A new threat to the survival of traditional city and town centre office-based brokers is emerging. Is it the web? No, although direct online sales to clients is a future possibility, it still seems quite a way off. No, the newest threat is the High Street.
Halifax Bank of Scotland (HBOS), one of Britain's biggest banks, has signalled its intention to sell combined commercial policies for small businesses alongside its range of personal lines products. But it's not just the banks who are seeing opportunities. Traditional high street brokers are reviving their interest as direct personal lines business refuses to come back to them. Swinton, Hill House Hammond and Budget have all said they want to provide commercial products to their existing personal lines customers. And if that wasn't enough, builders' merchants and DIY chains have considered selling small commercial policies through their branches.
Why should there be a sudden interest, or in some cases, revival of interest in selling commercial policies on the high street?
The simple answer is that technology is streamlining the process. Brokers have databases of personal lines clients that can help indicate whether they would also be interested in commercial policies. Insurers such as AXA, Norwich Union (NU) and Royal & SunAlliance (R&SA) have already developed online policy delivery systems for office, shop and salon-based business. So the market can be identified and the products easily accessed.
Up until the mid-1990s, Hill House Hammond (HHH) maintained a network of dedicated commercial offices. These were closed in favour of centralisation, but this policy is now being reversed.
New people are being recruited, and a redesigned HHH business division has been set up, incorporating new technology. HHH currently has £38m of commercial business, which it is looking to grow to £50m within a year, says managing director Eric Galbraith. The plan is then to push on to £100m worth of business by a combination of acquisition, exploiting its own database, and using the personal lines branches to stimulate enquiries.
Budget joined the market because it realised it was losing out by passing on commercial leads to other brokers on a shared commission basis. The acquisition of Dial Direct not only meant a further injection of small commercial business, but also a chance to revisit the commercial proposition and to focus on ways and means of growing the account.
Business growth
While most of the business currently handled is package, Budget claims it has the ability to handle the larger cases, where a greater expertise is called for. Like HHH, Budget is engaged in an acquisition programme and anticipates purchases to contribute to a growth from £4m to £6m small commercial premiums over the next financial year.
Winslow describes the current period as a learning and developing phase, but will use Budget's marketing expertise, which has been so successful in personal lines, to drive forward this new initiative.
Another broker in learning mode is Swinton, which, after an absence of ten years, is about to make a commercial insurance comeback. Chris Collins, who is responsible for the new initiative, explains that Swinton withdrew at a time when, with 600 branches and a focus on their dual strengths of motor and household, there were training and resource issues in attempting to remain in the commercial sphere.
The recent acquisition of Colonnade will mean a rationalised branch network of 320 offices. Part of the ongoing acquisition strategy is to acquire a broker or brokers with a book of, and expertise in, small commercial package business. Collins says he would be delighted to hear from any such brokers - before Andy Homer grabs them all.
Swinton has a database of 1.2 million customers and plans to use that database to identify commercial prospects. A special commercial call centre is on the agenda and negotiations with a selected panel of insurers are at an advanced stage. Collins says that the technology solutions available from insurers, particularly at the quotations stage, are now much more robust than a few years ago. This reduces the handling costs, enabling the volume broker to offer a cost advantage to its customer base, as well as to new prospects.
Target acquisition
HBOS, which recently announced an expansion of its commercial insurance activities, takes a slightly different approach. The former Bank of Scotland had an excellent, customer-focused insurance division, says new head of commercial insurance Jerry White. The aim is to bring this level of service to the wider customer base that the enlarged HBOS operation can now target. R&SA's Enterprise has been chosen as the solution for the smaller risks. Larger or more complex business will be brokered to a small panel by means of the Acturis system, which the bank is installing.
HBOS will be prospecting its business banking customers as a logical extension to its existing range of services. The approach will be through the current banking contact, ensuring that only customers who express an interest are offered a quotation. All products will be branded to the bank and White's commitment is to ensure that the level and quality of service offered mirrors the other areas of the bank's relationship with the client.
So, does all this spell gloom and doom for the rest of the broking community? The answer, as you would expect, is `no'. The reality is that many commercial and corporate brokers have already vacated this sector or have reduced the levels of service, where it forms a small part of their portfolio.
Others have turned the sector into a specialism. One broker that fits this profile is First Light Broking, based in London's Docklands, which is projecting a turnover of £2m by the end of this year. The company uses telesales to target its clients, working from its own database. This covers the retail, pub and hotel business sectors. Director Graham Whyatt recognises the implied threat of the bigger players but takes the view that small commercial was always going to be the next commoditisation target after personal lines.
Streamlined process
First Light works with a small panel of insurers, whose rates are loaded into First Light's own quotation system. This eliminates the need for referral to insurers at the quotation stage. "The big advantage for any insurer coming on board is that we can agree the rating criteria in advance, and they will only then compete for business in which they are interested," explains Whyatt.
The sophistication of the system also means that rates and terms can be adjusted at any time, enabling an insurer to reduce or increase his competitive edge, based on the information supplied by First Light.
Manor Insurance in Hastings has worked hard over the years to establish and maintain its local presence. While its main area of business has always been personal lines, it continues to win small commercial package business. "People still place a value on service," says Manor commercial manager Martin Addison. Manor also takes advantage of technology, with most of its quotations being obtained from the Gilt Edge system.
There is no doubt that the initiatives taken by the major players will soak up a large slice of the package market. For the smaller broker who chooses to remain in this market, the key is to harness technology, cutting not only handling costs, but also getting the most competitive deal the insurers are prepared to offer.
