Feeling the pressure

The future for many personal lines brokers is looking bleak. No longer able to bring in sufficient volumes of business to remain financially viable, many smaller brokers have been forced to put their personal lines books up for sale.

The problem is that the high street brokers are not being deluged with offers for their personal lines books.

One Scottish-based high street broker, who wishes not to be named, describes the problems his business is facing. He believes the death knell is sounding for the small high street broker.

"My business is in a relative state of turmoil", he says. "We're a typical high street broker, but the smaller intermediaries' days are numbered.

We can't create the volume to maintain our independence."

The broker says he has little option but to break up his business and sell it off in parts. He says he will probably have to sell off each book of business separately.

"Our commercial book will probably go in one direction and our personal lines book will go elsewhere", he says. But this is a hope rather than an expectation.

Offers for the broker's personal lines book have been few and far between.

"We haven't had people banging down the door," he says. Those that have expressed an interest have failed to back their approaches with hard cash.

"We advertised 18 months ago, (one prospective buyer) proceeded in good faith for around ten months until we asked to see his money and then we never heard from him".

The broker has also had inquiries from people outside the industry, but he says they lacked expertise and were more interested in moving to Scotland than actually becoming brokers.

"There were a couple of gentlemen from Manchester who had no experience of working in insurance - they wanted to live up here," he says.

The broker says his story is typical of what is happening throughout the industry. Ultimately, the industry will lose much of its expertise and experience.

"We're entering a new era. There are lots of people doing a good day-to-day job, and much of that knowledge will go out of the industry", he says.

He also hits out at insurers whom he believes are sacrificing client-customer relationships that have been built up over decades. "There isn't an attempt to maintain good will," he says. "We have no clout with the insurer we've dealt with for 20-odd years. We've had no response from them at all".

Broker Marrs acknowledges that its personal lines book is under threat from direct insurers, but says it intends to keep the business and will be endeavouring to continue its development.

"We will persevere with the book," Marrs account executive Gary Bell says. "There is obviously very stiff competition from the direct writers, but we have clients who value our service."

For some brokers, it is easier to sell off their personal lines business, as making a success of a personal lines book can take an enormous amount of effort. "Some are dropping their motor book because they have to work extremely hard at it," says Bell.

Though Marrs is committed to its personal lines business, Bell says that brokers have to be strong on customer service if they want to make their personal lines books a success. "Brokers have to be really good on customer skills," he says.

He argues that the lives of personal lines brokers could be made much easier if they were consulted more by the leading insurers. "Some insurers, such as Norwich Union, provide access to the decision-makers, but others don't," he says.

Despite these drawbacks, Bell says Marrs is still interested in bolstering its personal lines book through acquisition. "If the right opportunity came along we would (buy up other books)," he says.

Swinton is a personal lines broker that is frequently on the acquisition trail. Swinton chief executive Patrick Smith says that he has not noticed many personal lines books up for sale at present.

"The only significant difference in the last few months is that we're seeing a number of small portfolios (up for sale), but not really among the moderate-sized brokers," he says.

Many smaller brokers are being forced to sell their personal lines books because advertising is becoming increasingly costly, according to Smith.

"There's only a certain number of ways to attract business in, and all of those media, such as newspapers, are becoming more expensive," he says.

But Smith is generally upbeat about the prospects for personal lines brokers. "Local presence is a broker's greatest strength - they have to use that and provide a service," he says. "A broker always has a large amount of prospects. Perhaps he converts 15% of what he quotes - every broker should be working his bank of prospects as hard as he can."

He rejects suggestions that the closure of Hill House Hammond (HHH) sounded a warning to personal lines brokers that their demise was imminent. "The market remains perplexed as to why the closure happened. The broker market doesn't feel under threat," Smith says.

While other brokers criticise personal lines insurers for neglecting intermediaries, Smith believes that the insurers are still highly supportive of their brokers. "All of the halfway serious personal lines insurers are committed to the broker market," he says.

Allianz Cornhill is one insurer keen to reaffirm its commitment to personal lines brokers. Allianz Cornhill Personal general manager Ruediger Schaefer says: "Brokers can come to us for help and we are open to discussing their options with them - we are interested in working with them whatever their size."

But Schaefer argues that some brokers resent insurers trying to get involved in their business. "The message we get is that they sometimes get too much advice, which can be seen as interference," he says.

With brokers looking for ways to squeeze maximum value out of the personal lines books, the need for personal lines outsourcing services is on the increase. One company offering such a service is Rubicon.

"What Rubicon does (for brokers) is develop a personal lines outsourcing solution," Rubicon business development manager Doug Phelan says. "It's aimed at commercial lines brokers which have decent personal lines books."

Phelan says Rubicon offers brokers that are struggling to make their personal lines books profitable an alternative to selling their business.

"If you properly analysed the cost to many brokers of managing personal lines business they are possibly, at best, breaking even." he says.

But while companies like Rubicon might be able to throw a lifeline to larger brokers with unprofitable personal lines books, for smaller single-site brokers like the one in Scotland, it could be too late.

What now for personal lines brokers?

As business advisers to a large number of brokers, Mazars is well aware of the problems faced by intermediaries with personal lines books.

Mazars partner Mark Grice has a number of tips for brokers trying to decide what to do with their personal lines books:

- Small brokers should join a network or merge. Look at why you can't make a reasonable return on your personal lines book. If the answer is you haven't got leverage and your clients are cost driven, get into a network or merge. Real leverage is achieved through size.

- Stand out from the competition.Brokers should develop a reputation for good customer service that sets them apart from the rest of the market.

Claims handling is one of the best ways to do this.Often how a broker deals with a claim is what sets them apart from other brokers.

- Bigger brokers who do commercial lines as well as personal lines should do the personal lines business as an add-on to keep the client. But look at what you have in your personal lines book and minimise the areas you deal with.