Consolidation could upset the broker-insurer relationship, says Stuart Reid
As can be seem from Country Mutual's swoop on The Beckett Group, the broking market is changing but perhaps in ways that few predicted.
It would appear that the larger brokers (super-provincials as they are wont to be called) are among the first to consolidate rather than the smaller provincial brokers, as many had guessed.
Whether this is set to change is pure speculation - there are only a small number of super-provincial brokers - but it is inevitable that the new regime is not for all and the cost implications for the smaller brokers may be disproportionately high.
The interesting point is the change to the market dynamics between insurer and broker. What will the premium level need to be to maintain "preferred" broker status with insurers?
More importantly, will premium levels remain the gauge or will insurers base their rapidly differing offerings on profitability of an account? It certainly makes more business sense to them if they did.
Certainly any consolidation in the industry will particularly benefit the few large enough to afford substantial acquisition of income, but this has to be out of the reach of the many. So what will critical mass for a broker be over the next few years - a very difficult question to answer?
With brokers of substantial size now selling in part or in whole it is possible that a gap will appear between those with premium income above £100m and those below £10m.
How will the insurers' service standards, commission levels and the like differ between these two different sized businesses - substantially, I am sure.
The advent of internet trading holds the key to a better environment for all. But while I for one am a great advocate, this brave new world will no doubt take longer than we hope and be offered at different times in different ways.
This will lead to confusion and high initial costs for many brokers, which, at a time when the true cost calculation of FSA compliance is nearly within our reach, will be an unwelcome additional financial burden.
So, as critical mass, or increasingly, critical profitability with insurers becomes ever more relevant, brokers must ask themselves what it might mean to be relegated from their "preferred" broker status or have the limit set beyond their reach.
Perhaps they should ask what they could do to redress the balance by investing in the new ways of trading?
Additionally they must ensure that they are ready for FSA regulation with the incumbent extra cost burden that it will bring.
Oh yes, and to continue to service clients as best they can when service levels from insurers, certainly in my experience, are at some of their lowest levels for years.
A testing 2004 then...