Small business insurance used to be the exclusive domain of local brokers, but as others move in they have to adapt their model. Chris Wheal reports

When it comes to small business insurance, the march of the direct writers, bancassurers and affinity groups has met its Waterloo. Brokers have drawn a line in the sand and decided “they shall not pass”.

Direct insurers and the rest are now left to skirmish around the edges of the business market, able only to compete in the micro-business end – the sole-trader craftsmen and shopkeepers, where products are standardised and commoditised, and price is the major driver.

For many small and medium sized businesses many other factors jostle with price – or what they perhaps call value for money – making broker services the preferred route. And, while the large brokers have targeted the sector and the consolidators swallow up many successful firms, the small independent high street broker can still compete.

“The predicted demise of the small independent broker has not happened. A lot of small businesses want a trusted local adviser. They may even want to trade with a business they see as just like themselves,” says Mike Butler, head of marketing for commercial lines intermediaries at AXA, which gets 90% of its business through brokers.

For some it may save time to ‘ ‘ use a broker, while others value the independent advice. “SMEs, regardless of business size, find insurance a distraction.

“They don’t understand all the intricacies of insurance and they don’t want to. Most value the advice and support they get from brokers,” Butler says.

That trust does not exist with banks. And yet, with brokers, it extends to larger companies too. “Even the finance director of a large organisation will often prefer to outsource its insurance needs to expert friends,” says Butler.

That is why AXA has made a huge effort to support its broker base, offering a full marketing audit and consultancy service to help firms identify what they do well and improve the areas with scope for winning further business.

This has proved so successful that AXA has recently bought broker marketing advisory company Ignition so it can provide help to more brokers.

Butler says: “I have four marketing managers who visit brokers and do a full analysis of their marketing activities. They can advise on PR, marketing, attending shows, sponsorship and use of databases, and can construct a plan to help brokers improve their offering to customers.

“A lot of small businesses want a trusted local adviser.

Mike Butler, AXA

“The needs always vary and it’s not driven by size, but by the culture of the firm. If it has been built up by strong personal and physical relationships with its customers then it may not even have a marketing department. In some cases it wants reassurance that what it is doing is right.

“But others have required our help across the board. I can’t say whether the most popular things are web development or trade shows or prospecting or helping brokers mine databases for new clients, it is a mix.

“Brokers often have to keep so many plates spinning in the air that there are usually things they have overlooked, but each broker is different.”

Steve White, head of compliance and training with the Biba, says that brokers want more technical support from insurers so that selling SME insurance in a ‘

‘ market where premiums have been squeezed can be cheaper and more efficient.

“Brokers are strong in this market so what they are looking for is less to do with training and more to do with the technology and making the overall costs much cheaper.

“They want to streamline the process of getting insurer’s terms through to the final policy documentation,” White says.

Ian Mantel, director of Manor Insurance Services, praises insurers for this. “Many insurers now have everything on their extranets, where we can download documents including claims forms.

“They have listened very well too. When I have found a difficulty with an extranet, I have communicated this and highlighted how it could be made easier for a broker and they have done what I suggested and improved it.

“Insurers that haven’t done that don’t get support from me,” he says.

“Some brokers probably over-estimate how much money they are making from their SME customers.

Simon McGinn, Allianz

Simon McGinn, broking director at Allianz, says technology is where he concentrates. “Our view is that the vast majority of SME business will continue to come through brokers. The SME tends to choose the level of service it wants and, from that, decide how to buy.

“Some will be through brokers, even if they want to buy on the phone or electronically. With our e-commerce solution some brokers effectively have a direct model. One or two have quote-and-buy facilities on their websites for SME business,” he says.

This is at the micro end, but Allianz also has an electronically-traded package attracting premiums of up to £7,000. “We insist this is on a sole cover arrangement because of the cost of setting it up and the numbers we need on the very small margins to make it work,” says McGinn.

But he feels more can be done. “Some brokers probably over-estimate how much money they are making from their SME customers. The bigger brokers can process and systematically cross-sell using electronic solutions that are cost-effective.

“All brokers need to be able to do that. In five years’ time brokers will still be providing us with 80% of our SME business, but they will be providing it in a very different way,” says McGinn.

Allianz’s preferred method, is Imarket. AXA, another Imarket supporter, also has a 10-strong ecommerce team helping brokers in this way. But brokers such as Mantel are less keen on Imarket, preferring fast access to each individual insurer and being able to offer their own analysis and expertise based on that information.

He also insists that Imarket is more cumbersome to use. Closing down extranets and forcing brokers to use systems they do not like would be a retrograde move.

Allianz came under fire recently for directing SMEs visiting its website to its direct arm. But discussions with Biba very quickly led the company to change that.

And AXA recently turned down a small business customer applying direct for a web-only policy, instead making that policy available through the customer’s existing broker. When it comes to support, that is the kind brokers welcome.