Death of the high street broker?

Last Thursday, Norwich Union shocked the insurance world by announcing it will close its broking arm Hill House Hammond. On the surface the fall-out is enormous: 1,600 jobs will be lost, 240 high street branches and the head office in Bristol will be closed, the commercial lines business will be sold to Towergate Group.NU will attempt to convert HHH's 700,000-plus personal policyholders into NU Direct customers upon renewal.But the ramifications of this shock announcement extend further than HHH. The decision was made based on NU's view that high street brokers can no longer compete with direct operations. Insurance Times has spoken to a range of market leaders about the future viability of insurance broking on the high street in an attempt to answer the fundamental question: is high street broking dead?

High street brokers will need commercial accountsHill House Hammond is a profitable company. It made £2.4m on a brokerage of £76.6m in 2002. So why close it down?According to NU intermediary business director Ken Wallace, the writing is on the wall for high street behemoths such as HHH."The future of the high street is with a good balanced account. It will be difficult to survive without a commercial account," said Wallace.He added: "The personal lines-only survivors will be the big call centre operations like Budget and BDML."In future, smaller brokers will only have personal lines attached to commercial business that they will deal with themselves or outsource to a third party. Or they may have a specialist scheme or high net worth individuals who are looking for advice."The high street broker will survive, but not for the guy who is shopping around every year for the best deal for his car." OK, so the supermarkets, direct insurers and internet shopping are hitting personal motor, but why act now? "The broker market is changing quicker than we anticipated. ABI statistics showed that personal lines through high street intermediaries would come down from 52% to 38% of the market by 2006. But it hit 38% in 2002," said Wallace. HHH had embarked on a strategy of selling increasing volumes of commercial lines business. Could HHH have been turned into a high street commercial lines broker? "HHH never set out to be a high street commercial lines broker. The whole model was getting lots of people into the branches and getting a good conversion rate. To a certain extent we were achieving that, but we were seeing fewer and fewer footfalls. We did have option to build up commercial and we had ten commercial centres covering 240 branches. However it was a very complex infrastructure."If we were setting out a commercial model it wouldn't be built on that basis. We had a personal lines infrastructure and we were trying to adapt to commercial lines. I don't think it worked. "Most commercial SME customers want good advice. They want to deal locally, to have face-to-face contact. Our existing staff didn't have that expertise. Also it is not NU strategy to get involved in commercial distribution." Buyers were interested, so why didn't you sell? "This option represented the best overall value for NU," said Wallace. By referring the one million customers back to NU Direct, NU would be able to hang on to customers, but at lower cost and would also have better prospects of cross-selling other products, said Wallace. "We didn't want to give these customers to our rivals," he said. Wallace is hoping that the move will increase NU's standing with brokers. "We used to get a lot of flak from brokers about NU owning a competitor broker. It was a thorn in our side as far as our brokers were concerned. "They didn't like the idea of us being in the broker market. Now that we're not it at least eliminates one of their concerns," said Wallace.

An increase in business for other high street brokersThe UK's last two major high street brokers came out fighting in defence of their industry sector following the demise of Hill House Hammond (HHH) last week.Swinton chief executive Patrick Smith and Budget Retail managing director Matthew Donaldson expressed both shock and pleasure that a major competitor had been removed from the market place.Smith said: "While this is good news for us as a company I am shocked at the way they have done it."A view backed up by Donaldson: "It is fantastic news for us because a key competitor has gone out of the market. We strongly believe there is a market for the high street broker and are seeing an increase in business."The brokers blamed the closure of HHH on poor management and poor decision making over the last 12 months. According to both men the sector was profitable and as the call centre business matures they claimed there has been a return to the high street.Donaldson said: "We are attracting people back to the face-to-face market. While there will be changes to the sector as consolidation continues we see a positive future."The consolidation Donaldson is predicting is a concentration of the UK's 4,000 independents into the two large chains, Swinton and Budget, and three or four key networks.Donaldson said: "The HHH business model just wasn't strong enough in a highly competitive market. You have to ask yourself what HHH's market strategy has been over the last 12 months - it didn't really have one."It is in their market strategy that both Donaldson and Smith believe they hold an advantage over their major competitors - call centres, the internet and supermarkets.Smith identifies three areas that separate high street brokers from other providers; experience, face-to-face contact and high street presence.On the first point he quotes figures that show high street broker employees to have up to three years more experience on average than call centre workers. On the second point, face-to-face contact, Smith said the high street broker could build better client relationships and develop a more complete understanding of the industry. And third, a permanent presence in the high street offered 24-hour advertising and a dependable source of new business generation.Against this background Smith claimed the decision by Norwich Union was wrong. He said: "One cannot see this move creating value. We would have been interested in buying HHH. We felt it was a business that, while it faced some challenges, had a future."

NU has failed to appreciate that the buying public needs adviceThe former managing director of Hill House Hammond, Eric Galbraith, has called Norwich Union's decision to close the business "very disappointing".Last week's announcement by NU throws some long overdue light on Galbraith's departure from the company last September. As former managing director, he declined to comment on NU's decision further except to say that he was saddened and concerned about the future of his former colleagues.But Galbraith, who is now chief executive of Biba, came out fighting on behalf of brokers, accusing NU chief executive Patrick Snowball of potentially putting customers in a "mis-buying position".Biba said it was critical of NU's assumption that the independence of advice and depth of products could be replicated by "calling around half a dozen call centres".Galbraith said that comments made by Snowball that "many customers now understand their motor or home insurance needs and will shop around themselves for the best deal" were "misguided" and he warned policyholders to seek independent advice. "People use brokers to get advice pertaining to their insurance needs, this may be as simple as 'find me the cheapest policy' but in the majority of occasions it's because the customer needs advice," Galbraith said. "We can almost guarantee that buying on price will not get you the most appropriate cover. And until such a time as we live in Huxley's Brave New World people will need a bespoke offering."Galbraith suggested that HHH customers who want to continue dealing with a broker should visit www.biba.org.uk to find their nearest Biba approved broker.

Cullum heads the scramble for HHH's commercial businessMarket sources have tipped Peter Cullum to buy the commercial business of Hill House Hammond (HHH), which will be sold off as part of the company's closure.Sources said that Cullum was in negotiations to buy HHH Business, which has premium income in the range of £55m-£60m, and bolt it on to either Towergate or Folgate. HHH's owner, Norwich Union, said it is in "advanced discussions" with a potential buyer for the commercial insurance division, which includes ten business centres around the country.A spokesman for Folgate said: "I can't comment on market speculation at this stage." It is believed that HHH Business would fetch between £10m and £15m. Sources had suggested Country Mutual Insurance Brokers (CMIB) was involved in the deal, but chief executive Neil McKenzie said: "We're not in any discussions." However, McKenzie said that CMIB was interested in acquiring the division. "As soon as the news broke I did register our interest. We would seriously welcome the opportunity for further discussions."Another broker interested in acquiring the business is VEGA, which is owned by the Primary Group. VEGA managing director Bob Screen was previously marketing and business insurance director of HHH.Screen said; "We would be interested in acquiring the commercial business of HHH. "I got the commercial division into the state it's in and it would make a lot of sense. It fits very much with what we want to do."Scotland-based Giles Insurance Brokers has also declared its interest. Chief executive Chris Giles said that while he was "quite surprised" that NU had decided to close HHH, he thought several brokers would be interested in its commercial lines business. "We'd be one of them," Giles said.