Davey’s blog: These days, effort is not enough

It used to be that unrelenting effort and bloody-minded determination were enough to succeed commercially. However, for brokers in the frontline of today’s insurance battlefield, this will not be enough.

Whether they like it or not, brokers today are affected by the macro-economic factors that have taken up permanent residence on the front pages of our newspapers.

The sovereign debt crisis in Europe has an unwelcome knock-on effect in the UK given the eurozone is our biggest trading partner. The tough credit environment makes it difficult to borrow money to drive commercial growth, while the Governor of the Bank of England predicts no more than an economic zig zag during 2012. It is hardly the sort of sort of soil from which commercial confidence sprouts. 

In the insurance industry itself, despite what has perhaps been the longest drum roll in history, there is little sign of rate hardening in the commercial market. Incredibly, some insurers are still paying unsustainable commission rates and offering silly pricing to win business.  

Despite recent upward trends in the personal lines sector, there are rumblings of more capacity entering the market and existing capacity becoming more aggressive and that can only lead to one thing.

The cycle is broken

In short it feels like the insurance cycle is broken, with insurers unable to put sustainable rates in place for any consistent period of time.

I really believe that brokers need to have a very clear idea of how today’s macro-economic and industry trends will affect their customers, their suppliers and their business.”

For both personal and commercial lines brokers, there is a huge amount of change to deal with. Numerous insurers such as Brit, Groupama and RBSI are up for sale, while others such as RSA are cutting agencies and overhauling their distribution base.

In the personal lines sector, direct writers, aggregators and online advances have churned the old market into an entirely new one in which to operate.

For brokers this creates major issues about who they deal with, how they deal with them and the sort of customers they target.

When I speak to some brokers it is encouraging that they have taken the time to develop a clear sense of where they are, where they want to go and how they are going to get there.

They understand the new environment in which they are operating, how it affects their customer base and have decided upon the best way forward. This breeds confidence and it also gives these brokers a self-awareness that enables them to remain fleet of foot.

Losing sight of their goals

Others, unfortunately, are so focused on bending their shoulder to the wheel that they may have lost sight of what they are ultimately trying to achieve and whether their efforts are actually helping drive their business forward.

I really believe that brokers need to have a very clear idea of how today’s macro-economic and industry trends will affect their customers, their suppliers and their business.

In turn they need to have considered things such as how they will move towards a fee-based structure, how they can adopt niche market schemes, how they can grow the boundaries of the markets in which they operate and how they can work with the aggregators.

There are many different strategic options facing brokers, but the worry is that many are not considering any of them. Instead they are looking to plough the same furrow they have always done, and simply apply more effort to the task in these tough times.

High street examples such as Woolworths and MFI prove that without a strategic focus and a proposition that evolves with the trading environment, there can be only one outcome.

Those that take time to consider their overall strategy and assess the best tactics to deliver it will leave competitors in their wake. Why so many are not doing this is beyond me.

Make the time – before it’s too late.

Jonathan Davey is managing director of Keychoice.

Twitter: @KC_JonathanD