After a decade of continuous change, what are the real issues brokers should wish to be resolved in the next decade?
One thing is certain – in December 2009 the industry will be totally different, with most of the current principals enjoying a well-earned life of leisure and a new generation of broking professionals controlling the sector's destiny.
The legacy to be left behind by all those who masterminded the broker explosion in the 1960s and 1970s will be determined by what happens in the next five years. What should these principals wish for if they want to leave behind an industry of which they can be proud?
The biggest cancer eating its way through the sector is the current level of service provided by insurers in the industry. The decade started promisingly. In his In Search of Excellence, Tom Peters set out the philosophy that customer service is the key to long-term profitability. The industry took this up, with a number of service initiatives recognising that insurance was behind a number of other players in the business community.
It all went wrong when globalisation, shareholder value and market domination became the new Holy Grails. An announcement of a takeover or merger was hastily supported by a statement of the cost reductions that would arise following the deal; this has forced chief executives to concentrate solely on impossible cost savings with little regard for customers.
The result was a huge deterioration in service, which has led to one of the biggest threats to the entire sector. Poor service adds costs to brokers who try desperately to maintain service to their customers, inhibits the development of innovation and added-value services, destroys public confidence in the industry, makes underwriting decisions erratic as data is corrupted by inadequate statistics, reduces profitability in all parts of the sector affecting future investment and encourages new entrants.
The prime wish for brokers, therefore, should be that unsurpassed service levels become the number one objective before the disease becomes terminal.
Expertise needs topping up
The late 1990s have seen an unprecedented loss of expertise from the industry. Technology has not filled the gap, leaving a vast void. However, this creates the opportunity to fast-track the younger professionals and give them the empowerment that is a feature of many other fast-growing, successful sectors.
The next decade will see a further loss of experience as the succession time-bomb in the broking sector explodes. The industry desperately needs to attract the best talent and nurture and reward it. All those who will retire need to ensure that they leave what is left in the hands of people capable of driving it forward. Let's wish for a more enlightened approach to recruitment, training and empowerment in the industry.
The underwriting cycle seems to be a self-inflicted illness that is difficult for the public to diagnose. The wide premium fluctuations give the impression that we are ripping them off, gives fuel to financial journalists, encourages shopping around, adds costs to the whole sector and destroys profitability. It discourages investment and makes long-term planning virtually impossible.
A decade of stability would transform the sector, enable customers to budget sensibly and allow us to concentrate on real customer service and restoring public confidence.
The arrival of the new millennium offers one great hope in that self-regulation as outlined by the GISC will give the industry a real chance to improve standards, eliminate bad practice and turn broking into a true profession. Failure cannot be an option. The alternatives are a continuation of the current freefall, which would leave the sector in limbo, or legislation, which will stifle it and turn it in into a bureaucrat's dream. Self-regulation is an opportunity to create a solid framework for the future. Let's hope everyone strives and shows commitment to its success.
One representative body
The challenges facing brokers are enormous and all efforts need to be funnelled into facing the external threats and ensuring the rightbalance of power between insurers and brokers.
The number of brokers that will be left after the inevitable consolidation cannot support two or three representative bodies and, unless the position is resolved quickly, we will witness an increasingly unseemly public battle to retain critical mass in a declining market. Certainly, individual broking businesses will be the losers. If ever there was a time for a single co-ordinated and cohesive approach, it is now. All the undoubted talent that is available needs to work together to secure the sector's future. This must come true quickly.
Many of the industry's current problems are caused by the wave of insurer mergers and acquisitions that have occurred over the past four years. There is little doubt that size is important but the industry needs a breathing space from the current lemming-like stampede to grow bigger. Apart from the service difficulties, loss of expertise and power balance changes outlined above, consolidation takes away customer choice and reduces the opportunities for brokers to do their real job – seeking the best value for their clients.
The top five now control more than 50% of the market and UK general insurance may increasingly become a non-core business for international giants that operate global business where financial services or emerging markets may be seen as providing longer-term stable growth. This could lead to UK general insurance being starved of investment, opening the door to new entrants that may look to alternative methods of distribution.
A period of insurer stability whilst the inevitable broker consolidation takes place is what we should all want.
Although mis-selling is seen as a life industry problem, the public associates it with the industry as a whole and it adds to their general mistrust of the sector. Compensation payments weaken all parts of the industry and the prospects of further witchhunts around endowment mortgages and guaranteed annuities will affect us all.
Yet many consumers have a great deal for which to thank the industry. It has provided a financial cushion and security for the vast majority of its customers. Hindsight is a wonderful but dangerous pastime and needs to be tempered with realism. Let's hope that the new millennium brings a period when decisions are judged in the environment in which they were made, not many years later, and are not used as crusading material by journalists or consumer lobbyists who are motivated by their own interests.
The next decade is likely to be the one when the UK joins the euro. This will impact heavily on all sides of the industry, especially if there is undue haste or an ill thought-through transition period. The prospect of operating in a period of dual currency, with pounds and euros together on all documentation, is daunting. The extra work, increased technology costs and consumer confusion will impact on the industry, with little gain for pure domestic business.
The wish must be that any decisions are really thought through and are not driven by political expediency.
The internet will fail
One final wish for brokers in the millennium is that on-line trading for general insurance will fail. A fairy godmother will be required to grant this one. For many reasons it is difficult to see how independent brokers can capitalise on e-commerce in the personal line sector, where brand, advertising expenditure and a high spend on technology will be crucial for success.
Unfortunately, if it is the success everyone predicts, brokers will be driven out of the volume personal lines market for ever.
So, wherever you are on New Year's Eve, supping your champagne and making your personal wishes for the millennium, pick one of the above and make at least one wish for the future of the industry.
- Tony Cornell can be contacted by e-mail on firstname.lastname@example.org