Broker consolidation and networks will cause major upheaval, but that's good for the market, says John Meredith
Benjamin Franklin once said that only two things in life are certain - death and taxes.
But I believe there is a third, namely change, which in turn frequently creates opportunity.
The insurance market saw unprecedented change throughout 2003 and, if the early stages of 2004 are anything to go by, it is going to be another corker.
The big story of the moment is of course Hill House Hammond. It is hard to believe this name will disappear from the high street.
And it is even stranger that, while there are undoubtedly reasons, an alleged £70m offer was turned down.
Where will all this business go?
One must pre-suppose that the NU Direct marketing department will aggressively mail the personal customer base.
How many customers will stay may well be down to the pricing model (and you can be sure it will be attractive) plus maybe the knowledge that HHH customers have, or can obtain, alternative offerings.
This is change on a grand scale, but with it comes the opportunity for many rival insurance organisations. I would venture to suggest that alternative strategies are already well formulated.
Ignoring single events like HHH, the most significant change factor during the past 12 months has to be broker consolidation.
Fuelled by a combination of market factors including compliance fears and ageing principals seeking exit routes, acquisition fever is very much upon us and is spreading fast.
It is interesting how several lesser known brokers and insurance groups are quietly making their way, particularly some of the `new money' organisations.
The brokers that are falling under the hammer are generally commercially biased, over £400,000- £500,000 revenue (and often a good deal more) with a well-spread client base. Across the country accountants are currently busy with due diligence on countless brokers. This is some of the change to which I refer that supports my opportunity theme.
No matter how well managed, the sale of any broker will create inevitable change and uncertainty among many clients of that broker.
Couple this with potential staff concerns and possible lack of commitment and you have a marvellous opportunity for any competing broker (particularly a strong independent) to muscle in.
If you haven't sold and were beginning to doubt the sanity of that decision, don't .
So what sort of brokers could go the independent route and survive the might of the consolidators?
My guess would be that anyone under £500,000 brokerage - and possibly as high as £1m - is going to struggle, in part due to lack of buying power, but also resource.
It is quite possible that some of the developing independents of tomorrow will be part of a network or alliance.
These organisations will have their place for certain brokers - the trick is choosing the right one.
Again, many have commented on how to evaluate their numerous offerings all with different features. The decision on what you need and where to obtain it stems from your business plan and the resource, buying power, compliance or other shortfalls identified.
You will also need dependent help which is where an insurance consultant could prove to be your best purchase.
Various networks and alliances are currently in hyper drive on membership recruitment, so take your time and be careful.
While it is dangerous to generalise, it is not easy or necessarily feasible for a small broker to join most of the existing networks or alliances, although I know that some organisations are reviewing this.
Maybe we will see some new alliances emerging that can accommodate the smaller end of the market. I certainly feel there is an opportunity there.
Large numbers of small brokers will find it difficult to sell in view of low brokerage and principal dependency realistically who will buy a £50,000 revenue business with a principal and one or two staff.
Such businesses could struggle to survive beyond compliance D-Day in Jan 2005 without network support.
However, in change and opportunity terms the potential demise of such brokers will produce new business for the survivors.
