So what can be attracting the major brokers to the £1440bn SME sector? Well, apart from accounting for just over half of the UK’s turnover, small and medium-sized enterprises also make up a startling 99.9% of private companies, according to the Department for Business, Enterprise and Regulatory Reform, writes Katie Puckett.
It is an admittedly capacious category covering everything from one-man-and-a van start-ups to companies with several regional offices and up to 250 staff. And in a shrinking market, when everyone is diversifying and searching out new business, this enormous uncharted territory looks like rich fishing grounds to the big players.
Earlier this year Marsh told Insurance Times of its latest attempt to get a greater market share with Marsh ProBroker, a network aimed at mid-sized brokers. It is not exactly an original idea – Willis has had a similar proposition called Willis Commercial Network for 10 years, and launched N2, aimed at high-street firms in March last year.
Aon, meanwhile, has chosen to rely on its own brand and affinity relationships with trade bodies, launching a “healthcheck” insurance advice service for larger SME companies last autumn.
The SME market may represent a massive opportunity to the big three, but it’s hardly under-served. It’s generally a stable and profitable market for insurers – high volume, small risks, extremely well spread and mostly domestic. Most firms in this segment would rely heavily on a local or regional broker for risk management advice; at the very smallest end the one-person micro-companies below £2m turnover mirror the time-poor habits of personal lines buyers.
Marsh and Willis have recognised that their own brands and infrastructure won’t give them much traction, so they’re trying to sign up networks of local brokers to offer “the best of both worlds” – big company prices and services with the same high-touch personal approach.
But is there really room for yet another network, when the backlash from insurers is already well underway? And how will those independent brokers feel about pledging allegiance to an organisation they might see as a competitor?
There is little detail available on what exactly Marsh ProBroker will offer. Julie Page, head of Marsh’s UK commercial practice, says that it is aimed primarily at brokers with between £3m and £10m annual gross written premiums, and that there is a “fairly aggressive” growth plan. “We don’t intend to be a bottom league player. We ‘ ‘ intend to become one of the top players as quickly as we can, within two to three years.”
Page’s ambition echoes that of Mark Radburn, Willis Networks managing director, when his company launched N2. Whereas Willis Commercial Network is aimed at brokers who control between £3 to £25m GWP, with most of their business in commercial lines, N2’s members are much smaller, up to £3m GWP with a greater proportion of personal lines business.
When N2 launched he said that he expected to have 30 members by the end of the year, controlling £20m in premiums. “We would then hope to recruit 50 to 60 members each year after that, controlling £250m premium in three to four years,” he added.
But 14 months on, Willis N2 still has only 18 members. Just as the major brokers lack the infrastructure to offer a personal touch to very small clients in a fragmented market, so they also struggle to get to grips with the small brokers who do. “Our biggest single problem is finding good people to grow and getting out to see people,” says Radburn now. He has three people who work on recruiting members for both networks and aims to double that. “It took us 10 years to get WCN to 80-odd members, so it was always going to take a while to get N2 up and running.” Willis always makes the first move, and will meet prospective members two or three times at their offices. He estimates 85% end up joining.
Both Radburn and Page are also equally bullish on the question of market saturation.
Radburn says there are about 3,000 brokers in the UK, and and the biggest networks only have about 500 members between them. Page says Marsh’s research shows that only 50% of brokers are already members of networks. In any case, she hopes to poach members from existing networks too.
As for why smaller brokers should join the networks, Radburn says Willis can offer them exclusive specialist products, enhanced policy wordings, attractive premium finance deals, from a panel of six insurers. Commissions can be several percentage points higher – 22% compared with 20% he suggests. Brokers can also use Willis’ risk management services, claims experience and, should a client want to branch out, international offices. Across both networks, it now writes £500m in GWP.
At Marsh, Page is a lot less forthcoming – much of the detail about ProBroker is still under development. She denies the market is overcrowded. “There is an opportunity there. Our remuneration strategy is robust and built in this market. Insurers are now wondering whether or not networks are providing value. We don’t have legacy issues over commission structures that don’t match our influence over distribution.”
But according to Ian Martin, managing director at Martin Insurance Services, and responsible for small broker liaison for Biba’s south-east region, networks’ enhanced commission levels are a key part of their attraction. “If you’re getting 22% or 25% on certain classes of business, when you’d usually be getting only 20% or 17.5% it can make a big difference,” he says. In a soft market, a good broker will strive to get the best deal for their clients every year, which means that they have to find new business to maintain fee income at the same level. The networks offer an alternative. He adds that it is becoming increasingly hard to remain independent, particularly for the high street brokers below £3m – the ones Willis’ N2 is aimed at.
Martin has been a member of the Cobra network for several years – he feels it offers support with a healthy balance of autonomy – but gets regular pitches from rival networks. “The market is getting a tad crowded. I can understand why people would want to jump on the bandwagon but there is an element of saturation.”
There is also a questionmark over whether independent brokers will want to join up with the majors; many start-ups have been set up by former big three staff members after all, and they still feel a sense of competition.
The other front on Marsh’s renewed battle for SMEs is a network of sole traders who will offer broking services to the larger SME customers spending £10-12,000 a year on premiums, in direct opposition to the brokers it hopes to sign up. Two are currently trading – in Page’s preferred management-speak they have gone through the “onboarding process” – and her objective is to sign four per quarter until the end of next year for a total of 32.
Aon is definitely competing directly with smaller brokers, getting through customers’ doors with its “healthcheck service”. Gareth Butler, its director of focus units, says it has no plans to set up a network but it’s not ruled it out either. “We’ve not decided to, but we’ve not decided not to,” he says. “At the moment our focus is on the direct link with clients via the
Aon brand and our affinity partners. Within every sector, there are always groups of organisations who have really strong relationships with their members. We can design a product niche to that area.”
Aon has relationships with 10 to 12 organisations, covering 40,000 customers.
Across direct and affinity business, it has about £75m GWP.
Last October, it also acquired Supercover, a small broker specialising in the licensed trade. Butler says it’s not looking to carry on buying, but is open to offers. He also believes streamlining the buying process, particularly through the use of IT, will make it easier for brokers to serve their SME customers. “Even in a tough economic climate, the SME sector is a big arena. The challenge is how you actually play that, understand customer requirements and bring something distinct to the market.”
Insurers are also set on taking advantage of the SME market, but they think the key is to bring distribution costs down rather than offer extra services.
“We see the SME segment as a key growth area for us in the UK,” says Tim Grant, distribution leader for SME at Brit Insurance.
“We think that the key to this space is using technology to drive cost out of the process for brokers and customers, and to ensure customers receive the right level of service. The process has to be really efficient with as much cost taken out as possible.”
Brokers are a key part of that strategy – Brit has agencies with between 100-120 – but he wonders whether there are already too many networks. “We believe that networks have their place, but it’s become a very crowded market. Whether there are enough independent brokers out there to give the networks as much business as they individually need is another matter.” IT