In the second of our regional surveys of independent firms, we meet small brokers in the Midlands and finds an east/west divide, with a competitive but resilient market for small start-ups around Birmingham and consolidators carving up Leicester and Nottingham
The Midlands has long been considered a dynamic insurance market. But while Birmingham has retained its strategic importance as an insurance hub (despite growing competition from the London market), the major insurers have largely quit the East Midlands centres of Leicester and Nottingham. And while the western half of the region is emerging as a new hotbed for the small independent broker, the consolidators have grabbed a bigger share of the East Midlands.
In the second Insurance Times ‘Best of Brokers’ regional profiles, we put the spotlight on the Midlands.
Allianz regional manager Colin Bates says that across the Midlands, brokers have strong regional ties. “I don’t think independent brokers in the Midlands would want to place risks in the London market; they want to use their local market. If they had to use London, it would be as a last resort,” he says.
Managing director of Alcester-based Morrison Insurance Solutions, Don Morrison, says that, in turn, Midlands businesses continue to value the good service and advice provided by their local broker. “They like dealing with people who are local to their own community, people who are entrepreneurial, people who are able to make decisions locally without having to refer to a head office or central office,” he says.
Effects of the downturn
Nonetheless, the tough economic climate has hit the region hard, reducing brokers’ income, turnover and their ability to acquire new business. “Clients are struggling and looking at their costs and, of course, insurance is one of the things that they would look at. Everything is incredibly price sensitive,” Morrison adds.
Director of Leicester-based Martin Brown & Co, Pat Miller, believes that Midlands brokers have suffered from the downturn. “Everyone is looking at their bottom-line premiums. We are finding companies are struggling and wages are down. People are retiring or just being forced out of business,” she says.
Furthermore, the recession has compounded the decline of the Midlands’ once strong industrial base. Managing director of Oldbury-based Stewart Miller McCulloch & Co, Peter James, explains: “We are on the edge of the Black Country, where a lot of the business is industrially based. That has been hit quite drastically over this last recession so turnover and income are down. The region has been hit harder in this respect than less industrialised areas.”
Increased competition and continuing surplus capacity in the insurance marketplace has also had an impact, leading to cut-throat pricing strategies that have helped to sustain a soft market.
“These trends are similar to those we see in Manchester and Leeds. And, while price competition might not be as aggressive as Manchester, it is still a very competitive marketplace,” AXA’s head of distribution Simon Hodgin explains.
Director of Stourbridge-based KGJ Insurance Richard Ward says independent brokers are feeling the pressure as a result. “We keep seeing prices going beyond what is sustainable, and they keep coming down.
It feels at the moment like we are fishing in an over-fished pond.”
Senior Wright partner Craig Cambridge, who is based near Birmingham, says the exit of controversial insurer Quinn from the Midlands market has done little to curb competition. “We had hoped that when insurers started picking up Quinn’s business that we would be looking at increased premiums but they are competing for the business with Quinn [low] prices,” he says.
In addition, Miller points out that insurers’ strategy of dual pricing by selling business more cheaply online has also attracted the ire of the region’s small local brokers.
Consolidators have a strong presence in the Midlands, particularly in the East Midlands, where the number of independents has reduced dramatically.
One broker goes so far as to say that the independent broking sectors in Leicester and Nottingham have been “decimated” by Towergate, Oval and Giles.
And, as Miller explains, the exodus of insurers from the East Midlands has made it increasingly difficult for small local brokers to develop relationships and place business with insurers based in Birmingham.
“There is an east/west divide in the Midlands. It can be more difficult to place an East Midlands risk with insurers in the West Midlands. Insurers don’t understand it as well as the risks based in the West Midlands. They don’t know the clients or the areas as well. It is a problem of distance.”
Perhaps consequently, while the rate of start-ups in the East Midlands has faltered in recent years, AXA’s Hodgin points out an increasing trend for start-up brokers to mushroom along the fringes of Birmingham.
“There is some bullishness around individuals starting up new independent brokers,” he says.
Reaching the client
An example of this phenomenon is Baker Jayne Insurance Brokers, which set up business in Solihull last year (see box ‘Case study: recession opened doors’).
Director Adam Baker says that insurers are beginning to favour independents once again. “I think insurers are trying harder with small independent brokers. I think they realise that trying to get to their end client is costing them more through consolidators than through private independents,” he says. “It goes in our favour because they are trying to court us more and they want to see our accounts grow with them.”
The majority of these start-ups tend to join broker networks such as Willis, Cobra and Brokerbility, all of which have a strong presence in the region. “It makes sense for them to join a network as it guarantees a decent level of commission and support from that network,” Hodgin says.
Not all independent brokers in the region are convinced of the benefits of joining a network, however. Ward points out that KGJ has resisted the temptation to join a network, preferring to remain wholly independent of any additional rules and regulations. “Joining a network does clip ones wings a bit,” he adds.
However, the Heartland Group’s director Andrew Powell, a Willis network member, insists that these organisations allow brokers to retain their independent status. “We are independent because we are free to place business with the market that we feel best suits our clients,” he says.
Despite these many pressures, independent brokers are holding their own against consolidators and global broking firms such as Aon, Marsh and Willis.
And whether they belong to a network or not, small independent brokers have one crucial advantage. In the absence of a dominant regional independent broker, small independents with the right strategy report that it is relatively easy to pick up business from the consolidators.
“I think in the past people have gone for cheap premiums offered by the consolidators and realised they are not getting good service.
We as independent brokers are more hands-on with clients,” Miller says. “For example, we have picked up a fair amount of business from Oval.”
Baker says he has experienced little trouble in picking up business from consolidators. “They are our bread and butter. They are cutting out costs and that means that in many cases they are not visiting clients when they need to, and that is helping us no end.”
And while the national broking firms have been threatening to encroach upon the west of the region for a while, Powell argues local brokers are unruffled.
“We have heard for ages that the nationals are going to steal our business but the reality is that they are not particularly good at dealing with that business. They are too big, they don’t recognise the need for building up the relationships with the smaller-end clients and what that can deliver in terms of renewal retention,” he says.
Personal service wins
He adds that Midlands businesses are increasingly aware of these differences, pointing out that he has picked up £80,000 worth of new business over the past six months – often at the expense of the consolidators.
“Clients are becoming more aware of what consolidations are and what a national broker is and they do like the personal service that independent brokers will give. The business model of the national is not designed to give that service and it becomes apparent very quickly.”
It seems that despite many challenges, the Midlands looks set to retain its traditional importance as a broking centre, with the western half of the region continuing to generate small firms.
As Morrison points out: “I think the independent brokers that remain in the Midlands are very robust, very resilient and show a great determination to survive.” IT
Case study: recession opened doors
Adam Baker started up Baker Jayne Insurance Brokers at the height of the recession in August 2009. Despite the tough economic climate, he sees distinct advantages to starting a brokerage in the Midlands.
Baker was working for MGA Evolution Underwriting when he decided that the high rate of consolidation in the region could provide new opportunities for an independent broker to develop and flourish.
"The recession meant that clients were looking a bit more favourably on new approaches to their insurance," he says. "The consolidators all supported similar types of markets and they
weren't offering the levels of differentiation that clients needed."
A Broker Network member, Baker Jayne places Ã‚Â£1.6m gross written premium in the market. Baker believes that network membership offers considerable advantages.
"There is credibility because the network tends
to vet the people that are joining them. They assist with compliance and, most importantly, a network provides access to agencies and markets. We did get access to agencies that might not have considered us as a start-up."
The proximity of the core hub of Birmingham is also a clear advantage. "Birmingham is still quite
an industrial city, with a strong engineering and manufacturing tradition," Baker says.
"There are diverse risks across the region. We
are a general company; we didn't want to be niche. Birmingham gives us access to many types of companies just half an hour away."