The Groupama-sponsored Insurance Times young professionals advisory board discusses the impact on the UK industry from the Spitzer affair, succession plans and the broker's role in the wake of technological advances
The panel:Chair: Elliot Lane, Insurance TimesClair Hayward, Mansion House ExecutiveAlison Douglas, CoxSimon Lockwood, Norwich UnionKerry Costello, GroupamaJulian Edwards, MCEDavid Curry, MillerAllan Clare, NFU MutualChair: As this is the last board of the year, I have decided to discuss three topics chosen by the group. Firstly, the impact of the Spitzer inquiry - will a more transparent industry mean a more creative industry? Secondly, succession planning - is the industry doing enough to ensure we have skilled management for the future? Lastly, as technology advances, will the broker continue to have a valid role?I will kick off with Spitzer. Does the insurance and broking community need that scrutiny, and is it now bordering on a witch hunt?David Curry: It has come at a very bad time for the UK insurance industry, with FSA regulation starting on the 14 January 2005. Spitzer's been making some controversial comments and it's unfortunately bad publicity for insurance. I'm worried that this has all bubbled over in the US and the UK industry is jumping on the bandwagon. Are we ready to follow suit just because Eliot Spitzer wakes up one day and decides to have a go at Marsh, Aon, eBay, and whoever else? I don't necessarily think profit-share agreements are a bad thing. Just because one broker's fallen foul of it does not mean that the entire insurance industry is guilty and therefore all profit-share agreements should be cancelled. I would like to see more of a response from the FSA, because that's after all who we are going to be regulated by. As far as transparency goes, I'm quite a fan of transparency. At Miller we go on a fee approach as much as possible, and the client is well aware of what we are earning. Clair Hayward: The perception is that the insurance industry thinks it's horrendous that this is happening. I'm not sure what the public think about it, whether they're paying attention to it at all.Curry: Spitzer will have far-reaching repercussions. The whole world's looking at this, but that doesn't mean the UK insurance industry has to follow.Kerry Costello: One view is that the Treasury doesn't want the FSA to probe too much because of the impact it will have on the City. If we go down Spitzer's route, foreign companies within the UK market might start to move out.It's bound to be on the FSA agenda and it's going to be investigated. Even if there has to be transparency, people will find new ways of doing business. I agree with David's point about it being the broker's role to make sure they're doing the best deal - everything's done in the interests of the customer. Chair: Has anyone seen evidence of bid-rigging or phantom auctions? It all seems to come out of a John Grisham novel.Hayward: I'm surprised it's never been levelled before. If you're paying clients extra money to put business with you, someone will say: "We'll put it here because we'll get an extra". It's human nature.Allan Clare: I agree, it comes to integrity and transparency. You're selling a commodity, and are you being open and up front with what you're getting in return for it? If you are, fair enough. People go to brokers for expertise and there are a lot of things brokers do that they don't get paid for or charge for. We've got to a witch hunt situation, but where there's wrongdoing we should stamp it out. However, I don't think the UK insurance industry will be sucked into this affair. There'll be ripples here from the Spitzer affair, but there are plenty of things going on in the US that we get ripples from. But we have a different culture. There should be no knee-jerk reactions to this. Spitzer's on a mission. Where there's wrongdoing there should be fall-out, but fortunately we have a regulator starting with general insurance next year, so hopefully it will have a more shrewd head.Chair: What is a fair inducement? The FSA wording is very broad at the moment.Julian Edwards: Profit shares, commission overriders, marketing support - they're excellent examples of broker and insurer working together for a common goal, targeted with performance and based on your loss ratio, they're incredibly important.Chair: Do you think there should be a cap on the percentage of commission? Edwards: It's important for it to be profit-related. It's important to remember the different classes of business. A commercial broker is likely to have a huge level of expertise and will know about commission and fee earnings. For personal lines, advisers don't know what the commission earnings are from a particular case. The company has negotiated its terms, its overriders, its marketing contributions, and the adviser simply sees a product. The client's getting the best advice to suit the client, not based on the commission.Simon Lockwood: In all the mêlée, people have forgotten the main thrust of the Spitzer inquiry - that clients' interests were not fully considered. If the clients' best interests are looked after why do we need a full surgery in the UK? We ought to be clear that brokers are here to serve the customer, and in the UK market they've done it well.Alison Douglas: Issues of profit share and overriders are not new to the market. Had the FSA felt particularly strongly about it before all this blew up, it could have put it into its rules, particularly governing commercial insurance. But it has chosen to go with this overarching fair and transparent view and that there will be some debate about what fair and transparent means. But I don't think it has reached customers. I don't think customers are that interested. Chair: Transparency must be a good thing, do we agree?Edwards: To a certain degree. We publish our charges of add-on policies as a breakdown of what the client pays. We don't publish our commissions, overriders or inducements.Chair: Do you think the banks are being transparent enough with their insurance products?Douglas: What we're seeing now in terms of trying to implement the FSA rules, is that what's deemed as transparent to the customer - policies and summaries - means burying the customer in paper.The first complaint I receive on 14 January will be: "Why have you given me all this paper? Take it away." Clare: When I buy a motor policy I'm looking for the cheapest policy. There may be a commission, but that's a fact of life. I'm happy to have a good deal that's better than the others.Curry: Commercial and personal lines are completely different. In commercial, you have the big multinational companies where it's more likely that fees are going to be charged. We sit down with them, which is when we have a set and agreed fee. We've approached customers and said: "We need a bigger fee and there's the evidence, because we've costed this out," and they've been happy.Chair: Second question: succession planning. Is the industry doing enough to ensure we have skilled management for the future? This board was established because firms in the industry felt that they couldn't find young people to be excited about insurance. Is enough being done at the moment to attract young people to the business?Hayward: More is being done now than has ever been done. As an industry we are trying to train up people and to create clear succession plans for them. We are trying to make it clear to them that not everything you do in insurance is dull. But this is a new initiative so we have a gap in recruitment. We have an older, greyer industry because there has been this gap where we've not trained people and encouraged people to come into the industry. There is a lack of people aged between 25 and 35. Edwards: Financial institutions are never going to have a sexy image or the major budgets to advertise. Look what Barclays did with Samuel L Jackson and the huge sums it pays him. It is still not creating a love affair. That's what's going to stand in the way for people leaving school and jumping up and down saying "I want to go and work in insurance." What are we doing to attract people into the industry? I agree we're doing more than we've ever done before. The FSA has played a huge part in the momentum of this, not just focusing on the people who are advising clients on the policy, but the actual management of the team, making sure the responsibilities are there, making sure that succession plans are in place. CPD folders are very important for people of all different levels, to get people to think about what they're doing and what their role is. Chair: What's Norwich Union doing as a company? Does it have training schemes in house or is it being outsourced?Lockwood: It's one of the benefits of being a large company that we have great opportunities for scope to train our leaders of the future. Every large company is seeking to reduce its cost base and you don't want to lose talent as part of that programme, so you have to be very selective. I certainly think, as an industry, large companies could be far more aggressive at the milk round stage. Accountancy firms are offering training courses all the way through the final year, not just in March. We could be far more aggressive.Douglas: It's exceptionally sad that so many small high street brokers are reaching retirement, having spent a lifetime looking after their customers, but not having the succession planning in place. They are effectively one-man bands with a couple of administrators in many cases. When you have a network of branches what you can do then is offer people some opportunity of career development to become a branch manager, with perhaps an area manager looking after you for a while and to progress in that manner. Chair: Is there a dearth of technical staff? Is it the technical training that's needed?Clare: Yes, specifically in claims. There is a lack of experienced claims professionals in the industry, and insurers, brokers, we all need to be aware of that and be doing something to replace that gap.Costello: The CII is doing a lot more in terms of the CPD points and putting in the Claims Academy. I see there being a problem on two levels. There's the lack of technical skills, and then there's a bigger issue about the leaders of businesses. In terms of bringing people through the technical side, there's definitely a lot more happening. We have a couple of internal development schemes for personal injury and they go through additional training. But I worry that training is focused on the technical skills and not so much on management, on running the business and financial awareness.Curry: Our industry is getting a lot better at keeping staff and moving them up. Getting them in the front door seems to be the problem. More brokers than ever have career path plans in place and people are moving up the chain. What we have to be careful of is that when we're moving staff up they're not promised the earth, they're not fast-tracked too much. I've seen people go into these programmes thinking they're going to be managing director in three years. Then they get upset and frustrated when it doesn't happen. Hayward: As an industry, we don't sell ourselves. We don't stand up and shout: "Look at how fantastic we are." If you've ever been to a milk round, you know that the insurance companies don't jump out at you, whereas other companies do.If you look at accountancy, they're very active on the milk round, but they take on hundreds of graduates compared to any other industry, but equally they lose hundreds of graduates. They expect as standard that they're going to lose over a third of them in the first year.Chair: Why do you think the retention's there? Is it because the job is more interesting?Curry: There are more opportunities. When I started in insurance I wasn't aware of the career path existing at all. People are being asked "What do you want to do?" Once it was: "You go in the filing hall and we'll see you in four years. If you do that well enough then you'll be out on the road". It's being spoken to regularly that's generating the interest.Chair: Lastly, the role of the broker and whether or not technology is going to push them out of business. Are systems replacing certain skill sets? Edwards: Brokers will continue to be a vibrant market, providing the insurers wish to keep us as a distribution channel. And the clients continue purchasing insurance from the broker market. Those two things are fundamental to the broker's survival. The only brokers that will continue to have a valid role are those that invest in technology. A small example of this is the motor insurers' database and the pressure that brokers are put under to relay the information to the insurance companies. Unless brokers are willing to invest in technology they are endangered. The brokers that are investing in technology are adding a value to the insurance company, providing there's a smooth business process there. Chair: Imarket is a key element. What are your thoughts about it at this time?Edwards: It's fantastic. In terms of technology it's light years behind the personal lines market. Imarket's the first real platform that's going to allow commercial brokers to move forward, and it may even attract personal lines brokers to re-enter the commercial market.Hayward: The interesting thing with imarket is what the real success is. There's an element to imarket that it is a technology commercial front. A lot of insurers are taking the information from it and doing the quote. Edwards: When you were an underwriter, would you have rather spoken to a screen or spoken to a broker?Hayward : It depends on the size of the commercial risk. Imarket works very well for small commercial risks, but for large complex risks you have to ask whether it's going to work. There has to be a conversation between the underwriter and the broker, there is no escaping that. The information will never be put across otherwise. That doesn't mean you can't use the technology platform to front it, but there still has to be that element of conversation behind it for larger risks. Chair: Simon, do you think the broker knows best? Is that why you use brokers?Lockwood: Brokers are as much a driver of technology as we are. It's a strange subject in that sense, because brokers are part of this technology development, it isn't just insurers imposing their big IT frameworks. In terms of broker knows best, they're the ones who speak to the client and why would we predispose that we know from sitting back at our underwriting centres that we know better than those who are speaking to the client? Technology's a facilitator and always will be. You either deliver good technology or somebody else will and you're out of the game. Edwards: The software houses can play a huge and important role. Look at the investment Misys makes in its research and development. It has confidence that the broker channel is going to remain alive. As long as there are software houses like that developing solutions, and insurers and brokers are working together, there is a valid role.Hayward : There is technology that facilitates communication - the interaction between the insurer and the broker. For a long time we've been doing development work, for the various aspects of our broking network, trying to automate the process and take costs out. It helps it compete with the other channels on a level playing field. Where there could be a perceived threat is where technology is being used for the end customer to purchase in a different way. Part of my role is monitoring patterns of purchasing behaviour within the market. What we're seeing is customers swapping from phone to internet, not swapping from broker market to internet. Chair: On the subject of fraud - the technology's there, but shouldn't the brokers have an element of skill in that as well?Clare: In respect of anti fraud, every player has a responsibility. The IT developments will help and assist at front end, be it within a broker or within an insurance company. But it is that personal interaction and expertise that people will need. You can always buy something over the internet or over the phone, but there will always be a necessity to sit down and speak to somebody who knows what they're talking about.Hayward : This raises the issue about whether there is a divide between brokers that are investing and brokers that are not investing. It used to be the case that the ones that we were taking on, we were taking on because the technology had pushed them out of the market. They'd come to us with boxes and boxes of paper files. This is rarely the case now, and when they come to us, they come to us with disks saying: "Here's my client file, sort it out for me." I can only think of a couple out of the dozens and dozens we've done this year that are coming to us with paper still. they've been driven out of the market already.Costello: Our sales teams have tried to switch on as many brokers as possible to using imarket. There are those that are very enthusiastic about it, but there is still a group who maybe they have the log-ins but they haven't quite made it yet. It's a job for the insurers involved to sell the benefits of technology, to encourage more usage, and to sell the message that it will make the relationships more efficient. I agree with Alison's point about people switching from direct to internet, rather than from broker to internet. There's always going to be a chunk of customers, both personal lines and commercial lines, who want that personal contact. It could be face to face, it could be over the phone; but to a broker. In personal lines the question is do people understand whether they're dealing with a broker or direct with an insurer.Curry: Brokers are here to stay. There are so many variables that have to be brought into play. Something like imarket will work for certain types of commercial product of a certain size. It will never be able to work for insuring things like Centre Parcs or a petrochemical plant. That is where the broker has to be flexible, but that's where the broker will stay. Those types of clients want advice now, more pro-risk, because they have to be. Those sorts of companies have risk managers. Coming at this from a slightly different angle, technology is an opportunity for brokers if they're willing to accept it. As technology advances, technology is going to bring new risks. You have a lot more companies e-selling, so cyber liability insurance will grow in demand. We are heavily into IT, and a lot of IT companies at the moment don't purchase professional indemnity correctly. All of their income comes from the net and they have cyber liability exclusions on their professional indemnity cover. If the broker's going to be flexible about the size of client and how pro-risk management they are, the broker will have its place. Amazon sells loads of books, but people still want to go into Waterstone's. We'll survive.