Aggregators and consolidators are trying to steal broker business, but Mike Williams says don't roll over, but focus and differentiate
Obituaries mourning the death of the insurance broker have long ago been penned and put away ready for publication when the pallbearers are summoned.
Now it appears they are being dusted off as brokers regard the arrival of the insurance aggregators and consolidators with the same suspicion as a sneeze on a poultry farm.
Brokers themselves have been running around like headless chickens wondering which way they should move to secure the future of their business.
Rarely a week elapses without reading in the trade press about aggregators and consolidators picking off small independent regional brokers.
Worried about declining margins and the long term future of the industry, as well as the challenges imposed by statutory regulation, it seems more and more brokers are opting to throw their lot in with the predators or exit the industry altogether.
It's not as if many brokers show much love towards their potential suitors. The perception is of aggressive, hardball players with little concern for the fate of the broker or customer and every concern for racking up greater commission margins from the product providers.
But the lure of filthy lucre can be hard to resist at a time when business pressures are increasing.
And it is true that consolidators are waving sizable bundles of cash under the noses of disillusioned brokers in a bid to buy their business from them.
However, it is becoming more and more apparent that many of the brokers who have been bought, and their businesses subsumed into the wider organisation, are becoming disillusioned.
The reality is not what was promised before the ink dried on the contract. Rather than these brokers becoming industrious colleagues within the new corporation, they are actively seeking a new exit strategy from the rigid environment they have recently bought into.
That's because many are feeling short-changed. And more importantly, they feel that they are short changing their clients as service levels deteriorate and they are forced to use product providers whose products and terms they know to be inferior.
For professionals that pride themselves on doing the best for their clients, this can be particularly galling. The experience of many brokers in this position also reveals that their level of client retention suffers as a consequence of the restraints placed upon them.
Without a strong customer proposition, and quality customer service to underpin it, today's savvy customers will quickly navigate away to a competitor that serves their requirements better.
Client perception and the maintenance of service standards during any acquisition period are of prime importance. Very badly handled mergers have led to business being lost.
A company that has worked hard to create a certain business culture will see its vision vanish in a corporate haze of uniform practice where the bottom line will always be the key determinant.
The damage to staff morale following such a cultural change is obvious. Of course, there is the wider question of what all this mean to the wider broking sector – particularly the small and medium-sized operators.
There is no doubt that this sector is being squeezed. AXA's announcement earlier this year that it was closing five regional offices was blamed on broker consolidation, with the insurer claiming up to 600 agencies are disappearing each year.
It believes broking consolidators are to blame for a lack of premium volume going through branches and that around 50 agencies per month, or 600 brokers a year, were disappearing, either through closing down or selling up to the consolidators.
There is a similar problem with aggregators. Aggregators promise to find internet users the best insurance deals. Their sites are paid by insurers for clicks or sales.
But however payment is calculated, this is a party brokers are not invited to. According to research nearly nine million people in Britain used aggregators' comparison websites to purchase over 13 million financial services products in the last year, so the threat to brokers' livelihoods is very real.
However, these online space invaders are not the all-conquering army that many fear. Online quotes are inaccurate and nearly always underestimate the cost simply because insurance is a complicated business with many variables.
This must be disconcerting for a model based on cost. Many brokers have already moved away from relying solely on price and have focused on segmentation and service differentiators.
This has to be the way forward. Presented with the facts and tools to go about their jobs, working in the insurance broking industry can be a rewarding and profitable method of employment, as brokers who attended the recent Broker Summit countrywide roadshow can attest to.
They heard speakers from trade bodies and major insurers reassure smaller and medium-sized brokers that there was a place for them in today's insurance industry.
Confronted by the constraints of compliance and shrinking commission levels, their only option is not to sell up or merge. But there are others, one of which is to seek out an independent compliance expert that will advise them through the regulatory minefield.
They can also sign up to a service provider which will give them access to a quality panel of insurers that offers market-leading commission levels. All this can be done without sacrificing the independence of the business.
Brokers are brilliant at building trust and sustainable relationships with customers. A broker with a particular specialisation, a regional expertise, or a service attribute will succeed through word of mouth recommendation.
What's more, they should not be afraid to charge for the professional service they provide. They should take pride in the fact that they will be perceived by the public and their peers alike to be on a similar standing as solicitors and accountants.
A broker that wants to do more than sell commodities and gets passionate about clients' real needs and demonstrates true professionalism in his approach will prosper.
The times they are a changing for brokers and the answer is not throwing in the towel but asking 'are you ready?' and trust yourself and your proposition to be successful. IT
Mike Williams is director of UKGI