How good is your partnership?

Andy Baldwin: The broker channel continues to be a key channel despite predictions of its demise. Even in personal lines it continues to be a major channel; IBM research says 40% of thats business is distributed via brokers. In the commercial arena the role of the broker is even more important. The research predicts that even in five years 75% of policies will be distributed through a broker. However, what is critical is that the role of the broker is starting to change and evolve.Michael Faulkner: This changing role influences the nature of brokers' partnerships with insurers. So how are current partnerships working?Colin Calder: Ours are working well at the top line, and on an improving basis at the bottom line where it really matters to us. What's far more important is that we are starting to work together more closely to solve problems, albeit at a basic level. We are helping brokers with their customers, their processes and the management of their people. We've made huge progress, but we recognise there's still a way to go.Charlie Whitfield: Our current partnerships are patchy, with some working significantly better than others. But they all have a massive way to go.I agree with everything that Colin said, but what I don't see is it being implemented to the depth that it needs to be implemented; and I don't see a massive amount of progress in the last five years. These are not new ideas.The process of issuing insurance policies isn't very complicated, but it's a serious process that needs to be done. Historically, brokers are not very good at processes, but between us we should be able to do it.The big differentiator is trust. If we have mutual trust with our partners, the relationships work much better than if it's an adversarial relationship.Stuart Reid: To improve the processes and make cost savings we have to have systems that work as efficiently as possible. With well over 150different insurance companies and 35,000 brokers, is there one system out there than can do it? At the moment it's very difficult to see those savings being made in an industry that is basically consolidating fast and for which the rules that it is grounded on are being changed in the next 14 months.Our current partnerships are working well. It depends on how close you are to the insurers and the level of trust with each one. But insurers are looking, quite rightly, for their pound of flesh as well; they're looking for profitability of an account. There are many different ways in which insurance companies want the partnership with the broker to work better.I just worry that over the next 12 to 24 months everyone is going to have enough on their plate dealing with the changes in the marketplace, and will not be concentrating on making the savings that we should be making and working to improve relationships.Mark Hadfield: Our partnerships are going generally well. Over the past five years we've done research on our key broker panel, and over the years it has told us that we're getting better at managing broker relationships.But we've still a long way to go. Over the course of the next 12 months we're going to be looking to get a lot closer to our chosen broker partners and putting down a proper joint development plan.This idea has been going on within the insurance industry for the past ten years and there has been no major innovation in the last three or four years.Chris Giles: In the current hard market insurers are going to say their partnerships are working well because they're making underwriting profit.But they do ignore the channel conflict, with one or two exceptions, and deals are skewed with a lack of transparency. Tell us honestly how much money you're making and how much you can share with brokers.Every decent sized broker these days is turning towards employing someone from an insurance company background to tell them how much money insurers are earning. A bit more transparency in that area would be very welcome.Tesh Patel: Overall our current partnerships are working well, but there is a lack of transparency with some of them. Honesty and understanding is important. We need to segment our brokers and try to understand what each segment really wants as they'll want different things.Hadfield: It's easy for the partnerships to be working better now because things have been so bad in the past. The problem is that brokers have less trust in insurance companies now than they did five or ten years ago. Insurers have changed the deals they have agreed with us. They move the goalposts, and this happens time and time again.Faulkner: How are the relationships defined to the parties' mutual benefit?Calder: Our segmentation is based on the brokers and their requirements.We take the market data provided by the brokers and we define our segmentation according to that. The content of our premier partner proposition is tailored according to our relationship with that broker. We have a joint development plan with each premier partner. Below that it is almost a one-size-fits-all approach. The premier partner relationships are moving forward. But the other end of the scale, the smaller broker, needs a lot of work. We have to prioritise and it's important to gravitate towards the top end.Whitfield: I think it's very difficult when you have such imbalanced suppliers and providers to get a relationship that's defined to their mutual benefit. There are a large number of relatively small brokers who have done very well over the years, but they're now trying to talk to global insurance companies, and they don't speak the same language, although they're part of the same supply chain. The idea that you can get a balanced relationship to the mutual benefit is incredibly difficult to realise.Transparency is the key, it's difficult to have a balanced unskewed relationship when we just don't know what some of the rules are.Baldwin: With the consolidation and the growth of the sort of super-provincials in that middle market, do you think the imbalance will be partly corrected or do you think that such an imbalance is always going to be there?Whitfield: It will get better; the relationships will become more balanced.But I don't see even the bigger regional brokers who are turning over £30m, £40m or £50m having a balanced relationship with the likes of AXA, turning over EUR1.5 trillion.Reid: Critical mass for a broker is becoming more important. We are £50m GWP and to be at the top table with insurers we need to be £100m and damned fast. You need to have a size with insurers for them to actually talk to you along the lines that you wish to talk to them, to get the transparency from them.But unfortunately there are the other brokers, the other 34,500 out there who at the moment are getting a shoddy service from insurers. It's not a rosy picture for the smaller brokers and if the insurance companies wish to get the most advantage out of this changing environment and get the savings they want they will have to change their relationships with the smaller brokers.Hadfield: We do things by getting to know our brokers. Towards the end of the year we'll sit down with our preferred segment of brokers and plan what we're doing for the year going forward. What we need to be doing is looking not just to next year but five years in advance and making robust plans. We're heading towards that but we have a long way to go.The industry does need to shake itself up and move forward to take on these changes that we're all talking about and yet aren't happening.Giles: Five years is a huge time in insurance. The only way suppliers and providers ensure their relationship are defined to their mutual benefit is by the seat of their pants. As brokers get bigger they think, "Maybe I'm big enough just to kick this door open slightly", so they barge in and that's the way it works.Patel: We need to have transparency. We need to identify the two or three things that key are to the relationship - that will help us grow and develop better. Once they've been identified, you have the basis to build a relationship because then you can grow, because then you create an infrastructure.Mark Coffer: The problem here is that insurance companies have been consistently mismanaged. If brokers ran their businesses in the same way as Royal & SunAlliance (R&SA) has done over the past few years, we'd all be in the dole queue by now. Business plans should be reviewed every six months. We want more transparency, but we also want more help to allow us to do the job properly. We are the guys at the coalface, we are dealing with the clients. We don't want insurers moving offices to somewhere else and not telling us about it, and we don't want 16 branches to deal with.Faulkner: What are the elements of a strong partnership?Andy McNeil: Last year IBM looked at 160 of the top global companies and how they got on with partnerships. Where the partnerships worked we found that the partners were included in the strategy and execution of business lines with both parties investing in the deal and contributing resources. We also found that costs were minimised across the value chain and the partners worked together on process improvement. For a successful partnership the partners shared the marketing and targeting of desired end customers and there was a defined operating model.Where partnerships didn't work we found that one party dominated the deal, channel conflict was ignored, and the competition was ignored as a potential partner.Coffer: Mutual trust is the most important thing - trusting insurers not to pull the plug on you half way through the year, to give you the tools to do the job and to manage their business well enough so you don't have to worry about recommending them.Patel: The key to a strong partnership is understanding. You need to be able to talk about problems that arise and find a way out. That goes beyond setting targets such as premium income.Giles: There must be transparency on both sides. This is a good time for an away-day or a strategy meeting with an insurer, because you can put in the building blocks of what both partners feel a strong partnership would look like and plan for the year ahead. Brokers should share margin aspirations with insurers. Insurers would buy into that if they could see it is reasonable. If insurers understand the way a broker is going about that, it will help them understand what the broker is after.Hadfield: We look at three key areas. Firstly we look at financial performance, and secondly the development potential of the broker - is the broker likely to acquire or be acquired? That affects our business plan in a major way.And third, the trading behaviour - that requires trust and transparency.We need to understand the broker and know that we've got a fair chance of picking up the business.Reid: One thing that has caused us problems in the past is that while we get the trust and transparency at the top level of insurance companies, that message isn't always filtered down to the underwriters. At the close of play they have to put a price on the risk.Calder: What will take us that bit further is when we get the trust and transparency up and down each organisation and get people within the organisations to recognise that.Faulkner: How can the partnerships be improved and what are the barriers against doing this?Coffer: Accepting that the partnership deal lasts 12 months, that should be written in stone, but I can't see how you're going to get that because the insurance companies like to suddenly change things, like business they want to write. How do you lobby against that? You can't. There is always going to be a point at which you're on separate sides of the same fence. To get a partnership to work the rules need to be agreed up front and stuck to. I haven't seen much evidence of that so far.Patel: It's nonsense to produce a set of objectives and then only review them after 12 months - things will have changed. Unless you have continuous communication it's never going to work, it will always be superficial.Things need to be followed up and monitored on a monthly basis at least, to make sure that it's going to work.Giles: With consolidation, first from insurers and then brokers, it's very difficult to arrive at a perfect model, but it's going to get easier.The secret is to start planning earlier. It should start around September.If insurers know exactly what sort of volumes to expect, they will put resource towards it and keep it resourced. There needs to be collaboration.Hadfield: It's not just about producing a document and sticking it in a drawer, it's making sure the thing actually happens. But in any relationship there's going to be give and take.

The panel- Colin Calder, AXA head of global development
- Charlie Whitfield, Leighton Blackham Group marketing director
- Andy McNeill, IBM business consulting services
- Stuart Reid, Stuart Alexander joint managing director
- Mark Hadfield, Allianz Cornhill development manager,
- Andy Baldwin, IBM UK insurance consulting practice partner
- Chris Giles, Giles Insurance chief executive,
- Tesh Patel, Royal & SunAlliance corporate development director
- Mark Coffer, Marrs Insurance managing director
- Chair: Michael Faulkner, Insurance Times.