Small brokers feeling the love from insurers

It’s Valentine’s day and there’s love in the air in the insurance industry. But it’s not your traditional boy-girl story. Instead, it’s large insurers making a play for the books of small brokers.

Zurich, in particular, is making a big effort to expand in small to medium-sized enterprises (SME). It’s flirting with brokers and offering plenty of face-to-face meetings, something brokers have missed.

Then there’s AXA, which, having targeted small brokers through its revamped commercial lines offering, will make a big push into broker personal lines in the spring.

Even managing general agencies (MGAs) are getting in on the act. Former Ink Underwriting managing director Mike Smith last month launched a new MGA, Incorporated Insurance Group (IIG), to target independent community brokers.

So, why are insurers falling in love with small brokers?

First, it’s important to point out that insurers have been quite fickle with brokers in recent years.

The economic downturn and improvements in technology led some insurers to believe they could save themselves money by closing regional offices.
Meanwhile, poor loss ratios in private motor and the deteriorating state of commercial led to insurers pulling lines. NIG angered brokers by pulling out of personal lines in July 2010, and only last November Ecclesiastical withdrew from motor.

The appeal of small brokers
Small brokers still have some of the best loss ratios out there, however, as well as good retention rates. Typically, a small broker has gross written premium (GWP) of £500,000 to £3m. These qualities have certainly caught the attention of Zurich, which is targeting small brokers to help grow its ‘underweight’ SME book.

Zurich also wants to add more broker business in personal lines, after previously shrinking the book to correct its profitability. Last year, the insurer added 15 new account executives to focus purely on servicing small brokers. About 15% of Zurich’s total GWP is small broker business, but it wants to grow its market share, according to Zurich UK commercial broker managing director David Smith.

Small brokers are very profitable … there’s thousands of them and we see them as being important to our strategy

Amanda Blanc, AXA

“It is an important stream for us and we would like to grow it at a faster rate than the rest of the book because it is profitable to us,” he says. “We do believe that [small brokers] don’t get sufficient love from insurers, and we’ll try to show it from the point of view of having a sales executive regularly visit them, but also providing underwriting support in the way they want it.”

Then there’s the whole consolidator issue. Small brokers charge nowhere near the same commission levels as the consolidators, making them an attractive choice.

Ashbourne Insurance managing director Peter Smits agrees that larger insurers, which had their heads turned by consolidators in recent years, are now turning their attention back to small brokers.

He says: “We had little or no contact with Zurich up until three months ago for many years, but they are now coming out and sitting down with us and asking what they can do to improve the relationship and business.”

Insurers’ strategies
It’s not just Zurich looking to small brokers, however, with other insurers also putting major efforts into servicing the sector.

AXA has been on the offensive with small brokers: in the past 18 months it has opened new offices in Newcastle, Maidstone and Bristol, and also relaunched its Bolton branch as a trading centre a year ago.

AXA commercial and personal lines intermediary chief executive Amanda Blanc says: “[Small brokers] are very profitable, they are the lifeblood, there’s thousands of them and we see them as being important to our strategy.”

Then there’s e-trading. Aviva has so far launched 13 products on its Fast Trade platform and recently launched an iPad app version aimed at small brokers. This is in addition to Aviva’s support club for small brokers, Broker Independence Group, which launched in 2009.

Small brokers have also caught the eye of MGAs. IIG’s Smith says that by targeting small brokers he is more likely to return a profit to insurers.

“You tend to find they know the clients personally, they play golf with them, they’ve been to school with them … so there’s a relationship, and they often have held the risk for a number of years,” he says.

Community-based brokers’ retention rates are about 90%, says Smith, whereas a lot of a consolidators’ can be as low as 65%.

Ashbourne’s Smits agrees that small brokers are offering value to insurers, but insists there must be something in return.

“While we are not going to make you rich, we deliver very good loss ratios,” he says.

But not all brokers think that insurers are doing enough for small brokers (see panel, far left). Ataraxia chief executive Stuart Randall says insurers don’t have the structures in place to rebuild relationships.

“They simply don’t have the people on the ground to have that relationship with the brokers, which is what the brokers really want and need,” he says. “They can’t do what they did previously and they have to decide whether it’s economically viable for them to rebuild that relationship.”

For now, it seems the flirting will continue, but there’s no guarantee that there will be a romantic ending for small brokers.