At our latest roundtable, top names in Scotland’s insurance industry discussed consolidators versus networks, setting professional standards in a competitive market, and whether the business environment and culture are really that different north of the border
Glasgow was the venue for the fourth and final AXA regional roundtable event of 2010. The roundtables bring together prominent brokers to debate key issues in the marketplace.
Held in the city’s historic Corinthian Club and chaired by AXA’s head of distribution north Andy Halstead and Insurance Times deputy editor David Blackman, the debate covered consolidation, e-trading, professionalism, the peculiarities of the Scottish market, and the increasingly dog-eat-dog nature of the market.
The discussion kicked off by looking at whether Jelf’s recent statement that it is to return to the acquisition trail meant that a fresh round of broker consolidation is likely.
Bruce Stevenson Insurance Brokers managing director Edward Bruce didn’t think so. “Apart from Giles, none of the other consolidators have major credit behind them,” he said.
Mackay Corporate Insurance Brokers managing director Ian Warnock, who is based in Ayrshire, commented that what makes a good business model depends on your standpoint.
“If you’re in a consolidator, you’ll see the party line and think consolidation is the way forward. If you’re selling networks, you’re seeing networks as the best thing since sliced bread.”
Towergate Risk Solutions Glasgow sales director Dawn Harley said that some of the smaller retail brokers may struggle to survive the next five years, but she noted that even though her company is one of the major consolidators, “there’s still a place for good-quality independent commercial brokers in the market”. She added: “I certainly think it’s healthy to have independent brokers brokering.”
Responding to Warnock’s comments about toeing the party line, Bluefin Insurance Services regional managing director Colin Preston said: “One of the things that I’ve found as part of Bluefin is that we are allowed a fairly independent thought process.”
Clark Thomson Insurance Brokers director Bill Petrie said he thought more independent brokers could start up as the sector becomes more accustomed to regulation. “The new, younger guys don’t have the hang-ups about regulation,” he said.
It’s dog eat dog out there
Preston suggested that networks could attract new start-up brokers by offering crucial support in gaining agencies with insurers.
Harley responded: “That is the challenge for new start-ups: getting agencies. Many moons ago when I was a young broker, I looked into doing that myself. It was difficult at that point, but it would be even more difficult now.
“There are still people out there with a passion to do that and they will want to make their mark. They don’t want to work for anybody else.”
The conversation moved on to the possible changes brought in by a new regulatory structure, under which the FSA will be abolished and replaced by the Consumer Protection and Markets Authority and the Prudential Regulation Authority. Harley said: “If they were to go down the professional qualification route, I feel that would be encouraging. We need to establish ourselves as insurance professionals, as opposed to just the guy you buy insurance from.
“I think that, from the public’s point of view, they want to deal with a chartered accountant and they want to deal with a bookkeeper. When it comes to insurance, however, they’re not so specific. They’re quite happy to deal with the guy down the road or whatever, rather than a chartered broker.”
Warnock said: “In terms of tactics to get business, the standards now are the lowest over the last 30 years . It’s dirty. Professionalism? As far as I’m concerned, it doesn’t exist. It’s dog eat dog.”
Preston added: “Despite all the regulation out there, professional standards within the insurance industry are at a low ebb. Insurers are tarts for premium at the moment.”
Towergate’s Harley stressed the importance of personal integrity: “Whether you’re an insurer or a broker or an individual, the main thing is that we all have to try to maintain the integrity, even though it is really tough out there and it’s very challenging – and there are a lot of dirty tactics.” She added that insurers would discover unscrupulous companies and stop dealing with them. Willis Scotland branch director James Geekie said he thought professionalism and more qualifications would improve standards. “What I’m seeing with other brokers is they’re so desperate to get sales teams, they actually start to employ people out of the industry.
“So guys who sell double glazing are coming in, and they don’t have any insurance experience, and they’re really not interested. All they’re interested in is the pound, and they’ll sell as hard as they can.”
Something more fit for purpose
Clark Thomson’s Petrie said the insurance industry needed a single body whose sole focus was insurance. He pointed to the Law Society’s status in the legal profession.
He said: “Perhaps what we really need, and what we will probably never get, is not the Law Society but the Insurance Society. This would be the equivalent of the Law Society: it would set the standards, set the exams and also discipline members to the point of being struck off for unprofessional behaviour.
“If the CII could achieve self-regulation, at least of the general insurance industry, I think that would be a huge step forward.”
Bluefin’s Preston said he thought most members of the roundtable would agree with Petrie, but questioned if insurers had a responsibility to the wider market.
He said: “As brokers, no matter how large the broker is, we can’t control market pricing. I think that large insurers can actually help discipline the market by setting standards themselves, and not dealing with certain brokers who don’t meet a given professional standard. The insurers could actually perhaps drive towards that just with market forces.”
Petrie added that it would be logical for insurers to join an Insurance Society as well. He said such a self-policing arrangement would reflect the relatively low degree of risk in general insurance compared with banking and pensions.
“We’ve been bolted onto the side of [the FSA], and we’ve suffered the pain and the discomfort. It has never really worked properly because it’s a bolt-on. I suggest we unbolt it and have something more fit for purpose. The FSA was not designed to apply the same degree of regulation and control to general insurance that should have been applied to banking and investment.”
Insurance Times’s Blackman asked what the attendees thought of the general state of the market in Scotland, and Glasgow in particular.
Petrie said: “I think what marks out the Scottish market is that it’s relatively small, it’s relatively quiet and it’s fairly stable. People who have made their careers here tend to stay in Scotland – or return to Scotland, in my case. And everybody knows one another.”
He said that while Scotland was generally a profitable market for insurers and brokers, Glasgow was a more aggressive market than those found elsewhere in the country. “If you want to talk about the market personality, it’s a spilt personality.”
Willis’s Geekie said he agreed with Petrie on the basis of what he saw while operating offices in both Glasgow and Edinburgh.
AXA regional development manager north John Maguire said he saw no difference between the Scottish and Leeds broking markets. He said: “You’re really underselling yourselves. I think people around this room probably give me as hard a time as anybody in Leeds would.”
Agreeing with Maguire, Geekie said. “I travel about to other branches as well: Manchester, Leeds, Birmingham, Reading, Cardiff. And you’re right – we think we’re different, but we’re absolutely not. The markets are exactly the same. It’s the same banter, the same tactics.”
AXA’s Halstead then asked delegates how they were strengthening their businesses for what he predicted to be a continuing flat market.
Warnock said that with clients wanting more for less, brokers had to drive efficiencies in order to do more with fewer staff.
Harley said: “I think you need to make sure that you’ve got your resource in the right areas.” He said companies had to be ready to say: “Well, that hasn’t worked, so we’ll change it.”
Harley went on: “It is about trying to direct the resource into the right areas of client, the right trades, so you’re not constantly quoting for risks that you’re not picking up. You have to address that fairly quickly, rather than just wasting resource month after month.”
Pointing out that Willis was opening more regional offices, Geekie said: “I think that’s really important. We’re not looking to buy; we’re looking to very much grow organically and bring in new people.”
The discussion then shifted towards the self-sufficiency of the Scottish market.
Maguire said: “I think most of the main insurers are represented in Scotland. Certainly in Scotland there’s a commitment from AXA, and I think most of our competitors adopt that approach as well. They all have a footprint here.”
Preston said he believed that the Scottish insurance market had consolidated into Glasgow, but that companies such as AXA were focusing more on the Scottish regions. He said: “We’ve always tried to support the local market because we want to place business with people we can talk to locally. Part of me says, ‘Yes, that’s something that’s very Scottish. Scots people like to deal with people locally,’ but it’s probably just the same in Yorkshire, in the Leeds market, in Newcastle and elsewhere.”
Finally the roundtable members were quizzed about the importance of e-trading to the SME market. Commenting on the greater potential application of the aggregator model to the commercial market, Bruce said: “I’m not sure that’s going to work because insurers are losing money in aggregator models.”
Harley said she believed that trading platforms would increase efficiency, but added: “Fundamentally, you’re not ever going to have one product that fits all, whether you’re on an e-trade platform or not.”
Halstead said he believed e-trading would increase efficiency, and that new lifestyle trends would drive client behaviour: “I don’t Twitter, but all those things will drive different behaviours from your clients.” IT
We all know the government spending cuts announced last week will impact everyone, but it is still not overly clear how those cuts will impact business and whether smaller firms – like the brokers around the table in Glasgow – will be stable enough to drive the anticipated recovery from within the private sector.
Our discussions started with an analysis of the Scottish market, and how it differs from other large UK cities. All agreed that it has a personality of its own and is a mature, close-knit community, built on trusting and personal relationships between broker and insurer. Critically, all brokers valued support at a local level and everyone was of the view that, for insurers to take full advantage of this market, they need to have a presence on the ground.
There was lively discussion on the strength of various broker businesses, with the consensus that the broker community in Scotland is strong and able to withstand the current economic conditions. Independent brokers in particular have found ways to work alongside the consolidator model by demonstrating their resilience and ability to adapt to the changing environment. It is clear that independent brokers are becoming more demanding and getting more insurer attention. Furthermore, as some exit the market, new start-ups are emerging, with more entrepreneurial spirit than ever before and underpinned by massive client loyalty, which provides a firm basis for a resilient business model. The next generation of brokers is every bit as determined as the last, so will we see increasing numbers of smaller brokers in Scotland in future?
Talent and standards of professionalism in the industry has been a recurring theme at each of our 2010 roundtables – and mixed views emerged, with some brokers believing standards are being compromised at the sharp end to win business, and others believing that standards are rising as the support for professional qualifications grows.
So what do brokers and insurers need to do in order to prosper? No surprise here: drive efficiencies, be selective and focus your energies, diversify, and never forget the customer is king.
Andy Halstead is head of distribution north, AXA Insurance