How can brokers ride the insurance cycle?

There is a well-worn prayer that asks for the serenity to accept the things we cannot change, the courage to change those we can and the wisdom to know the difference. Most people involved in the insurance world are serene enough to accept its cyclical nature, but does this mean we should sit back, put our feet up and enjoy the ride?

I don’t think so and I don’t think the wisest practitioners in the market believe this is the way to go either. We may not be able to do away with the cycles themselves, but we can iron out their peaks and troughs and by minimising their impact, make life easier and more manageable for customers. Surely this is something worth striving for?

For brokers trying to achieve such an outcome for clients there is a massive educational challenge to overcome and they will certainly need the courage of their convictions if they are going to get the message across.

In today’s throw away society price is everything. The consumer media, particularly, loves to categorise things and so prices are either going up or they are coming down. If consumers have been told insurance prices are falling then that’s what they expect come renewal, no matter what their own personal circumstances happen to be. Commercial insurance buyers may be more sophisticated, but in difficult times they are equally driven by price and trying to sell substance over cost is a difficult task.

But what is it that clients are really buying from insurance brokers? If they just wanted a policy then, in many cases, today’s direct channels mean they can go out and get it for themselves. Over and above the policy, customers are buying expert advice and surround services. They are buying guidance on how to mitigate their risks, benefiting from a business assessment that will highlight potential covers that would otherwise have been missed or ignored and gaining access to premium finance options. The temptation for brokers is to forget they are selling this fully rounded service and get into a price war. Winning business on price seems like the easy option, but is it the correct option and does it pay dividends in the long run?

Although there has been no wholesale hardening of the market yet, there seems little doubt that it is on the way. During the last hard market some commercial combined policies that were liability dominated saw annual rises of up to 100% before falling back to where they had started three years later. Such premium hikes are a nightmare for any business and where brokers can introduce a level of consistency to premiums and enable businesses to budget accurately for their insurance spend, then there is huge inherent value for the client.

Consistency is everything for businesses and without it planning becomes impossible and commercial survival becomes a lottery. Where brokers can guide their clients away from simply chasing the cheapest deal in the market and arrange cover that is both sustainable and perfectly matched to their needs, then the long term implications are much more beneficial for clients, brokers and insurers alike.

Having the serenity to accept the cyclical nature of the insurance market is the easy part. Having the wisdom to see the cycles can, in part, be flattened out and the courage to steer clients in this direction is a lot more difficult.

Jonathan Davey is a director at SSP.