Biba’s chief executive Eric Galbraith speaks with Lauren MacGillivray, revealing his take on the economic crisis and other pressures facing the industry, and what’s in store for this year’s conference
How tough has the past year been for brokers in light of the credit crunch?
It is fair to say that the credit crunch has affected everyone, with clients going out of business or reducing headcount, turnover and wages. This all puts pressure on workloads and, of course, income, whether you are working on commission or fees. However, I do not believe that it is the past year that needs to be our focus; the next 12 months is when the impact of the crisis will really be felt. Members are advising us that the general insurance market remains competitive, with the exception perhaps of some specific specialist classes of risk, but I have no doubt that we are moving towards a harder market and this will present further challenges to both Biba members and their clients. On a very positive note, the current economic crisis highlights the value of a broker’s advice in providing good risk management and tailored insurance protection.
What has Biba done to help brokers survive the financial crisis?
We’ve been working exceptionally hard to promote and protect brokers’ and intermediaries’ interests. We are in contact with Europe, UK government and, importantly, opposition parties, as well as a variety of governmental departments and other organisations. Much of our work goes on behind the scenes at Canary Wharf, Westminster and Brussels, so we cannot always reveal our hand, but members can be confident that we are a strong team fighting in their corner on every issue.
Key initiatives include challenging the cross-subsidy within the Financial Services Compensation Scheme (FSCS) levy and the FSA fees, and creating a dialogue and greater understanding of the importance and value of our sector with organisations such as Which?, Citizen’s Advice Bureau, BERR (Department for Business, Enterprise & Regulatory Reform), and other bodies. Raising the profile of small, large, national or international brokers, and demonstrating their worth, helps members to survive.
Brokers also have other membership benefits, such as free entry to the Biba conference, exclusive schemes and facilities, the PI Initiative, our lobbying on issues such as travel insurance and electronic motor certificates, and our work on comparison sites. There’s also, of course, the very important assistance we give to members on regulatory issues.
Consolidation was the major issue of 2007 but has slowed down. Is it still a concern?
Consolidation has been an issue for the past five or six years, but this has slowed for obvious reasons in the current financial environment. I would not refer to consolidation as a concern. It reflects the dynamic and ever-changing nature of our sector, and we are already seeing new broking organisations falling out from the earlier years of consolidations. I believe our sector is still attractive to investors, but perhaps we need to see some returns on previous investments and consolidations before any sort of activity emerges again. Most organisations are more focused on survival for the time being.
What are your members saying about the FSA’s proposed hike in fees?
Biba members have contacted us in some numbers to voice their alarm about the substantial increase in year-on-year costs of FSA fees and levies. Several of our largest members are looking at rises of 90% plus, at a time when trading conditions have never been tougher. Increases of this magnitude cause huge budgeting issues for firms, especially for those whose budgets have already been set. We are aware of businesses that may well have to lay off staff to accommodate the fee increases. This surely is an unintended consequence from the FSA’s perspective. If the FSA needs more money to regulate other types of higher risk firms, it should pay for it, not us. Biba has reacted strongly to the proposed increases, but it also needs members to join us in writing to the FSA and MPs.
You had a big regulatory win this year, achieving a market-led solution on commission disclosure. What was that like?
We were pleased that the FSA recognised that the most appropriate and proportionate way to deliver their five key outcomes for commercial customers was the Biba-led market solution. FSA industry guidance was a time-consuming + process, and we are grateful for the support and co-operation received from other associations, namely Liiba, ABI and The Institute of Insurance Brokers. This is the first piece of industry guidance that relates to insurance and is, to the best of our knowledge, the first in respect of commercial customers. It was pleasing that the FSA recognised that our sector can take on board an issue, like it did with contract certainty, and find an acceptable solution without the need for the regulator to enforce more rules.
Do you think enough brokers have professional qualifications? And will they follow the life insurance side eventually with regulated requirements?
I believe professional qualifications are an essential element of demonstrating professionalism within our sector. Later this year we will be joining with the Chartered Insurance Institute and others from our sector to look at how we can work together to avoid potential regulatory intervention. Watch this space.
How big a threat is Liiba to Biba?
I see this as an issue of ensuring that the sector has one voice, and I have already said that I do not believe we need more associations. However, we are where we are, and it is essential that this is not seen as divisive externally or internally.
What’s your opinion about insurer crackdowns on commission rates?
There will always be demands on commission income and/or remuneration, and during the prolonged period of soft market rates, it is inevitable that these come under pressure. Expenses and technology play an important part in the ultimate cost to the client, and brokers have quite rightly looked at ways to improve or even protect their income stream.
The word commission is frequently used to represent the overall remuneration to the broker or intermediary, and it is essential that where work transfer is involved we are comparing like with like. I would not wish to see downward pressure on actual commission rates. Many of the challenges we have seen on the cost of distribution concern service to clients at a more competitive price.
Are brokers getting more plugged into technology?
Definitely. Technology today is absolutely fascinating and provides a huge opportunity. Contra to this is that it presents a threat and challenge by introducing different ways to communicate with clients and insurers, which can, in some instances, diminish the apparent value and increase commoditisation. However, in my opinion, the cost benefits and opportunities outweigh the downside.
Turning to the Biba conference, what do you think the hottest topic will be?
In among all the talk about surviving in the downturn, many of our members will be looking at opportunities. I would not wish to try to guess the hottest topic, as in our sector this can change from week to week, but there will definitely be discussions concerning the cost of regulation, the cross-subsidy in the FSCS, and underwriting disciplines, particularly in multidistribution.
What’s the main message brokers should take away from the conference?
The conference is all about demonstrating value among all the day-to-day issues that intermediaries address while servicing clients. The opportunity to take time out to speak to other brokers, insurers and suppliers will help them to add value to their businesses. Members will have the chance to discuss a variety of current issues and will, I am sure, take away a number of value-added benefits and ideas.
Biba is known for hosting entertaining conferences. But has this year’s budget been affected by the financial crisis?
We have, of course, reviewed the budget and are already considering how we might improve or change next year’s event. I hope we have provided a conference that delivers value in its plenary sessions, in its seminar programmes and of course with the exhibition. In fact, rather than cut back on seminar programmes, we have increased the variety of choice, maintained the high quality and reduced our costs.