Steve Wellard outlines the findings of a major research project into broker and insurer relations.

The insurance industry is set to undergo a fundamental overhaul, with regulation being only part of the driving force behind this new future. The balance of the impetus for change will be provided by competition, both from existing players and new entrants to the market. The developing needs and buying patterns of clients will also have a significant impact.

As change arrives, brokers will experience greater pressure to become yet more professional, shifting the emphasis from merely selling a product to being genuine advisers who provide a complete business continuity and risk management service.

Insurers must embrace efficiency, helping to tackle the issues of service and administration, which are proving a stumbling block for change.

These are the essential conclusions of a major piece of research undertaken by the CII's Faculty of Insurance Broking, in conjunction with Oracle. Broker and Insurer Relations in a Regulated World takes stock of the current state of play and looks at the trends shaping the industry's future.

Insurance brokers have never stopped evolving. They are subject to constant and constantly-changing pressures. They have no choice but to adapt if they wish to survive.

However, the current magnitude of change is unprecedented in recent memory. FSA regulation, socio-economic developments, increasing competition, product commoditisation, emerging sources of risk, the rise of the consumer lobby - all these factors are combining to make broking more complex and demanding.

It is no longer sufficient for brokers to merely react to change and adapt in response to the pressures they face. Rather, they must be more aggressive in terms of determining their own development paths. They must decide what they want to do, how they want to do it, and what is required to bring this about.

Such a transformation is necessary because the amount and value of business sold to small and medium-sized commercial clients is being eroded by direct writers, banks and larger broking groups. This is due to in part to the commoditisation of commercial products, along similar lines to the transformation in personal lines policies in the 1990s.

Both brokers and insurers also need to innovate and be fleet of foot - outdated legacy technology cannot be allowed to stand in the way. From a technology and business solutions perspective, there remains much to do.

The CII's research highlights widespread ignorance about the potential for technology to deliver substantial benefits to the broking sector. The industry, it appears, still views technology with suspicion and is reluctant to invest in it.

Brokers are unsure about the benefits improved systems and solutions are able to deliver. In particular, the idea of working together to create shared platforms is met with resistance, as businesses fear a loss of competitive advantage. That said, there is substantial enthusiasm for the Imarket initiative, despite its slow evolution.

Softening rates
The relationship between brokers and insurers is clearly of pivotal importance to the development of the broker market. At the moment, the relationship is not healthy. Brokers and insurers blame each other for leading the market down as rates soften.

Brokers and insurers alike say breaking the underwriting cycle is the one challenge they would throw down to the other. The time spent in service and administration is proving frustrating for brokers, who are consequently not able to focus on managing client relations.

Professionalism is the key to improving relationships between brokers and insurers. Across the market, firms are planning to employ more technically-qualified staff. Brokers are looking for advisers who are able to add value to their customer transactions to protect their businesses from the threat of direct competition.

Insurers, meanwhile, are increasing the number of technical posts in their "front office" operations and looking for efficiencies in administration and the back office. They are increasingly keen to deal direct only with larger, more professional and dynamic brokers, leaving smaller intermediaries to be handled by call centre servicing.

Administration remains a problem for brokers, absorbing too much in time and resources, especially as it does not represent any added value to the client. Improving the efficiency of business processes is essential. Technology can help reduce duplication and cut out manual processing and re-keying of information.

FSA regulation
Regulation remains a dominant issue. Despite gloomy predictions, most brokers seem to have taken FSA regulation in their stride, although issues such as treating customers fairly, conflicts of interest, transparency and contract certainty have given the market much pause for thought in recent months.

Despite achieving compliance, both brokers and insurers agree that the main impact of FSA regulation on customers has been an increase in paperwork.

Remuneration will become an increasing focus of debate. Most brokers are likely to opt for transparency.

The CII's research reveals that the majority of brokers disclose fees and commissions to clients upon request, with a surprisingly large number already practising full disclosure.

It is also clear that if the insurance market is to influence its own evolution by embracing professionalism, it will require a comprehensive toolset. This will include education, training and qualifications.

The insurance market also needs to undertake a major revamp of its public image by demonstrating integrity and trust.

In conclusion, we are living in an environment of constant change. Those that evolve to meet the new challenges will prosper; those that don't will wither and die. IT

' Steve Wellard is director of communications at the CII.