Opportunities: Maximising profits in a soft market

Type the words ‘commercial property insurance’ into Google and a medium-sized Yorkshire broker will come up top of the list. Lockyer Insurance Brokers reached this enviable position thanks to a new marketing strategy, resulting in a three-fold increase in its property owners’ book over the year to date.

Principal Jon Newall admits this did not come cheap – it cost the company, whose premium is under £3m, some £6,500, but he says the return on investment has been “absolutely staggering”.

Strategies for beating the squeeze

This is just one example of how brokers can find opportunities in the current climate of adversity, which is the theme of this year’s Biba conference. Ahead of the event, we look at how brokers can maximise profits, even in a soft market. As the following pages show, with strategies to choose from which range from identifying new markets to making the most of technology to choose from, it might be easier than you think.

While some brokers have questioned Biba labelling current market conditions as “adverse”, there is no doubt the industry, with the exception of motor insurance where rates have bounced back somewhat, is still grappling with a soft market.

Profit boost within everyone’s reach

On top of this, last month several industry chief executives (including broker bosses) used their results announcements as platforms to attack brokers for trying to increase their earnings from commission. With no real sign that prices will rise any time soon, competition fierce and curve balls like the 52% hike in brokers’ levy to the Financial Services Compensation Scheme (FSCS) adding to brokers’ troubles, is it possible to grow profits in the present conditions?

Andrew Linnell, managing director of Hansen Young Consulting, which advises brokers on how to increase profit, insistthat it is: “The work we have done over the past four years shows that every broker can increase their income by at 10% without adding significantly to costs and this will lead to a rise in profit of between 40% and 60%”.

Strategy 1. Marketing overhaul

So where should brokers start? Updating your marketing strategy is essential. Identify anything you are doing that is not working. Newall says Lockyer monitors the results of all its marketing strategies. So when the firm discovered it was only get 10 calls a month from its Yell listing, which was costing £32,000 a year, it cancelled the listing.

Next, focus on customer retention. Keeping customers directly increases the bottom line, says Hansen Young’s Linnell, because it saves the investment needed to win a new customer. “To win a new customer you need opportunities to come into contact with them – whether through a cold call, a referral or someone seeing your advert on a website.”

But only 10% of opportunities are likely to result in a request for a quote. A broker is then likely to win an average of 20% of the potential clients to whom they give quotes. “So from 1,000 opportunities, you give 100 quotes,” says Linnell. “You will probably get around only 20 new customers.”

How do you retain clients? “Start by measuring how many customers you fail to keep. Make sure you record people you lose midway through a policy, as they do not only leave at the renewal date.” When customers leave, find out why and try to change the situation.

You are likely to find that a common reason customers leave, he says, is a lack of “physical and emotional” interaction with brokers at the stages of both renewal and claims. This may sound a little extreme, but he explains: “If a customer only has contact with you via paper, what sort of experience is that? And how does it compare to face-to-face, or at least phone, contact?”

Linnell advises training employees to handle renewals and claims as helpfully and pleasantly as they would when trying to win new business – “get a system in place”. He adds: “You should even think about the credit control stage – how do you want your people to behave with customers when a payment is late?”

Strategy 2. Technology

A closer look at Lockyer’s three-fold increase in business shows how combining a marketing strategy with clever use of technology is another route to higher profits. The company achieved its high profile on the web by buying the internet domain name commercialpropertyinsurance.co.uk about a year ago. It then invested in search engine optimisation, which involved creating back links from other sites to the domain to make it easier for search engines to find. This cost Lockyer £3,000, plus further £3,500 for its own website.

Newall says: “We are getting about a thousand visitors a month and we have stopped all direct marketing to property owners – they are chasing us now. I only wish I had worked this out years ago.”

If you are not able to buy a killer domain name, think about developing a very specific one – and a specific service. Manchester-based Caunce O’Hara, which offers professional indemnity insurance (PII) and specialises in contractors, among other types of worker, spotted a gap in the market for complete and swift-to-arrange cover for offshore oil and gas contractors.

Last September, the broker launched energycontractors.co.uk, which allows customers to buy PII and print out the certificate almost instantly. As Caunce O’Hara business development executive Adrian Stewart says: “In the past, contractors would have had to go to the market and wait days for paper confirmation.”

Stewart describes the investment as “significant”. “We had to do months of research and build a new website,” he says. But he says premiums from this line of business have increased, again, threefold in the past six months.

Strategy 3. Cutting regulatory costs

Regulatory costs, which eat into profit, might seem to be set in stone but there are ways of reducing the burden.

Joining a broker network can cut your compliance costs. Broker Network Momentum Solutions was launched six months ago by former Oval Insurance Broking managing director Howard Pepper. Momentum claims to be able to take the burden of FSA authorisation and associated administrative costs off your hands.

Pepper says: “Because we are authorised and regulated by the FSA, our brokers don’t have to be.” Momentum also provides cheaper PI and legal support through the network’s economy of scale. Pepper says fees for members vary, so it’s hard to say exactly how much a broker would save.

Another approach is to support a campaign to bring about change. Signing up to Insurance Times’ Fair Fees campaign would be a start.

Or there’s Biba’s campaign to reduce the regulatory load on brokers. Biba head of compliance and training Steve White says: “Compared to the rest of Europe, UK brokers’ costs are three times as high as in the second most expensive country [Ireland]. The shake-up of the FSA is also an opportunity for the way we are regulated to be reviewed. So we are lobbying the government hard and inviting brokers to support us.”

Start by backing Biba’s call for a consultation on the hike in the FSCS levy by downloading the template letter from Biba’s website and sending it to your MP.

Consider also attending Biba’s compliance forums, currently being held across the UK. These provide updates on regulation and the chance to discuss problems informally.

Strategy 4. New markets

Entering a new market may boost your bottom line, as we have seen above, but how do you spot one? Newall at Lockyer says the firm continually monitors the numbers of businesses in a range of industries. “We try to stick to recession- resistant industries and avoid those where we have seen company numbers decreasing, such as construction and tanning salons.”

Hamilton Fraser Insurance, which operates in niche areas including medical malpractice and rented properties, monitors legislation in case it should create a new need for a new service. When the Healthcare Commission was replaced with the Care Quality Commission in March 2009, a new requirement for all primary healthcare providers to be authorised led to a need for a range of checks, including health and safety surveys, fire risk assessments and emergency planning.

Compliance and technical director Ian Langley says: “We knew smaller practices did not have the resources to do all the paperwork so we have been able to develop a market in providing risk management to these clients, picking up extra revenue in the process despite the fact our commissions were being squeezed.”

As the Care Quality Commission is currently expanding the list of providers that must be authorised to include dentists and later GPs, Fraser Hamilton’s market is growing too.

With so many ways to maximise profits, even in present market conditions there is no reason why the future for all brokers should not look as bright as it does for Fraser Hamilton and Lockyer.

Research: How to make more profit from existing customers

Jelf Insurance Brokers introduced a raft of extra services after a survey of existing customers revealed gaps in the market. It began three years ago when the broker surveyed some 20,000 clients, in a research project that remains ongoing.

Chief executive Alex Alway says: “Any foundation for increasing business must be based on getting to know your clients better. So we started surveying our clients to find out what they thought of us and what else they needed, and this led to a mine of useful information.”

As a result, Jelf now offers risk management, litigation cover and claims management. It formed alliances with other firms to provide these services, but Jelf gets commission from referrals, as well as deeper relationship with its clients.

Jelf also organises advice forums and seminars: for example the Pensions Minister, Steve Webb, will shortly attend a seminar on pensions because many clients had said they wanted to discuss their corporate pensions.

Further forums on healthcare and insurance are planned.

How smaller brokers can grow profits through acquisitions

For smaller brokers, now might not seem like the ideal time to buy another firm but managing director of Hansen Young Consulting, Andrew Linnell, insists: “Since the downturn, prices make it much more feasible.There is plenty of money out there for strong companies with good business plans.”

What are the pitfalls? “Commercial due diligence is crucial. An example would be if the boss of the company is selling up because he’s retiring and it turns out that all his clients are business owners in their 60s too and therefore about to disappear as clients. Thorough commercial due diligence will pick this up.”