Merger-mania among the monster composites is causing a massive shake-out of clubs and partner brokers, with many either being ditched by the new giant insurers or turned away by the poor service levels. The result has been a glut of good-quality business for smaller insurers who might otherwise not have had a look-in. One company claiming to benefit from this shake-out is Lloyd's insurer Link.
Commercial lines manager Darrell Drake, brought in last year from the upheaval of the Norwich Union/CGU merger, says good-quality mid-sized brokers are turning to new sources of commercial underwriting because of the changes to the big players. Fundamentally, as the big guys get bigger, their size requirements for partner or club brokers grows too. The result is that many brokers who were key to one or other of the merging insurers often find themselves far less important to the new mega-company. And they don't like it. Even for the brokers that are still courted by the new giants, many purposefully look to new sources of underwriting for their accounts.
A broker that five years ago had a booming chunk of business with Commercial Union, another chunk with General Accident and a reasonable-sized pocket with Norwich Union could have found that the bulk of its commercial lines business was being placed with one insurer. Many brokers do not feel comfortable in that position and have looked to switch some of their business to independent insurers.
“With the CGU merger, the criterion changed from £250,000 to £400,000 for the Club Elite brokers. There are people who have fallen out of the bottom end,” Drake says. Other recent changes have meant brokers with accounts below certain thresholds have been told they can no longer deal with a local office but have to deal with a national call centre at the other end of the country. There have even been those brokers who simply couldn't stomach the 100-question questionnaire sent out to psychologically profile brokers to help the insurer decide who to partner.
For Link, this has been a godsend. It has enabled the company to rapidly expand its commercial lines business but has also allowed it to target only the business it wants. With so much business fallout from recent mergers, Link reckons it has been able to be selective rather than Hoover up everything that came its way.
Taking your pick
Drake has managed this by targeting only certain brokers. In his analysis there are five types of broker. Number one and number two groups are the nationals and large provincials and the bigger networks. He's not interested in those and they can look after themselves. “The large composites and large provincials and networks are probably evenly matched and making tough demands on each other,” he says. He's not interested, either, in the minnows, the group five firms with less than £1m of business. But the group four firms, with perhaps as much as £3m of business and the massive group three chunk in between them and the group two giants, are just the sort of business Link is after.
“We are laying our stall out for groups three and four,” says Drake. “We thought we could work alongside the national boys but underneath them, but we found there were a lot more coming down to us than we had expected. For some, they found they had too much dependency on one insurer and they wanted to spread their business. There was also an issue about service standards not being met and, although the big boys will say things are changing, brokers were not happy. In fact we've been overwhelmed.”
Link marketing manger Tim Cadel says being small can often be an advantage. He went out representing Link on some of the HSBC Spectrum roadshows around the country and says the grumbles from regional brokers were legion. “The major issues were the mergers that had led to a loss of contact and dual pricing,” Cadel says. Cadel says the roadshows proved invaluable. “People had heard of us but didn't know us,” he says. He made sure they knew all about Link before they left.
It's a personal thing
Drake says the quality of the brokers and the business they bring is excellent. “While the major insurers are making demands on their key or partner brokers there are plenty of people in band three who are excellent business partners to have. They are not dealing with commercial insurance as an add-on but as a core business,” he says.
And Link is offering the personalised service the brokers want too. “We offer a superior service. We can talk to these people. They have access to our underwriters, all of whom have ten years of commercial underwriting experience. Brokers like that,” Drake says. Link is also looking to reward any brokers with business that shows “better than average performance housekeeping” not through discounts but through better service. It is currently in talks with a health and safety consultant over providing a risk management service for some of its insureds – services normally reserved by national brokers for the giant firms.
At present, Link is limiting itself mainly to three policies: commercial combined, shop, and office – the three account for about 80% of its commercial lines business. “Until we are confident we're the best at these three, we're not going to move on,” Drake says. But within those restrictions Link has been able to develop a number of schemes with brokers covering specialist areas, such as sports shops and a scheme for the plastics industry. It has thrown together a special contract for the consulting industry covering professional indemnity, public liability and personal accident cover for a local specialist broker. “One of the advantages of being small is that it enables us to change direction quickly,” Drake says. He recently had a broker call because an insurer had pulled out of a hotel scheme just two days before renewal. “Within those two days I'd been able to go back, offer terms and sign the deal,” he says.
The result has been Link's commercial business growing by something like 150% a year. And much of that has come from the fallout of the merger-mania.