The bankers were reckless but underwriters and brokers aren’t like them, says Adrian Colosso. So let’s look at the risks you need to think about

Stuck in traffic on my way to work last week, I noticed a sign in the window of a well known high-street bookmaker. The sign read: “Live life like a banker! Gamble your way through the recession!”

Behind all the headlines and the grim messages from the government, there is a fundamental difference between the recent tactics of the investment banking community and those of the insurance community.

Creating seemingly clever investment vehicles such as collateralised debt obligations, mixing the good stuff with the bad, was a gamble. The discipline of assessing risk is what underwriters and brokers do best, however, which is why the insurance industry is showing resilience in these tough times.

Last year the UK broking community was a vibrant playing field for the acquisitive dealmaker. But the age of the consolidator is over. Many leading figures who were on the phone even six months ago, calling fellow brokers and making over-inflated offers they couldn’t refuse, are now ringing round placing themselves in the open market. Anyone trying to refinance their debt in the next six months will find few friends.

The industry must brace itself this year for a rise in claims that could trigger capital constraints. Capital has dried up and the lack of catastrophe capacity is affecting the energy market and major infrastructure placements. Recent analysts’ reports on reinsurance talk of a hardening market, with 20%-30% rises.

A hardening market is on the cards, with motor rates being talked up relentlessly.

But how toxic is the market? A worldwide “toxic fund”, similar to the Equitas deal that helped Lloyd’s deal with its pre-1992 claims, is not a bad idea to inject fresh capital into the global market.

So where does the humble British broker fit into the economic downturn? At no other period has the broker been more important in helping its clients through these turbulent times. Assessing the client’s appetite for risk, analysing its claims experience and adapting the scheme accordingly – this is what brokers should be doing. Businesses struggling with cashflow and watching the supply chain collapse need good, sound advice.

Counterparty risk and solvency issues could dominate the next year. Brokers should be flexible and understanding in uncertain times, explaining the risk management issues to clients so they get the right premium and the carrier knows its true exposure.

Can we find ways in which costs can be contained? Is the business continuity plan in place and, more importantly, does the client know what business interruption really means? With the global financial meltdown dominating people’s minds, have we all taken our eye off the basic threats to everyday commercial life? Floods, fires and fraud don’t get much airtime these days.

Stability is more important than size for the consumer, particularly when trust in the financial services sector is at its lowest in history. Protecting brands is paramount to the longevity of UK plc and insurance can help.

Unlike handbags and cars, insurance products are a necessity so the question is not so much whether we can sell them, but what will the market buy – and who from.

This is why a prancing Iggy Pop and a moody-looking Bruce Willis are constantly on our television screens as insurers spend millions chasing market share. Buy from us, not from them.

Brokers are businessmen and most know a good deal when they see it. Listening to what a client needs, working out the risk, talking to the underwriters and getting the problem sorted. It is how I and my colleagues at Heath Lambert do business and we have kept some client relationships for more than 20 years. We are winning business off the back of dedicated service, not by over-complicating the solution.

All businessmen take risks. All businesses take a punt once in a while. But let’s make sure we all know the risks.