There is a natural synergy with SMEs that brokers can use to enhance their offering and compete in the market, but are they using it? John Hancock argues they are
There has recently been suggestions in the market that brokers are inadequately serving the SME market. But frankly, these suggestions are somewhat exaggerated. Brokers and SMEs remain an excellent business fit. So what is the current state of the insurance market for SMEs and how might brokers continue to secure a good share of that market?
First, we need to understand that the SME market is highly diverse. Businesses range from one and two-man operations to firms with a turnover in the millions and considering a listing. Charles Earle, Arista chief executive, explains that, in insurance terms SME is indeed a wide category.
"[The term SME] is often misused to describe a sector which is only part of this large and diverse market. It can include organisations paying annual premiums from hundreds of pounds to hundreds of thousands of pounds," he says.
The SME insurance market seems to be in very rude health. Phil Barton, group commercial director with the Jelf Group, says: "There is a huge appetite for support and advice among SMEs, who are often time starved and lacking the expertise to achieve what a good broker can do better for them."
But nothing stands still. Paul Upton, chief underwriting officer at Evolution Underwriting, says: "While there has been considerable consolidation, the market is still fragmented. It is also more commoditised and price sensitive."
For brokers there is the opportunity to distinguish themselves with a higher quality service and added value offerings such as risk management advice.
The good news is that brokers are still used by 92%-93% of the SME market.
"Although more recently established firms may be finding the going tough, longer established brokers will have little trouble in retaining their renewals," says Ian Russell, underwriting director at Anglo Pacific Consultants. But this is a very soft market, which has seen no significant growth for two or three years. So, taking a positive view, the only way is up.
Also with 93%-94% of UK businesses having fewer than 10 employees, for brokers to compete in the commercial market at all, they must target SMEs.
David Martin, small business manager at Allianz Cornhill, says: "All the feedback we have received from research and from customer focus groups suggests that brokers are doing a very good job for SMEs, and SMEs recognise that fact."
It seems that for basic insurance requirements brokers do very well. They are good at generating fair deals and managing claims.
But some question whether they are always selecting the most effective solutions. "Too often, brokers will say that they can save a client 20% on last year's premium but are less likely to explain that they can help clients better manage the risks in their business," Paul Upton argues.
Yet this ability to deal with the specific needs of SMEs rather than simply the price is a key 'plus' for brokers dealing with SME clients. It's all part of brokers being able to offer a stronger relationship with clients, either by having them visit the office or by the broker visiting the client.
In truth, brokers are SMEs themselves and so are usually on the same wavelength as small business clients.
They are well equipped to understand the specific circumstances and drivers of a small business, such as the importance of time.
But they also need to be able to monitor changes in needs, developing the service as the business grows.
Any broker managing that will certainly attract SME client interest. A lot of brokers have sharpened their act to compete in the SME market, while others have moved to niches.
Given that this is an evolving market, what steps might brokers take in order to first consolidate their position and then extend the market in the future? The consensus seems to be that brokers would do well to try to service a wider range of SME client needs.
Since regulation has been standardised across the market, there has been a growth in the number of composite brokers offering their clients support and guidance, across the range of financial services and insurance needs.
Derek Finlayson, UK business development manager for Groupama, says: "If I were a broker setting up today, I would wish to supply 100% of my SME clients' needs. Often, SME needs are met from different sources of expertise."
He adds that a broker would need very good internal communications in order to support such cross-selling opportunities, but it would be worthwhile.
Phil Barton agrees that, if they are to succeed today, brokers must offer a broad range of services. "They must put the SME at the centre of the business for insurance, financial services, business finance, healthcare and employee benefits."
In this way, they will make the best use of the excellent relationships that are at the heart of a broker's business to generate loyal and consistent clients. Ian Russell adds that brokers need the systems to be able to cope comfortably with a profitable number of clients. Put bluntly, "10% of 200 is a lot better than 10% of 100."
So, the consensus view seems to be that brokers are not only well suited to the SME market by temperament and by their own entrepreneurial outlook, but they are also serving that market well at the moment.
Of course, the world moves on, and there is no room for complacency in business today. But to be fair, brokers have rarely displayed complacency, and so one might confidently expect that as this market grows and develops so brokers will grow and develop their own offerings to SMEs.
David Martin points out: "People underestimate just how much brokers do in this market." And as Derek Finlayson says: "If I were a broker I'd be saying, 'what an opportunity'."
IIB director general Andrew Paddick adds: "Brokers have an increasingly important role to play in these times of acute uncertainty. Those who are themselves imaginative entrepreneurs have a prosperous future ahead, but those who stick to just selling insurance policies could go the same way as the village blacksmith." IT