Maintaining independence

Over the past few years there has been a major shift in the composition of the UK broker market. The once dominant 'nationals' are on the back foot following the mass consolidation of the 1990s and the more recent Eliott Spitzer investigation but their position, to a degree, has been taken over by the 'consolidators'.

The more immediate threat in the regional heartlands and the high cost of regulation has intensified the pressure on independent brokers.

While many have been predicting that many independent brokers will lose out in this environment, the reality is that they can prosper, says Les Jackson, chief executive of independent broker alliance group Unitas, providing they make the right strategic decisions about the future.

The key question for most firms is whether independent brokers have the will to remain independent. Jackson says they can, but only if they maintain focus.

"If they are committed to independence they can look to the future with confidence provided they play to their strengths, have a clear vision of the business going forward and are prepared to invest in the future and utilise all the support that is available to them," he says.

They must also look at the competition. For independent brokers this is likely to come from the consolidators. "They need to understand what it is that differentiates them so they know what they are up against," adds Jackson.

While consolidators have size and market clout, there are, says Jackson, characteristics in their make-up that are potential weaknesses and could prevent them from delivering optimum performance.

"The entrepreneurial spirit that drives successful independent brokers is often suppressed in favour of a 'big organisation mediocrity'. Their values favour shareholders over clients and they look to commoditise services thereby reducing customer choice," says Jackson.

Added to this list, Jackson also says consolidators offer fewer distribution options for the insurers and add cost to distribution rather than reduce it by placing unsustainable demands on insurers.

And for insurers, long-term partnerships are an issue, as ultimately the consolidators will look to realise their investment. "Some will make an early exit - leaving a new team to pick up the pieces," says Jackson.

Personal service
By contrast, the qualities that independent brokers deliver are well established and have a proven track record. Jackson says: "They operate close to the community they serve and are therefore strong on personal service - with the principals of the firm involved in managing client relationships.

"They have continuity of management. Many are family owned and run and have an entrepreneurial spirit - as business decisions are made locally and speedily.

"They have a good mix of business offering insurers a better chance of profit. They have clients who value a local relationship and enjoy stability. They enjoy first class reputations locally and therefore attract quality staff and well managed businesses as clients.

"And they look to develop good relationships with the local offices of insurers and recognise and respect each others position."

But the difficulty independent brokers can have is in matching the services that the bigger organisations can offer, mainly because they are isolated and are not tapped into the market grapevine.

Jackson accepts a number of other areas independent brokers face difficulties. "They can become overburdened by change, for example the FSA, and are 'thin' in senior personnel and generally have inadequate

IT systems. And they have no access to overseas service capability and are not prolific new business producers - geared more to 'servicing'. And don't project an effective PR/marketing message."

So how can independents bridge the gap? "It will take a sizeable investment to create the infrastructure needed to enable independent brokers to compete," says Jackson.

So Jackson provides a list of factors independent brokers must focus on. "They will need to bankroll the cost of recruiting and retaining the best staff, establish a first class training regime, buy the latest technology, employ the most sophisticated sales and marketing techniques and create a highly professional 'winning' culture."

But even then they will not have the size or critical mass needed to compete on equal terms, so acquiring other brokers may be the only option.

Sharing costs
"The alternative is to join up with other firms to form an alliance so that some, if not all of these costs can be shared. Or join an existing alliance such as Unitas where much of the infrastructure is provided. Leaving the members to concentrate on trading," says Jackson.

Unitas was formed in 1997 to create a national alliance of regionally based independent brokers and today has 12 members covering the UK and Ireland from 29 locations.

"Unitas provides brokers with a support infrastructure. It takes the strengths of the individual firms and adds that something extra. Synergising the group and helping successful companies perform even better," says Jackson.

"We look for qualitative elements that improve overall performance, nurtures professionalism, develops key people, eases the administrative burden, helps them provide better services to clients, and adds value to the bottom line."

Unitas controls over £350m premium in the UK and Irish markets. "We want to raise the bar for independent brokers by creating an elite UK-based group capable of outperforming the rest of the market."

And Jackson argues that a strong independent broker sector is important to the industry.

"The sector controls over 90% of UK businesses and delivers consistently profitable business to insurers. Organisations like Unitas are intent on making sure it remains strong - underpinning the British insurance market." IT