Last month I concentrated on globalisation and the importance of international investment in establishing Lloyd's as the leading insurance marketplace for the 21st century. This month I look at matters closer to home.
Underwriters may delight in international risks with six figure premiums, but they should not forget that a great deal of business still comes from small to medium-sized UK businesses. The insurance industry is too fickle for insurers to ignore such a steady stream of high volume, low premium business.
Along with the rest of the industry, brokers in the UK small to medium-size (SME) sector have seen their business environment change with amazing rapidity over the past decade.
A lightening process of broker consolidation has resulted in a situation where just three brokers – Marsh, Aon and Willis – handle half the world's broked insurance premium. The mega-brokers have used their size to streamline their operations, reduce their operating costs, boost their market share and gain bargaining power with insurers.
In addition, these three large brokers have developed a number of sophisticated products and services specifically aimed at the SME sector. Small and medium-sized UK brokers have found themselves competing with the “big boys” and have developed a number of strategies to enable them to survive and win business in an increasingly competitive marketplace.
Resources have been pooled as broker networks, marketing groups and alliances have sprung up countrywide. Smaller or regional brokerages have sought to exploit to the full their one perceived advantage over the conglomerates: truly personal service. The message is being broadcast that “price” is not the only issue and the emphasis is on “added value”.
More brokers are developing their expertise in niche markets and providing their clients with benefits peripheral to the mere placing of insurance: risk management advice; finance packages and client help lines, for example.
The demands created by these changes are passed on to insurers. Brokers offering more in turn demand more from those with whom they place their business. Insurers who fail to provide lose out.
Business and Market Research (B&MR) carried out a broker satisfaction survey for the British Insurance Brokers' Association (Biba) in October last year. B&MR director Sue Coyne summed up broker perceptions and expectations, commenting:
“The results show that the industry [insurers] needs to improve performance on the core essentials. We found that one of the contributing factors to the indifferent performance has been the number of mergers. It is therefore important that insurers should put maintaining service standards at the top of their priority list.”
The personal touch
Even before the effects of globalisation and corporate capital, providing a personal service to the smaller broker and insured was a particular problem for Lloyd's syndicates, hampered by convoluted placing and claims handling processes, limited broker accessibility and the London-centric nature of the institution.
While Lloyd's is evolving to confront such issues, some syndicates, including my own, discovered an effective way around these obstacles. For me, the most significant development for offering “added value” to regional brokers in the last ten to 15 years has been the emergence of the Lloyd's service company.
Lloyd's service company structures vary. Our own UK service company, Markel 702 (UK) (formerly RE Brown Underwriting), was established in September 1990. It has offices in Leeds, Manchester, Birmingham and Reigate staffed by local underwriters
Many Lloyd's service companies are able to offer premium finance packages and risk management advice to small and medium-sized insureds. Some provide helplines to give health and safety, employment and company law advice to smaller companies – freeing up their hard pressed directors to concentrate on developing their business. Currently such services are available personally, and over the telephone, but it is only a matter of time before they are adapted for use on email and the internet.
The internet can also be used to reduce the conflicting costs of the placing process for both underwriter and broker, and producing cost savings that should eventually be passed on to clients in lower premiums.
For example, we recently unveiled our internet-based, rapid quotation, ebusiness system, Activequote. Activequote, “the product”, enables the broker to obtain quotations, bind new policies, renew or endorse existing policies and produce all forms of policy documentation automatically online, with minimal need for broker contact with underwriters.
We have also learnt lessons during its development which will enable us to utilise some of the component parts to electronically “link” with broker systems and their IT trading platforms.
To summarise, the service company structure enables Lloyd's syndicates to listen to regional brokers and develop the all-round services demanded by insureds, whilst eliminating Lloyd's bureaucracy and cutting costs.
As I write, there are at least 80 established Lloyd's service companies – a number which clearly attests the success of the concept. I have no doubt that this figure will increase as more insurers working within Lloyd's realise that size really isn't everything and that good service counts.