With brokers getting increasingly sniffy about smaller SME customers, direct insurers could cash in, says Grant Ellis
Can we really be bothered with all these pesky customers?
Royal & SunAlliance said last week that it plans to start using its "More Th>n" brand to sell commercial insurance direct to businesses with turnovers of less than £1m.
That's most businesses in the UK then. There are around 3.6 million SME businesses (defined as having fewer than 250 employees) in the UK, of which only 175,000 have more than ten employees. If we assume (and I would suggest that it is reasonable to do so) that most of the remaining 3.4 million will have a turnover of less than £1m, then that leaves More Th>n with quite a big target market.
Of course, accepted wisdom has for some time suggested that insurance for micro businesses was not worth a broker getting out of bed for, as he was much better off aiming his sights at customers who were bigger, and by default could and did pay more.
So, if brokers are increasingly ambivalent about retaining this size of account, it seems only fair and reasonable that others, such as direct insurers, banks, trade associations and the like, pick up the baton.
But when you do the sums it becomes quite frightening. Let's say, for example, that there are two thousand predominantly commercial brokers left trading in 2008, after the rest have been sold, merged or retired. If they are all targeting the "over ten employee" commercial client, they would have on average just 87 customers each - hardly a viable market segment for most I would suggest.
And what of the remaining 3.4 million SME customers? Are they simply left to their own devices, to try to find alternative suppliers for their insurances? Surely this plays into the hands of the directs?
There will of course be those brokers who offer an "over the phone" solution to these customers instead of the traditional "face to face" service. Major players in this area will surely be the consolidators who are currently buying up local brokers, and shipping their businesses into regional centres for servicing. Telephone facilitating is an obvious route for them retaining this particular market segment.
But do we honestly believe that this is what our small SME customers actually want? Are they going to be happy with a call centre, rather than a face-to-face service?
I believe that, given the choice, the vast majority of SME businesses would much prefer to have a local broker look after their insurance needs.
I'm convinced that they want a relationship with an individual or a firm where they are known, where each time they make contact the person they are talking to knows them, knows their business and can take instructions or give advice quickly and efficiently.
How many of us, when we are dealing with call centres in our own day-to-day lives, are weary of having to repeat basic information over and over again, and to be constantly educating the recipient of our call before we are able to get to the meat of our query?
This is in my view is the single most important factor in explaining why the local community broker has not only survived but prospered in recent years. However, old age catches up with us all, and is now fuelling the market's consolidation. But I wonder if those of us who are left are, at the same time, getting just a little bit pompous about the minimum size of client we are prepared to take on?
What happens when there is no local broker prepared to take on the smaller SME customer? Where will he go? Well, I'm sure More Th>n will be only too happy to take them off our hands.
But if some brokers set out their stall to specifically service this group; to remain local and visible in the community, and are prepared to continue with a relationship-based approach for servicing, how successful might they be? After all, that is what customers say they want from us.