Developments in technology, sharper professional standards and the changing relationships between brokers, insurers and customers emerged as the key concerns at this year’s Insurance Times Broker Forum
Insurance Times’s much anticipated annual Broker Forum provided a riveting insight into the forces that have shaped the marketplace today and the many challenges that lie ahead. The event last Wednesday also saw the formal launch of ‘Fair Fees: Brokers won’t pay for banks’, an Insurance Times campaign roundly backed by the forum’s participants.
Chaired by assistant editor David Blackman, the event was held in the Macdonald Burlington hotel in Birmingham. Highlights included rival players interviewing key industry chiefs and lively debates on the most pressing issues affecting the sector.
Challenging the Towergate myths
Towergate Underwriting chief executive Clive Nathan kicked things off with an account of the Towergate story in which he tried to rupture the many myths that have grown around the consolidator. “We’re a bit like the royal family; everybody has an opinion, everybody thinks they know us, and a lot of people don’t like us,” he joked. “I am going to try to demystify Towergate and talk about the perceptions and the reality.”
He argued that the Towergate phenomenon was a symptom of an evolving market rather than a driver. “I think of us as part of a changing market: broker consolidation, insurer consolation, e-commerce – we have just been part of that.”
Nathan admitted that acquisitions were the life-blood of the company, but challenged the perception that it relied on its own brokers for most of its business, and that people saw dealing with it as a “necessary evil”.
“What do people say about Towergate? They say people only deal with us because they have to. Brokers only deal with us because they are desperate and insurers only deal with us because we have such a lot of premium. Just to debunk that, most of our income comes from non-Towergate-owned brokers. That accounts for about 65% of our premium,” he said. “We don’t put a gun to anybody’s head; brokers can choose to use us or not. We hope that our brokers choose us because of our service, expertise, and so on.”
Nathan conceded that the consolidator had made mistakes. “We say the wrong things and we don’t try to explain ourselves … we haven’t always helped ourselves,” he said. But he added that despite sparking some controversy over the past 13 years, the enfant terrible of the broking world had become very much part of the establishment.
“[Executive chairman] Peter Cullum would hate me saying that – but it’s true.” He also conceded that the company’s future direction was open to conjecture; a bond issue, a trade sell and an MBO were avenues that could lie ahead.
Next, Acturis chief executive Theo Duchen painted a somewhat gloomy picture when he explained the current situation regarding rates and premiums in the broker economy. He said average premiums have fallen from 2007 levels, and were no higher in any class apart from liability. Moreover, he added that after a false dawn early last year, premiums have slumped in many areas. This reduction, he said, has been mainly driven by new business and in packages and commercial classes.
Duchen concluded that while there have been some signs of stabilisation – or even small increases – in average premiums, it was too early to tell whether this would have any real or sustained impact.
After leaving delegates with much to mull over, it was time for the day’s first Insurance Times interview in which AXA’s managing director of claims David Williams grilled Brokerbility chief executive Ashwin Mistry on broker/insurer relationships.
Mistry was unashamedly frank about Brokerbility’s role in the marketplace and the areas in which brokers and insurers needed to sharpen their skills. He explained his company’s modus operandi as providing a much-needed outlet for independent brokers reluctant to join consolidators. “Brokerbility started four years ago, really as an antidote to the Giles, Oval and Towergate models, because a number of staunch community independent brokers were a little concerned about the marketplace and wanted to group together somehow,” he said.
“I believe strongly that the prospects for survival of the independent brokers are very good, so you don’t need to necessarily align yourself (to the consolidators); there is a real alternative and that is what Brokerbility is all about.”
Mistry was also sceptical about the continued viability of the consolidator model. “There were a lot of suggestions that Towergate would float along with Oval and Jelf. I think in 2012 a number of organisations that joined these groups are not going to be hanging around if the payday doesn’t materialise. We want to be in a position to look at those that may leave. We are the best placed to provide the solution,” he said.
Mistry’s most trenchant criticism was reserved for MGAs; criticism that caused a rustle of surprise among the delegates. “For the record we do not believe or agree with MGAs, full stop. I personally think that an MGA is an admission by insurers of their inability to transact underwriting, that they can’t employ quality people and are handing the pen to others who they feel can do a better job,” he said. “From a Brokerbility position, we don’t believe that insurers are that feeble or that weak. If you are genuinely saying that a broker can arrive at a better result than you can, then I think: shame on you.”
He also had tough words for brokers, warning them that fees, rather than commissions, were the future. “Brokers are naive to think that commissions will be around in three or four years time,” he said. He also stressed that the industry needed to do more to attract talent and to improve its service levels.
Mistry emphasised that agile players had to keep an eye on new opportunities, pointing to the swingeing cuts in the public sector as a key example. “The government announcement of budget cuts is a phenomenal opportunity, because there is going to be so much more PFI initiatives and outsourcing issues. Don’t wait around – you know it’s coming. At some stage the NHS, the education sector, the security sector, will outsource things for which there is going to be an insurance need of some sort – so get out there quickly,” he urged.
Polaris chief executive Martin McLachlan then outlined the various electronic trading options for brokers and insurers. While he outlined the merits and drawbacks of seven models, he stressed that in five years time it was likely that only two would dominate the marketplace.
He warned brokers to be prepared to lose a substantial amount of commercial business over the next few years, predicting that around £1bn of lower-end commercial business would be lost to aggregation. “You might say we are commercial brokers, so why would we be interested in aggregators? Well all I can say is that is what personal lines brokers said three years ago. It is highly likely that this will have an impact on commercial business – maybe only at the small end – but it will certainly will have an impact,” he said.
In the second Insurance Times interview, Brit UK distribution director Simon Cooter took on Oval group managing director and sporting hero Jeff Herdman. A former captain of the Welsh rugby team, Herdman explained the fundamental link between sport and business.
“I have always said that I see no difference … the same principles can be applied to both,” he said. “Sport is all about teamwork and business is all about teamwork; it is about building the right skills in the right areas.”
He identified new technology as a major future challenge. “How do you scenario-plan five years ahead; how do you manage change with people who are in a comfort zone and don’t want to change the way that they do business? That is a challenge for all of us,” he said.
Like Mistry, he also urged key players to do more to attract talent to the industry. “We could make more effort. We could attend the recruitment fairs in universities, speak at forums at schools at universities. We need to do more.”
Herdman added that the future for consolidation was also in question. “The value of business is retreating. There are a lot of insurance brokers perhaps burying their heads for a couple of years and seeing how their market can play out.”
Cooter then broached the question of whether the hard market was in sight, and Herdman admitted that he could not see conditions changing in the forseeable future. “We are in a completely saturated market; we are all cutting each other’s throats in a fistfight. You have certain insurers that are behaving quite badly and going against normal underwriting criteria,” he said. “I don’t see much evidence that there will be many rate increases over the next few years.”
Biba’s technical and corporate affairs executive Graeme Trudgill then outlined what he saw as the post-election landscape. He identified the top 10 issues for the trade body in this new climate, including the new UK regulatory regime, the Insurance Mediation Directive, the FSCS and the review of insurance law.
He drew attention to the unfair situation of brokers having to pay for the mis-selling of PPI. “The fault actually lies with the failure of firms whose core business is not insurance intermediation. It lies with credit intermediaries and with the FSA who have consistently failed to adequately police the sale of PPI,” he said. “Brokers are facing 48-fold increases in their FSCS fees from two years ago; many that were paying £2,000 two years ago paid £12,000 last year and £96,000 this year. This proves that the structure of the compensation scheme is flawed.”
He warned that worse was to come. “Just wait until the banking failures have been assessed, because the current compensation fund has a cross-subsidy with banks. Unless we can change the structure of the FSCS, many brokers will struggle to pay,” he said, highlighting the key concerns of the Insurance Times Fair Fees campaign.
The event concluded with a lively debate as David Williams, Jardine Lloyd Thompson’s divisional managing director Richard Gurney and Crawford’s clients services director Richard Turner discussed the lessons of the Cockermouth floods. While they agreed that much had been learnt from the floods of 2007, many challenges remained as technological advances, such as social networking and instant messaging, meant brokers and insurers were under the spotlight as never before. All agreed that the sector had to be increasingly vigilant when it came to ensuring the best care for customers. IT