New research shows 30% of SMEs would buy direct. Folgate's Peter Cullum argues that brokers can only win through by offering unbeatable value
As insurers develop parallel distribution strategies using both the broker and direct channels, Clause 5 of the ABI's proposed standardised terms of business agreement is to be applauded. It removes any possible ambiguity about the basis upon which broker and insurer work together to provide a service to the client, giving brokers the confidence to place business in the market.The debate about client ownership, however, somewhat misses the point. The fact is that neither broker nor insurer owns a client, who is always at liberty to place their business with whichever service provider offers the most attractive proposition. The reason that brokers have historically dominated distribution in the SME sector is that they have been able to deliver an exceptional service to SME clients.
Long-term relationshipsBrokers are well placed to continue this dominance, but in the long term competitive advantage will only be sustained if intermediaries continue to offer the client the best solution to their risk needs. It is an unfortunate fact of life in our industry that there is an assumption that cheapest price and best value for the client are the same thing: this assumption fuels fears of direct trading insurers making significant inroads into traditional broker markets. Experience with both Towergate and Folgate tells me that clients think otherwise. Price is of course an important part of the marketing mix, and to be successful any insurance service provider needs to be competitive, but price is only one element of the successful value proposition.
Brokers v direct writersExperience from over 30 broker acquisitions with Folgate over the last two years has clearly demonstrated to me that many provincial brokers offer their clients a superb proposition, which will be hard or impossible for direct writers to match.Brokers are well placed to offer much more than just cheap insurance. The client also wants to have the comfort of knowing they have the right cover in place for their business. There is an assumption that SME business is homogenous. This is not the case, and brokers are able to provide impartial professional advice to fit the right product to the client's risk profile. The flexibility and expertise to ensure the client gets the right insurance solution is an important differentiator. Access to a variety of markets allows the broker to do this in a way that direct writers simply cannot. The detailed knowledge of a client's business - typical of a quality broker - also facilitates the provision of professional advice on issues such as risk management or any additional covers that may be appropriate. Clients also recognise that as an intermediary, the broker is well placed to help in the event of a difficult claim. The need to be able to deliver a flexible solution does not mean that I advocate constant re-broking of business. Once the right product and insurer have been selected on the client's behalf, long-term partnerships with insurers are in the interests of all parties. In recognition of this, Folgate's business model builds on the traditional strengths of the regional broker, and combines these with a commitment to long-term partnerships with insurers. In this way, we aim to provide the consistent pricing and insurer relationships that clients who have suffered the excesses of the insurance cycle demand. We also recognise that delivering an exceptional service requires investment in the staff who ultimately deliver that service. It is the expertise and flexibility of brokers' staff that will provide long-term competitive advantage over the direct writer.
Building skillsI certainly welcome the new regulatory framework that will ensure that appropriate training is in place, as this will support brokers' natural advantage in this area. At Folgate, we are channelling significant investment in to both technical and communication skills training. The newly founded Folgate Academy will also ensure that we have the high calibre of management needed to drive our business into the future.I look forward with interest to seeing insurers' reactions to the final ABI guidance once it is published, as it could be argued that this will benchmark their long-term commitment to the broker channel. However, rather than rely on this contractual protection, at the Folgate Partnership we will continue to focus on delivering an unbeatable customer proposition to cement our client relationships for the long term.