With Marsh’s declared intention to step up its drive into the SME sector, regional brokers could lose out.

Last week, Marsh unveiled its plans to begin an aggressive drive to penetrate the SME market. This is the latest in a long and distinguished list of assaults on the SME sector, which accounts for an estimated 4.3 million businesses. With that figure growing at record levels, it is not surprising that the likes of Marsh are looking for a piece of the action.

Marsh’s interest in the sector has two distinct implications. First, it will put it into more direct competition with rivals Aon and Willis.

More importantly, though, it could see them carving out a stake in a market on which regional brokers depend.

Upping the ante
Insurers and brokers targeting business at the lower end of the commercial chain is nothing new. The change that the market has seen in the past 12 months is that players both large and small have emphasised their commitment to – and have upped their involvement in – the burgeoning £10bn SME sector.

The national brokers are understandably unhappy with the conventional charge that their service is inferior to that of the regional brokers. Marsh’s move should certainly help explode the myth that national brokers have been traditionally shy in the SME sector.

Indeed, this is not the first time the company has made a run at this market. “Our average client is not as big as people think,” says Chris Lay, managing director of Marsh UK.

Willis chief operating officer Grahame Millwater declared in April that the broker aimed to become “the leading broker in the SME market”, adding that the sector had been previously “untapped by the global brokers”.

Stuart Reid, chief executive of Stuart Alexander, comments: “Historically it has been hard for national brokers to penetrate the provinces.”

Hard, yes, but far from impossible, as Aon’s 10-year commitment to the market suggests. It has said it plans to double its SME-derived business by the next decade.

“There is a dubious perception that because SMEs are at the lower end of the chain we, the larger brokers, don’t care about them,” says an Aon spokesman.

But he adds: “On the other hand, SME is the regional broker’s bread and butter.”

“There is an inherent conflict between delivering choice and delivering a highly packaged offering.

Chris Lay, MD Marsh UK

It is thought that with the global brokers running out of room in the high corporate end of business, they are increasingly shifting their focus to small enterprises.

Conceded ground
Then there are concerns, reiterated of late, that global brokers have conceded ground to the super provincial brokers, including Towergate and Oval, in the SME campaign.

Insurers are wary of this development too. Some have taken drastic steps, such as buying commercial brokers.

Reid says: “It is a battleground. It is the reason AXA bought my company in January. The outcome will depend on what the small businesses are looking for. Will it be service, or instead a more commoditised, price-driven product? If it is the latter, the national brokers will win.”

That winning margin might be slight, but the margin itself could be vast. SME is a highly profitable market, and sees extremely high rates of client retention. Claims meanwhile are relatively small, and commissions for brokers are high. It is not hard to see what has the larger brokers licking their lips.

But, part of the difficulty of gauging the size of the market is that the definition of what constitutes an SME varies between organisations.

Some brokers take as a definition, 100 employees and £20m turnover as the upper limit. But others use 250 employees and £50m turnover.

This means that one person’s SME may be another’s mid corporate business. That should, at the very least, let the regional

brokers breathe a little easier. Except, that is, those that have mid and high-end corporate clients.

There is also considerable overlap, particularly between Marsh and Aon, with regard to some of their key segments including retail, education, entertainment and leisure.

“The outcome will depend on what the small businesses are looking for. Will it be service, or instead a more commoditised, price-driven product? If it is the latter, the national brokers will win

Stuart Reid, CE Stuart Alexander

But the largest SME sector, and the one showing greatest potential for further growth, is construction. This could become the decisive battle in the SME war.

Exactly how the new SME super-players will go about cementing their place in the market will be interesting to see, as will how their smaller rivals respond.

The big guns are talking up the benefits of being able to combine traditional broker services with the greater financial and technological clout that comes with being a multinational.

Both Marsh and Aon have teams devoted to developing SME products, and Marsh has countered Willis’ appointment of former Royal & SunAlliance broker boss Brendan McManus with a high profile, but yet unnamed, recruit of its own to head up its revamped commercial team.

Yet, illustrating the vast complexity of the market, Aon maintains it does not have an SME division because of the breath and diversity of the sector.

“Having a dedicated team solely looking after SME business would mean trying to be everything to everyone, and that rarely works,” the Aon spokesman says.

Saving grace
Ultimately, this could be the saving grace for the regional brokers. Lay concedes: “There is an inherent conflict between delivering choice and delivering a highly packaged offering. But we don’t want to be all things to all men.”

Considering 90% of SMEs have fewer than 10 employees, with highly specialised needs, that kind of outlook is vital.

Whatever the definition of SME, and however long the tentacles of its constituent sectors, what is clear is that the market is a long way from reaching saturation point. New businesses are opening at almost the same rate that insurers and brokers are ramping up their efforts to cover them.

As a result, there should be ample room for both large and small, national and regional players to flex their operational muscle.

And as regional brokers have proven time and time again, they are a resilient bunch. Reid concludes: “This development will be a threat, but one that has been here before – and in many different guises.”