Far from being swept away by the tide of direct sellers, brokers are maintaining their ground, says John Hancock

Brokers will not need to be reminded of the march of direct providers into the UK insurance market.

Starting with car insurance, direct sellers have seemed to make all of the running in recent years, with most advertising suggesting that this is now the mainstream insurance distribution system.

Even brokers such as AA employ direct sales teams to sell their products.

And, to cap it all, recent research from Dublin-based Research & Media suggests that over 60% of UK small and medium-sized enterprises (SMEs) would consider buying insurance direct.

Considering buying direct is not the same as doing so. However, they are open to the idea.

So, should brokers now be stealing worried glances over their shoulders for fear that business clients will switch their property insurance en masse to direct providers?

Figures from the ABI suggest not. Or, at least, not in respect of business clients.

In 2003 (the latest year for which figures are available), ABI figures show brokers had 31% of the £20bn personal lines property insurance market compared with a 60% share 10 years earlier, while direct sellers more than doubled their share over the same period from 15% to 32%.

There is little doubt that, over the past decade, brokers have lost ground to direct sellers in this market.

Market increase

However, the commercial market figures tell quite a different story.

In 2003, brokers accounted for 84% of the £15bn commercial lines property cover market, up from 82% 10 years earlier.

Direct sellers, on the other hand, only accounted for 7% of the market.

The commercial market clearly prefers to deal with brokers while, in the residential property market, the tide of direct provision may no longer have the power to grow.

The figures have led to different reactions from different brokers.

Ashley Canning, chief executive of broker Keelan Westall, says: "We chose to sell our residential property book about two years ago because it would have required heavy investment to compete with the direct sellers and cover the potential cost of regulation around dealing with retail clients (as defined by the FSA)."

Personal service

Most of the people that gave their views on the competition between brokers and the direct channel agreed that the commercial side of the property market still prefers the personal contact, bespoke service and specialist knowledge that only a broker can offer.

Stephen Alambritis, chief spokesperson for the Federation of Small Businesses, says: "Small businesses welcome the services of brokers whom they trust.

"Small firms feel better with a visit (where they can more easily discuss their needs), especially in the retail, catering and hotel fields."

An experienced broker is able to contribute on matters such as risk management and security.

This becomes all the more important when a proposition is not straightforward, or where issues of business interruption, liability or access to property are all intertwined with the property-related risk.

Even in the residential sector the case is not always so clear for direct providers.

Graeme Trudgill, Biba technical services manager, explains that high, or even medium, net worth clients with high value items in their properties, prefer to discuss the full extent of risks with a broker.

Such matters do not really fall into the strict parameters that govern the operations of direct providers.

Trudgill says: "A broker can look after everything that a client will need, even where different risks are best covered by different insurers, and many people still value this one-stop aspect of a broker service."

There will always be the inevitable 'rate tarts', who are happy to jump providers at the drop of a month's payment and will select to buy from a different direct provider each renewal.

But brokers can take heart from the fact that people who value a relationship will not want to keep changing brokers, especially if theirs is one that can handle a variety of risks.

Non-standard cases

Brokers' ability to deal with non-standard cases also puts them in pole position to benefit from the growing market that sits between personal and commercial lines, the buy-to-let market.

Shaune Worrall, head of development for financial intermediaries with specialist underwriting agency Letsure, does not believe direct providers have anything to offer where a property is let to non-standard tenants, such as students or DSS claimants.

Neither could they cover tenant defaults or the legal costs of an eviction.

After all, it would be difficult to programme a computer to deal with these requirements and impossible to offer a service without advice.

Worrall says: "While direct providers have limits on the size of a policy and the types of risk they can cover, brokers can take advantage of the differences between their service and that offered by direct providers."

Looking ahead, the figures seem to suggest that, having taken a significant slice of the personal lines property cover market (and mainly the straightforward cases), direct providers may have reached their limits.

If history is anything to go by, they may prefer to extend the scope of their cost-limited, simple proposition-based systems into new markets rather than invest in the qualitative developments necessary to compete in more complex markets.

Brokers are trusted professionals in their specialist sectors or the communities they serve.

And, as many estate agents and other businesses decide the cost of FSA regulation has made their position in the insurance market unviable, brokers seem far from at risk of being eclipsed by direct sellers.

In a world where people are more aware of the cost of not making provision against risk, there seems enough of a market to support everyone.

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