Martin McLachlan says SME brokers must heed the warnings of the past to protect their own turf.
The American historian Barbara Tuckman wrote a book about situations where intelligent people simply refuse to consider obvious dangers. She analysed cases where it was clear disaster was looming but no action was taken to avoid it. Tuckman scrupulously only considered cases where at least one major figure had raised the alarm before the disaster struck.
What, you may very reasonably ask, has this to do with insurance? Quite a lot is the answer, in my opinion. It seems that we are about to gift a large proportion of the broker-controlled SME market to direct writers and aggregators. We are ignoring our own industry’s recent history.
When Direct Line started, the consensus view from the broker market was that they would shrug off the newcomer. Those with a few grey hairs will remember the jargon employed – only simple cases can be handled by phone; policyholders will return in droves when claims occur and they do not have a broker to guide them through the process and so on. Warnings abounded that customers were moving in droves and would continue to do so unless the intermediated market became more competitive, service improved and clients started to understand the value of the broker. Sadly, the warnings were ignored and a significant chunk – now over 40% – of the private car market has waved goodbye to intermediation.
We may now be looking at a similar situation in SME business. Direct underwriting of small commercial risks is happening and for many small businesses, used to buying by phone or over the internet, it seems quite natural to arrange their insurances in the same way. The additional factor enabled by technology is the growth of the aggregator model. Direct underwriters plus aggregators equal sleepless nights for brokers.
Despite the signs, voices still deny much will change. Their rationale echoes that heard at the birth of Direct Line. Doing nothing other than trotting out the old comforting saws is what would be described in management speak as a high risk strategy. While the focus of direct writing now is tradesman’s business, there seems no reason why it shouldn’t extend to simple retail, working from home and office risks.
For those interested in protecting their existing turf, a few key tasks must be undertaken. Firstly, use technology to streamline processing and cut costs. Remuneration on small SME risks for brokers and insurers is small so the only way to make money is by high volume, low margin trading. The imarket network has been built into broking systems to provide rapid access to trading services. Only a single keying of data is required by the broker to obtain quotes, place business and complete the deal with the client. All of the back office processing, including obtaining the quotes and binding the risk can be undertaken very quickly. A far cry from the old days of waiting a fortnight to obtain two quotes.
The warning klaxon has been sounded – is anyone listening?
‘ Martin McLachlan is chief executive of Polaris