With already huge insurance companies merging with one another and tightening their grip on the market, all but the largest insurance brokers face a somewhat uncertain future. The weeding out by insurers of their broker bases and the restriction of access to the better products, rates and support facilities serve to worsen the situation.
Alongside these concerns, the impact of the advent of the General Insurance Standards Council (GISC) and its regulatory and solvency requirements will cause difficulties for some intermediaries, with many of them not making the grade. The appearance of a draft EU intermediation directive, with more stringent solvency criteria, darkens the picture further.
For most brokers, the well-worn adage about not putting all your eggs in one basket is having to be ignored as individual insurance giants gain virtual strangleholds on major sectors of the market. All in all, being a broker in the next decade is likely to call for deep reserves of strength and resourcefulness. For many brokers, it will also demand a change of thinking and the adoption of fresh approaches and tactics.
British Insurance Brokers' Association (Biba) chief executive Mike Williams says that brokers will have to work closely with each other if they are to weather the storm: “The shrinking number of players in the insurer and broker market means we need to pull together.” He highlights cutting costs and investing in training as being two essential strategies for survival, and he identifies the loss of experienced and skilled insurance professionals as one of the major problems facing the industry.
The number of intermediaries is contracting steadily, he adds, with some 7,000 independent insurance intermediary firms trading at present – down from around 15,000 ten years ago – and he expects that number to halve again within the next few years. “Many firms have no succession planning to replace retiring principals and senior executives, and the values of broking businesses are falling,” he says.
It's not all bad
All is not gloom and despondency, though, he emphasises. “There are some great success stories out there and the brokers' share of the market is continuing to increase. They have about 85% of commercial lines premium volume and around 53% of personal lines.
“Brokers have become tremendously efficient – more so than most insurers – and have invested heavily in the quality and training of their people. Equally, many are showing great innovative skills and producing valuable risk solutions for their clients.”
But he cautions that brokers' choices are diminishing all the time, and that there is no let-up in the relentless downward pressure on commission rates and the ruthless culling of agencies for all kinds of reasons.
“Brokers are going through hell as a result of recent mergers,” says Andy Hawkes, marketing director at Independent Insurance. “Increased internal focus, poor service levels and withdrawals from product lines and sectors are producing a lack of continuity. The market will soon not be able to deliver the capacity and the products that the brokers want and will also be putting up rates.”
However sympathetic he may be, though, he emphasises that Independent is not going to be the saviour many might wish. “We don't see ourselves opening our doors to more brokers, not even if they're struggling, unless they're people we know and can trust.” He says the insurer is nursing 100 “feeder” brokers that it expects to bring into the fold in the near future.
For those brokers welcome at the Independent table, Hawkes says that the insurer will do everything it can to promote their well-being. “For example, we have a ‘wish list' strategy. If a broker tells us about a particular piece of business that he would like to acquire, we will gather whatever information we can on that customer and provide hospitality and support if that will help win the business.”
Brokers have every reason to be worried, says Axa commercial lines and intermediary director Mark Cliff. “In many cases, they could have 40% of their book with just one carrier and this is a cause for serious concern, particularly if an insurer pulls out of certain lines of business.”
What is the broker to do? He says that the answer lies in insurers and brokers working much more closely together. “A deeper relationship must be developed, based on better understanding of each other's business and needs.”
In his judgment, a new business model is needed to take things forward and he sees this happening already. “Insurers are responding to brokers' concerns and needs.” The right answer to the present situation, Cliff emphasises, is to help brokers understand their options and look at the alternatives available to them.
How to make it work
Steve Gunn, a Royal & Sunalliance (RSA) UK Commercial business manager, says the insurer's new scheme for energy broker business is designed to help successful brokers become even more successful.
“We will provide brokers with long-term support for their businesses in vital areas that they themselves have identified as important.” The programme launched earlier this year with an initial tranche of 50 brokers and is scheduled to have up to 200 so-called “masterclass” agents on board at the end of its first year.
“That's all well and good,” says one provincial broker who still puts commercial lines business through RSA, “but when I asked they told me I didn't qualify and wouldn't even be among the chosen 200. It's not the outstandingly successful brokers who need help; it's those of us who are having to run even faster to stay in the same spot.”
Against that, the scheme has been well received by those brokers who have been chosen to attend training classes and workshops and given access to an exclusive interactive website. What RSA says it is looking for are “entrepreneurial and innovative” brokers, whom it will equip with “high-level business skills”.
Former Iron Trades general manager John Shetcliffe, who has recently established a management and marketing consultancy focusing on intermediaries' needs, says that brokers must be prepared to be pro-active.
“We sympathise with intermediaries' concerns about insurers' falling service standards post-merger. However, we urge them not to procrastinate about inevitable situations that simply will not change overnight!
“Ultimately, brokers must accept the situation and offer other insurers business development opportunities that will support their imperative need to grow their customer base.”
He says that, in his experience, insurers never fail to find the resources to guarantee standards for joint business initiatives where they can see the opportunity for profitable business growth.
Another answer is for brokers to have a sufficiently strong whip hand and force the insurers to dance to their tune, as Hill House Hammond (HHH) spokesman Alex Lovesy explains. “We're in a better position than most, with fully delegated authority from a panel of insurers and strong relationships at a high level. While we're not complacent, we aren't as susceptible as others to the outcomes of mergers and takeovers.”
Brokers such as HHH are better fixed to juggle around any groups or books of business if an insurer changes tack, and they are more prepared to iron out any difficulties in service performance. “We can cushion our customers against poor service, and we have a good deal of flexibility in what we can offer our customers and what we can get from our suppliers.”
In his judgment, a further strengthening string to a broker's bow must be a variety of distribution methods. In HHH's case that covers both face-to-face customer relationships through the group's 240-plus branches and distance dealings through the call centre, alongside a recently launched interactive website.
Such refinements, however, are not readily available to the typical high street broker. But they are within the armoury of groups such as Unitas, the three-year-old independent broker alliance designed to give members a collective bargaining presence with insurers and to pool technology and training resources. The network has recently recruited its ninth member, the Ipswich-based Ryan Insurance Group, and is gaining in strength and credibility.
Independent's Andy Hawkes predicts a parlous couple of years for the market. “It will probably start to get its act together in 2002 or 2003. In the meantime, we will support those who have supported us.”
Speaking to a group of commercial brokers earlier this year, Willis Commercial Risks operations director Nigel Morris reduced the problem to a simple statement. “In the past, you could play one insurer off against another, but consolidation means the few that are left won't stand for that anymore. We need to understand what they want and work in partnership. If we don't, insurers may just walk away.”