Brokers are being written off as the direct writers thrive, but news of their death is premature. Caroline Jordan looks at how brokers are fighting back

Madonna and Kylie are past masters of the art of reinvention. It is also something that brokers are increasingly mastering as they seek to remain notable players in the personal lines market. In fact, even though many pundits have written them off, there is evidence that a number of brokers are thriving. Business is coming through aggregating websites. They are also tying up hot affinity deals. And, some are increasingly showing they can set up effective brands in their own right.

In its recent report, Motor Insurance in the UK, Adapting to Survive, analyst Defaqto says the public is increasingly opting to buy online, with insurers responding by closing call centres and shedding staff. But, brokers' share of the motor market steadied, according to ABI figures - they account for a third of all motor cover sales.

Defaqto head of general insurance Brian Brown comments: "The internet provides great opportunities for those brokers willing to make the investment, in terms of both time and money, in building a web presence.

"They can compete on equal terms with the direct insurers through the use of aggregators and sell direct provided they can establish their own brand."

Specialist schemes
Brown points out that Broker Direct quotes appear on Confused.com, which means local brokers that have agencies with the insurer can sell business online.

"Those brokers which are large enough to negotiate specialist schemes, or who have the IT systems able to give online 'quote and buy' facilities, could appear on aggregator websites.

"This would give them another distribution channel, although it would come at a cost as the broker would have to pay acquisition fees," he comments.

Brown adds that brokers can also advertise that they use only UK-based call centres, since offshore ones alienate some customers.

Certainly, this is an important selling point for brokers offering affinity partnerships with brands, such as Heath Lambert.

Increasingly cumbersome
But, at the same time, the traditional direct writer is looking increasingly cumbersome. Some are resisting the aggregator trend. RBS is one example.

According to Brown: "I see NU using its basic value products on the aggregator sites and then selling its better quality brand through its own channel. The problem with aggregators is that it's all about price, and insurers are trying hard to get consumers away from just thinking about this."

But, there are some consumers who are not price obsessed, which is why they buy food, and indeed insurance, from Marks & Spencer. Its cover is provided by Budget's affinity arm, Junction.

Broker Budget is having a storming year. It offloaded its retail arm to rival Swinton and is now focusing on affinity and telebroking business, together with launching a new aggregator site, comparethemarket.com.

Junction is proving particularly effective. It has a variety of big ticket clients which, apart from Marks & Spencer, include the Post Office and Bradford & Bingley. Junction managing director Phil Zeidler says: "Budget was initially established as a direct writer, but this is the UK so we restarted as an intermediary."

He says that in its new guise, Budget was off to a strong start because it was unencumbered by legacy IT.

"Being tied to a software house can hold a company back and this is something many brokers are having to deal with. Also, if you look at the affinity division, UKI, the affinity arm of RBS has also been hampered by legacy issues. It is a very good organisation, but has a system built for a single insurer, which creates challenges."

Zeidler says that Junction has been able to capitalise on consumers' preferences for buying their insurance from brands rather than direct from insurers.

"There is always going to be a place for direct writers, but the consumer appetite is for branding.

"There is negativity towards insurers. Brands are viewed as friendlier and they all benefit from enormous distribution potential."

And, he says that there is further scope for brokers to win such business. "For retailers and other big names, insurance will always be a secondary line of business but they want to work with a trusted provider to avoid brand damage. If they use a single insurer it will mean that some cases can't be handled which is why a broker makes more sense."

SME pilot
He adds that Junction's next move is to run a pilot in commercial SME and Budget is also promoting its new aggregator site, comparethemarket.com.

But, Zeidler says any other providers will have their work cut out trying to catch up with Junction. "We dwarf our competitors. We would welcome a strong competitor."

Heath Lambert recently announced that it would provide Diamond's home insurance product and already does this for sister company Elephant - both are part of direct writer Admiral.

And, David Rudd, Heath Lambert's business development director, comments: "I feel that broking outside of the high street faces a strong future." He adds that being a successful affinity player is not dependent purely on the broker's size. "It is about understanding a niche and being able to provide a first rate service. '

' "For example, we founded an insurance services division with charity Diabetes UK. There is no reason why a broker of any size cannot work with a charity or other organisation if it can show sufficient understanding of the client base."

He says there is also always going to be room for brokers to handle overspill business. For example, Norwich Union provides insurance for Asda with more complex cases filtered through to broker BDML.

Traditional broker
But the losers in this brave new world are likely to be the traditional high street brokers. Analyst Datamonitor predicts these are most at risk. Its report, The Future of Brokers in UK Personal Lines Insurance, states: "Datamonitor forecasts an accelerated reduction in the share of high-street brokers in the motor market, until they plateau at a level where they are providing insurance to specific niches.

"In household insurance, high street brokers will also see their share reduce over the next four years."

Graham Colley, agency manger for Allianz Cornhill Personal, does not believe the high street broker is washed up, however.

He comments: "There are lots of opportunities for brokers to get involved with niche arrangements. Direct writers always have weak spots and a broker with a panel arrangement can quite often beat them. The FSA has also made them more robust. Buying from a supermarket is not going to suit every client."

John Castagno, managing director, direct broking, at Equity Insurance Group, works for a business which is continuing to buy up personal lines brokers.

He concludes: "Internet, telephone, face to face. It's about flexibility and choice of access. Brokers need a sound strategy, access to a good panel and there is plenty of scope for them to be successful in affinity." IT