help tackle the price issue. If brokers are honest about their earnings and can demonstrate value, they spike the guns of those who demonise commission.
More good news: the SME cake will grow to 4.5 million firms by 2010. So there is plenty of opportunity. Brokers will continue to thrive if they find out what customers want and work out how to provide it. IT
' Amanda Blanc is distribution and customer service director at Groupama Insurances
Intermediaries should embrace technology as a vital weapon in their marketing armoury, especially for small-ticket, straightforward commercial risks