With a new government in place and an emergency budget announced on Tuesday, how do brokers survive times that are both tough and uncertain? Insurance Times reports from the second AXA roundtable, where leaders from the broker-saturated Leeds market discuss how best to stand out and stay strong
The latest stop in AXA’s series of regional roundtables took place in Leeds, where local brokers eagerly tackled a range of issues affecting the marketplace.
Held in Brasserie Forty 4 and chaired by AXA’s head of distribution Keith Hector and Insurance Times executive editor Ellen Bennett, the roundtable kicked off with a look at the outcome of the recent general election and the impact of the coalition government on the broking sector.
Ravenhall Risk Solutions managing director Neil Grimshaw was the first to highlight the effect political uncertainty was having on the marketplace. “I think it’s easy to assess a political party’s manifesto before an election and make a decision about what they want to do. I think the difficulty we’ve got in this circumstance is that that’s gone out of the window and we’re still waiting to find out a lot of things and how they’re going to pan out over the next few weeks,” he said.
Bluefin regional manager Richard Darbyshire said: “I think with the election out of the way, we have a degree of certainty around things, although I don’t know whether a coalition’s the best thing for the country. I think if we’d had an out-and-out winner, there would have been more certainty for people. And probably what we’re left with is six months or more of uncertainty until we’ve seen how the coalition beds in and whether it’s going to succeed.”
The conversation then turned to the economy, with many of the delegates arguing that the worst of the recession was far from over. “I think the first quarter of 2010 has been tougher than the first quarter of 2009, personally. I think we’ve seen more downsizing, more liquidations than we did in the first quarter of 2009,” Towergate Risk Solutions Leeds’ managing director, Darren Rowe, said.
Meanwhile, Darbyshire predicted that more businesses were likely to fail in the coming months. “The sick businesses failed very quickly because banks pulled the rug, but businesses that had family money in, I think, have managed to stave off the first flood of the recession. The question is whether they can succeed in the medium to long term,” he said.
Hector asked delegates what the impact the recession was having on the day-to-day running of the business. Director of Wilby Ltd Mike Shaw replied that having a niche was a key factor in surviving the downturn. “You can’t just rely on being a traditional corporate broker anymore. So you need to find a niche area. If you look at the successful independent brokers, all of them have got a niche area, which will feed in when the general side falls down,” he said.
He pointed out that while his manufacturing clients were suffering, the broker was benefiting from its interests in the domestic leisure sector as consumers opted to holiday at home instead of abroad. “The key is a spread of your income,” he explained. “If you’ve got that, touch wood you should be okay. If you’re just relying on one area of business, I think you’re going to struggle.”
Grimshaw, however, pointed out that a recession could be good for start-up brokers as they proved more agile than their longer-standing rivals.
“On most occasions, that’s an opportunity to take advantage of a situation where traditional brokers really were not prepared to take on the recession in the right way; and those are the people that are 10%, 15% down on their income from last year. We, as a proactive new business seeking broker, have managed to take advantage of that,” he explained.
Darbyshire pointed out that Leeds brokers faced a difficult time because the region is so heavily brokered, adding that a potential client recently told him that he was the 64th broker to approach him this year.
“And you need to find something to differentiate yourself from the other 63, if that’s possible, with some kind of unique selling point, some additional offering, he said. “Rather than just saying: ‘We’ll do your insurance cheaper’, you have to say: ‘We can do it cheaper but we can do it better and we can be more proactive in certain areas for you’. You’ve got to find some way of differentiating yourself from the competition.”
But Romero Insurance Broker’s managing director, Simon Mabb, said that for many small businesses, price remained the most important factor in their business transactions. “You’d be naïve if you went in and said: ‘I’m double the price of your current insurer but we do this, that and the other, and I expect you to deal with me.’
“I don’t necessarily think you’ve got to be the cheapest, but you’ve certainly got to be in the ballpark and you’ve got to be able to sit down and have that initial conversation on price and anything else you’ve got to really add value,” he said.
Darbyshire pointed out that very often good broking could be a thankless trade. “You could do the best job in the world for the guy and the very best he’s going to be is merely satisfied. It’s very rare that you get a guy gushing at how well you’ve dealt with his claim,” he said.
Mabb felt this was an area that required greater scrutiny. “Generally, as an industry, we don’t know what our time’s worth and we’ve got to have systems in place to make sure that you’re not underselling your services.” Rowe pointed out that some business was simply not worth the extra effort. “You’ve also got to be prepared to walk away and not chase business down blind alleys because that does nobody any good,” he warned.
Grimshaw believed there should be a greater effort placed on educating clients about the benefits of broking services. “One of the set out roles in the FSA sourcebook about the role of an insurance broker is educating them about the insurance market,” he said. Bartlett & Company’s director, Lynda Michel, pointed out that brokers needed to be careful to avoid dumbing down insurance.
AXA’s head of partners and e-partners, Andy Halstead, asked how big a threat the growing commoditisation of commercial line posed to brokers? Henderson Insurance Brokers’ group broking director, Gordon Brain, pointed out that lessons could be learnt from the growth of the direct market in personal lines. “The brokers need to recover from what happened in the late ’80s and early ’90s from personal lines insurance in the direct distribution channel. We’ve all been through it,” he explained.
“We all knew that people went and bought these policies without the back-up of a broker. They all went and placed their business direct and then some of them came back because they had problems and we can take advantage of that set of circumstances if we demonstrate that we can add value to customers now before it gets to the point where commercial lines in particular are readily available online and through aggregators.”
Qualifications are a no-brainer
The conversation then turned to the importance of professional standards. Brain pointed out that only a small proportion of UK brokers had achieved chartered status. Ellen Bennett asked if this was the monitor of professionalism within the sector. Shaw believed that it was a winner with clients. It just gives a little bit of kudos, he explained.
However, many of the delegates pointed out that studying costs time and money, which could have a knock-on effect on business. Grimshaw added that it was unfair to expect a business to fund exams and allow study leave. “When you’re actually committing that kind of resource to a member of staff, it’s got to go both ways, so you say: ‘Go on, you can have some study leave or you can have us pay for the exams. Which one do you want?’”
Darbyshire pointed out that although he did not allow staff to take off full days for studying, he allowed time off for specific sessions. “I think that to have an environment that encourages staff to take professional qualifications is an absolute no-brainer in this day and age,” he said.
Shaw said that encouraging staff to take professional qualification would push down business costs by increasing the firm’s technical ability and ensuring a lower staff turnover.
However, Michel pointed out that she was disappointed after reviewing some industry exam courses, believing they were of little relevance to the modern world of broking. “I felt so sorry for the staff studying this really, really out-of-date, nothing to do with modern times, text book,” she said.
Many of the delegates felt the exams should be more relevant to a broker’s working life and all agreed that more needs to be done to promote career opportunities within the sector to school leavers and graduates.
Darbyshire felt that many school leavers with potential had been hoodwinked into thinking they had to attend university to achieve a successful career and often nurtured unrealistic hopes about their immediate prospects.
“Our schooling system is encouraging kids to go to university and they go to second-class universities, getting third-class degrees, and expecting to earn £20,000 a year when they leave.”
The delegates then moved on to focus on the future of the consolidator model. “I think we’d like to think we’re a little bit different consolidator-wise, argued Rowe. “The TRS business that I work for, we are a traditional broker house and we go through the pain and the gain. There are different economies of scale that we can adapt to and apply … But I’m confident as the managing director of two of the businesses there that it is going in the right direction and will continue to do so.”
Darbyshire said that every model in the sector was under pressure. “Every single type of brokerage has got an issue at the moment. And I think that the only thing that’s sure is that strong businesses will come through and it doesn’t matter what size they are. If you’ve got strong management, if you’re well run with clear strategies, I think those businesses will survive and I think there’ll be a cross-section of small, medium and large brokers that survive,” he said.
But Brain argued the future prospects for the consolidators remained hazy. “With all due respect to the consolidators round the table, there are some question marks in a lot of people’s minds about where that model’s going and whether individuals or teams of individuals will fall out of there.”
The final topic of debate took on the thorny subject of rates. Many delegates felt that although insurers were making noise about rate increases, they saw very little evidence of this in the marketplace. “All the insurers turn round and sit there and say: ‘We need to move accounts forward,’ and there’s so many bold statements that mean nothing. And then when it actually comes down to it, to lose a piece of good business they won’t do it,” Grimshaw said.
Elsewhere, Brain argued that pushing for rate increases came into conflict with the broker’s main objective of pleasing the client. “So the broker’s job essentially is to drive down the rate. And I find it fairly interesting when you’re sitting round saying as brokers we need to get rate increases. But that’s a fundamental conflict with what our job is.”
Rowe said that ultimately brokers needed to grapple with the dominant emerging trend of recent years. “There is no element of comfort. Everyone, whether it’s Henderson or whether
it’s Towergate will always try to do a deal for somebody; because we have to, because we have to drive it forward. Nobody’s got that comfort factor of longevity of that client.” IT