The past few years have been turbulent for insurance brokers. Major concerns include the culture of downsizing and mergers, staffing issues, regulation and technological change.

Both the insurance ...

The past few years have been turbulent for insurance brokers. Major concerns include the culture of downsizing and mergers, staffing issues, regulation and technological change.

Both the insurance and broking sectors are increasingly being dominated by global giants, with the feeling that bigger is better prevailing. A handful of brokers hold the lion's share of the market. The "big five" - Marsh, Aon, Lloyds TSB, Willis and Jardine Lloyd Thompson - last year had combined incomes of £2.45bn. Many brokers are finding themselves marginalised, as insurers scale down their broker networks in order to concentrate on their direct arms.

While the London Market has been consolidating for years, smaller brokers have typically held out against the trend. Now, however, they are under pressure to change the way they operate.

Advances in technology and the phenomenal growth of the internet are a prime concern. Customers increasingly demand around-the-clock service, so brokers must adapt to deal with after-hours transactions.

But often brokers with low turnovers are reluctant to invest huge amounts in technology, as they may have to make further investments when it needs updating.

Brokers are also under threat from an ageing workforce. Many brokerages were started up in the 1960s and 1970s, with a typical owner-manager now over 50 and thinking of retirement, with no succession plan in place. A survey last year showed some 50% of brokerages to be in this category.

Under pressure
As a result, many brokers are now looking to sell up. Those with a composite portfolio of no particular specialty and a fragile income are facing pressures from insurers to grow larger books of business.

Every major broker is now on the acquisition trail, as economies of scale become all-important. In terms of those looking for ac-quisitions, an established base of customers and suppliers are a definite asset for buyers.

But provincial brokers are fighting back, using what is traditionally their greatest asset - customer service.

Commercial General Insurance Report 2001 author and Datamonitor analyst Francesca Garrett says there is generally one dominant broker in a local area, with strong branding and a loyal customer base. She says: "Customers want personal contact and face-to-face advice, and want to know their broker is always at the end of the phone."

According to Datamonitor, the market share of global giants such as Marsh and Aon has been shrinking in the past few years. In 1995, brokers held 71% of the commercial market, but this grew to 80% in 1999. Garrett says the majority of this extra business has gone to provincial brokers. "Many insurers are becoming disgruntled, as the multi-national brokers are asking very high commission rates.Therefore, we believe, they are losing market share."

She predicts that the next five to ten years will see the growth of the "super-provincial" brokers, who are more prepared to negotiate commission rates.

Specialisation is another asset that brokers use to their advantage. Drewe Insurance, which is part intermediary and part broker, was set up in 1975 and started specialising in caravan and leisure insurance in 1987.

Associate director of marketing and development Zoe Williams says: "We found it was more beneficial to specialise in key areas. This means we can make computer and product training bespoke to the company. There will always be general brokers, but specialising allows companies to compete with the direct writers and really get to know their product well."

Last year, Leicester-based Bland Bankart was one of the provincial brokers to make the Insurance Times Top 50 Brokers list. The group was formed in 1960 and has grown steadily. It now has offices in Notting-ham, Luton and Cardiff and employs more than 200 people. Its main lines of business are corporate insurance, risk management and third-party administration.

Founder Philip Bland says the only way for brokers to hold on to their business is by being more professional and offering clients all-round advice. But he predicts that the future for small brokers is bleak.

"There's still a strong future for brokers, if they are medium-sized, with an income of £3m or above. But smaller brokers are bound to hit trouble as a result of the General Insurance Standards Council (GISC)."

He believes some smaller brokers could be left with no alternative but to team up with a larger broker or become part of a network.

According to Datamonitor's calculations, the 3,500 UK brokers with a turnover under £1m will see big changes in coming years. The analysts predict they will fall in number to around 500 in the next five to ten years.

However, broker John Peers, whose £1m-turnover company specialises in trucks and haulage, disagrees. He says, on the commercial insurance market, smaller brokers remain buoyant, particularly those with a marketable specialism. He says: "Five years ago, I thought our demise would have come by now. In the personal sector, brokers have had a terrible time, due to the direct players, but on our side, things have got better."

He adds that brokers' concerns about the power of insurers have so far been without merit. "When insurers start firing bullets at us, we will have to make a move. They may cut commission or give us lousy rates, but this hasn't happened yet."

No young blood
Currently, rising premiums mean brokers on the commercial side are seeing better turnovers than they have in some time. Yet Peers admits broking is under threat from a lack of young people to take over. "It's a shame, as new blood would liven up the marketplace and make it more competitive."

But, he adds, for a young person to start up a brokerage from scratch is virtually impossible these days, as insurers will not provide the business.

There is clearly still a place in the insurance market for a variety of brokers. Community brokers with a loyal customer base and a turnover of more than £1m have dominance in the local area, making them difficult for insurers to overlook.

"Super provincials", such as Bland Bankart, which focus on growing by acquiring a chain of regional brokerages, also appear to have a rosy future.

Brokers are increasingly moving towards specialism in order to concentrate on niche areas and provide the customer with a product knowledge and level of expertise not provided by the major insurers.

And for smaller brokers, networks are increasingly becoming an attractive option, as they give collective voice and can help in other areas, such as investment and risk management.

But there is still the overriding fact that the global giants are dominating the market, and the next few years could see many smaller brokers swallowed up, as the big get even bigger.