The race to survive as an intermediary gets tougher every year. Chris Wheal looks at the skills that might help

The race to survive as an intermediary gets tougher every year. Chris Wheal looks at the skills that might help

Welcome to the starting line-up for the insurance intermediary steeplechase. The fiercely competitive race will take place over the next four or five years and perhaps only half the runners and riders will last the course.

The going is soft but experts say that, particularly in motor, it is getting firmer. The powers that be have made it clear they hope to see a single set of stewards before the end of the race but for now the horses are running under two sets of rules. It's anyone's guess who will win.

Pundits take very different views. CGU has suggested spread betting. Its "Cutting Edge" report on the future of brokers identifies five potential winners, each with different strengths.

The industry specialist that focuses on serving a particular sector with the products and services it needs are likely to be there at the finish, predicts "Cutting Edge".

The added value service provider, with its particular clients who want to be treated as special will also be there.

Another tipped for success is the flexible relationship manager, a broker that employs different charging structures to suit different clients. But they will be neck and neck with the community broker who has a long-standing and loyal local customer base. And coming up on the outside, according to "Cutting Edge", will be the virtual broker, using web sites and e-commerce.

CGU says its analysis came straight from the horse's mouth. "It's not a report written by an insurer telling brokers what to do. It's based on information from the "best of breed" brokers," says Kevan Aubrey, CGU's broker partnering consultant. "These are the things other brokers are saying and we've tried to report on that as neutrally as possible."

Other punters are putting their money on similar bets. "The small broker will either go, sell out or merge, or become part of a larger network," says Chris Garrett, key account manager with Cornhill. "We see the demise of the smaller broker. There will be more alliances and networks that give the bigger club purchasing power. Alliances where they are just talking shops won't survive. They will need to have purchasing power, joint marketing strategies and group support for the insurer."

Others too will be able to jump the new fences being hurriedly erected in front of them. "There will be more use of the internet, beginning with small businesses insurance for shops, offices and small commercial outlets. The brokers that have the sites will win the business," says Garrett. "The bigger insurance buyers will be looking for more self-insurance so at the top end, brokers will have to become more involved in risk management and acting as consultants than in selling insurance."

Some are confident of reaching the finishing post for different reasons. Rebecca Hadley, spokeswoman for the AA says that, as others fall at the fences, the AA should be a favourite. "We're finding the policies other people cannot find by ringing around themselves from numbers in the Yellow Pages," she says.

And then she adapts an AA advertising slogan: "If you don't know where to find the policy that suits you, you need to know a man who does."

Hadley says the AA will be a strong finisher because it has national advertising and a strong brand. It is effectively marketing insurers to customers while giving customers better products and services than they can get elsewhere and it is able to invest in the new technologies available and offer discounts for the cost savings of using them. The direct writers, she claims, have not cut out the middlemen by avoiding intermediaries, they have simply changed the middlemen to TV advertising executives..

Alex Lovesey is spokeswoman for the growing stable of Hill House Hammond, which is continually buying up brokers and intermediaries. She predicts many more will sell up"

Regulatory changes
Incoming regulatory changes will be an additional push. "In a lot of cases it is just about survival and now you've got the new regulations and costs. I'd like to think they probably can survive if they want but there are quite a few who have done their stint and could just about afford to retire and now they are saying 'Why shouldn't I?'," Lovesey says.

HHH is not into financial services but will handle commercial business through one of its regional centres. In most cases it closes the offices of the firm it buys but transfers the staff to the nearest HHH office and picks up the clients on renewal.

"The main problem with smaller brokers is that they just don't get the rate. They can't get the discount rate we can get because they don't have the discount bulk buying power or the delegated authority from the insurers," Lovesey says.

Harnessing the internet
The jockey's representative, IIB president Andrew Paddick, says: "The internet is going to change the way insurance has historically been distributed and serviced. There will be an increasing amount of self-servicing by the insured so brokers will need fewer task workers. But we will still need thinkers," he says.

But a local presence will remain vital, he says. "People will have doubts about dealing with a web site. They want to trade on the internet but with someone local so that if things go wrong they can still deal with it personally," Paddick says. He reckons internet trading will negate networks as insurers will give the discounts to anyone selling through the net. And he says those not prepared to invest in the net - he is launching a company to help brokers next year - will have to decide about their future. He warns that if too many decide to sell, the price will fall and some could end up in the knacker's yard. He suggests, however, that the bulk of the shake-out will come from the current ABI-code regulated sector. He says the GISC figure of 30,000 firms to be regulated could fall to 5,000.

Before placing any bets, punters might like to wait until for a Financial Times Business management report, "Insurance Broking into the Year 2000", is published next week. Author John Jackson says: "The pace of change is overwhelming many in the intermediary channel. But those that are switched on have already re-engineered their businesses to face the new challenges. The traditional ways of broking insurance are giving way to a new breed of intermediary who is a businessman first and an insurance technician second."

It is universally agreed that this time the race will involve serious casualties. Pundits also agree that the winners will be in a stronger position when it comes to their dealings with insurers so the effort will have been worth it. But to be a winner, brokers will need more than just lucky horseshoes.

"There will always be room for the personal touch"
Colin Stutton says it would be wrong to consider him an outsider. He set up the three-year-old novice Alpha insurance brokers in Gillingham after several years in the insurance industry. He registered with the IBRC, complying with its rules of keeping premium money separate from the commission and took out £250,000 of PI cover.

After three years his commission has grown to just £18,000 although he expects that to have grown again by a further £6,000 this year as premium income is up again on last year.

Under a GISC stewards' inquiry he will have to quadruple his PI cover to £1m, even though his business specialises in providing cover for small commercial outfits such as shops and pubs. He says he will also have to have five times as much free capital than the current £1,000 he holds. On top of those he will have to pay £300.

Faced with those costs three years ago he could never have got his business started. "That is going to be a great deterrent to trade." he says.

Stutton wants the fees, PI level and free capital rules lowered but says none of these hurdles will put him out of the race. "There will be those who, faced with this, will call it a day and there will be some who simply cannot comply. But it's good for those of us carrying on because there will be extra business to pick up," he says.

Alpha will stick to its target market and avoid of the like of personal motor business. "All you need is a teenager with a computer to sell motor insurance. You don't need my professionalism and anyway a teenager can use the computer faster than me," he says. Although he has got a web site and says the internet is something he is likely to invest more in.

But Stutton reckons his willingness to provide the personal touch will ensure his future. "I went from Gillingham to Folkestone to see a pub landlady and then I went back with some quotes. When I sent her the proposal forms she asked if I could help her fill in the forms so I went back to Folkestone. The big boys aren't interested in that," he says. "There will always be room for people like me."

Specialist niche products are one way forward

The Hannover Park Group is a fit 25-year-old thoroughbred. Based in Crystal Palace, South East London, the firm has already gone through radical changes, which started with it pulling out of mainstream, mass-market products. Instead it concentrated on the higher stakes on offer in specialist niche products. And it has been a galloping success.

The group has several specialist divisions. Trucksure has a product called Gapcover, for example, which pays the difference between the insurance value of a written-off truck and the amount owing on hire-purchase or loan used to buy the truckr.

Greystoke Legal Services is, according to the company, effectively privatising legal aid. For £40, a customer can take their case to court with Greystoke lending them the money for the legal fees, which it gets back if the case is won, and insuring them against losing the case.

Hannover Park Property combines insurance with property management so that the broker has more control over the risk. Its Homelet product is for tenants leasing properties and involves the broker carrying out basic functions such as credit checks on tenants and annual gas servicing.

The group also has Sportsure, a product for professional footballers, that gives them a pay-off if their career is ended by a crunching tackle, as well as products for the media and film industries and for the plastics industry. And it has a financial services arm.

"We have human resources, accounting and marketing centralised so each of our units has the benefits of that expertise without the permanent overheads. We have invested heavily in technology and in business planning in a big way," says group marketing manger Brian Duck. The firm employs 140 people and has £25m of gross premium income a year. Hanover Park is already in the home straight.