Now that a long flirtation with direct sales is losing its lustre, insurers are renewing their faith in brokers. In turn, brokers have reinvented themselves to win insurers back with their knowledge, experience and sound relationships with customers
Ding-dong, the personal lines broker is dead. For a while, this was the theme tune in the marketplace and insurers seemed happy to sing along. Indeed, as the strength of the direct route and the aggregators grew, it appeared there was no turning back for the traditional middle man as many brokers abandoned this market for commercial lines.
But no more. The personal lines broker is back and – if not quite king again – is a force to be reckoned with once more.
Insurance giants are making little secret of the fact that they need to boost underwriting profits in personal lines in a bid to counter dwindling returns and the high claims costs of recent years. For a lot of the top 20 UK insurers, the broker channel is regarded as a key route towards achieving this aim. Many are actively touting for new partnerships, offering better access to decision-makers and greater flexibility with regard to pricing and requests for more tailored product offerings.
RSA, in particular, is bullish about wanting to expand its broker partnerships in personal lines, which currently account for just a fifth of their overall distribution strategy. “We are not happy with the way it is. We are underweight in that market and have less than 5% market share, so we are not punching our weight,” says RSA’s managing director of personal lines broker Steve Kingshott. “Our plan is to grow significantly in the broker channel over the next four years, provided we can do that profitably.”
This gung-ho attitude is echoed by Aviva. “We are absolutely looking to grow in the broker market and we absolutely see space to grow in that area,” says head of broker personal lines Sam Hudson. The gestures aren’t just verbal – the insurer is widely seen to be actively addressing a longstanding grievance of many brokers in trying to close the gap between the prices of products on its direct channel and those sold via brokers.
Meanwhile, AXA’s head of personal lines intermediary, Mike Keating, is also on the hunt for new brokers. AXA has shorn £150m GWP over the last 18 months during its cull of MGA ties and other broker partnerships exiting from lines including household, home and legacy, travel, warranty and motorcycle lines.
Brokers, meanwhile, are alert to this resurgence of interest. Bluefin chief executive Stuart Reid says: “Some insurers are trying to balance their books to charge more for motor and household than they have done in the past, so there is a definitive impetus to increase rates and get more business. We see a hunger from certain insurers.”
A refreshing change
Elsewhere, small independent brokers are also reaping the benefits. “I’ve certainly seen more interest in us and our business from the major brands over the past 18 months than I have in a long time,” Ashbourne Insurance Services managing director Peter Smits says.
“There is more of a willingness to talk,” he adds. “It is a greater opportunity to trade more than anything else, and that is refreshing and reassuring because literally that has not been the case. Up to a year ago, all you could hear was ‘buy direct, buy direct’. We had poor relationships and nobody was talking to us.”
So why the change of heart? First and most importantly, going direct is not making money. Insurers face fierce competition from rival direct channels and the marketing might of the aggregators. Meanwhile, insurers say that doing business via aggregators hits on margins and reduces control over price.
“It is understandable that there might be a bit more focus, because insurers make very little money on the cut-throat areas of the comparison websites and dealing direct. I don’t think it is hugely profitable for them at all,” Lark Insurance managing director Stephen Lark says.
In fact, Allianz broker and corporate partner director, Simon Brimicombe frankly admits that the insurer no longer views its direct channel as a profitable source of growth. Allianz now hopes that by shifting focus to brokers instead, it can boost retail business from its current level of just under £600m premium to a target of £1bn. “It is fair to say that our broker business will make up a big slug of that gap. We haven’t a specific number, but it will be a big chunk of it. Certainly, our strategy is to grow our broker channel,” he says.
Further, many insurers have come to the conclusion that brokers provide better quality business that is less likely to generate fraudulent claims. Plus, there is a better renewal rate. “They tend to have good relationships with the clients and it is not just about price. When it comes to the internet, clients often are focused purely on the price, so any insurer selling direct on the internet is going to have that problem with renewals retention every year,” explains Biba’s technical and corporate affairs executive Graeme Trudgill.
Trudgill believes the broker offers an invaluable boost to insurers, acting as a “secondary underwriter” to ensure the best deal for the client while also guaranteeing that insurers get the business they want. He points out this can save a lot of problems for insurers in the long term.
“The broker is there to make sure of the suitability of the product for the client as well. Brokers make sure clients actually get what they need as opposed to when customers surf on the internet and buy something that looks cheap but actually isn’t the right product for them. That leads to complaints and arguments with the insurer.”
Further, Carole Nash commercial director Simon Jackson argues that insurers have been forced to raid brokers for expertise: “A lot of insurers got rid of many experienced staff. There is a definite lack of underwriting talent. I think that insurers now see the broker as a knowledge fountain.”
He adds that, consequently, insurers are more confident about transferring authority to an efficient broker. “We have proved ourselves to insurers; we have been around a long time. They will allow us to have certain delegated authorities; they wll let us price the risk. They have become more receptive to opening up products and adding some new features. They need to go where the volumes are, and the volumes are from the established players like us.”
Indeed, new opportunities for brokers in personal lines are growing as market players queue up to offer more business avenues for brokers. For example, UK General is expanding the number of schemes available to brokers in personal lines, while also reducing the financial barriers that have prevented brokers from taking up such schemes in the past.
“Insurers want brokers to operate schemes, but they want £500,000 to £1m premium income and that is hard for many brokers to meet. We would be looking at £100,000 up,” director of sales John Bibby explains.
The financial crisis may also have played a part in the broker revival. Smits believes that consumers have grown increasingly distrustful of faceless corporate brands, driving them back through their door of their high street broker. He adds that footfall is the greatest it has been in the last three years and overall business has grown by 10% over the past year.
Kingshott agrees that predictions of the broker’s demise in personal lines has been wildly exaggerated, arguing that broker share in the market has grown. “If you look at the period of 1999 to 2003, the broker channel did lose a lot of share,” he says. “But brokers reinvented themselves and that trajectory didn’t continue. The broker channel levelled down to about a third share of the market and has actually increased since then.
“I think people saw brokers losing share and assumed that would continue, but they didn’t bank on brokers being a very resilient bunch. They are able to reinvent themselves and are able to respond to things that happen in the marketplace.”
But while the trend for embracing personal lines brokers back into the fold is growing, not all insurers are catching on.
Zurich, a big presence in the personal lines broker channel, is widely seen to be scaling back broker relationships. “We see some insurers looking to reduce their book because it is underpriced. Zurich has been very hard in putting rates up to such an extent that one would argue they are looking to exit in certain areas,” one broker source says.
Zurich’s personal lines broker division head, Richard Coleman, concedes that profitability is now a major focus for the insurer rather than growth. “When it comes to profitability, if there is a case where a relationship isn’t working, we will review it,” he says. “We must have a relationship that is co-operative and that ultimately gets the best result. Profitability is a big challenge in personal lines.”
But if the majority of the big carriers are broker- friendly once again, what does this mean for the direct market? Market pundits say that while such web channels may no longer be in favour, they are unlikely to go away. The low cost of direct business and the resilient attraction of a low price will guarantee insurers’ continued investment. But one thing is certain: the personal lines broker has been well and truly resurrected. IT