Denis Morgan says the broker alliance business model has benefits for everyone
Insurers often question why they should pay out higher commissions to members of networks and alliances when these groups cannot control the placing habits of their members. Surely, they say, it makes better business sense for insurers to deal directly with individual brokers?
This criticism generally stems from the insurers' drive to increase market share.
But, given the need to treat customers fairly, and the much publicised concerns regarding inducements, it would be inappropriate to impose contractual obligations on members to use a group's insurer partners.
So, I understand why insurers fear that networks and alliances might be unable to deliver the goods.
Nevertheless, while a modern day alliance has a much more consultative approach, it can be very effective. And it is geared up to delivering meaningful business volumes to its insurer partners.
Insurance companies and other suppliers are beginning to appreciate the power of the alliance - and see it as a real win-win proposition for all concerned.
The new model produces alignment of behaviour via inspiration rather than mandate. The modern alliance creates an environment where it's in the interests of members and their clients to support partnership deals.
An alliance is managed and owned by practising brokers, who share a similar culture and are dedicated to the survival of independent community brokers. Much of the decision making is carried out by its members through a number of 'smart groups' and management boards.
The idea of experienced and successful brokers running the alliance is a core component and ensures its success. It's a 'bottom-up' approach.
The consultative structure applying to group decisions tends to be a feature of alliances rather than networks.
Traditionally, broker networks have tended to agree deals with insurers and present them to members as a fait accompli. It has been a 'top-down' approach, and often very much a profit driven one. It is difficult to see how such a model can survive in a regulated environment.
In my mind, the alliance is a less cynical business model than a network - and usually a less greedy one. Networks were generally created by entrepreneurs capitalising on market rationalisation, whereas alliances evolved as a reaction to the differentiated marketplace. These days alliances are much more structured, driven, and effective.
Antipathy for the way in which insurer offerings favoured size has resulted in healthy collaboration between smaller independent brokers, with common aims and issues.
For example, I joined the Westinsure board nine months ago. In that time we have grown from just nine members to 46, and now manage premium income of almost £100m, across 60 broker offices.
Alliance members may individually be relatively small operators in the broking market, but they are close to their clients, quick on their feet and have traditionally made superior returns for insurers in parts of the UK, which insurers find attractive.
The low-cost model which we have adopted means we are financed through non-profit making subscriptions plus a small percentage of enhanced commissions.
We have refreshed our board to include non-executive directors to ensure we remain focused on member needs. We also have marketing groups populated by our members, who review partnerships - insurers and other suppliers - on a regular basis.
Decision making is kept fresh, using certain criteria for evaluating partnerships: the products themselves; pricing; the partner's operational effectiveness; the quality of the relationship; and, of course, the remuneration enjoyed by members.
Perhaps most important of all, members are encouraged to invest in the alliance and take an equity stake in it. This means they have a very real interest in making it work.
Regarding the higher commissions, it is more a question of value rather than cost. We know that any model where the cost outweighs the benefit has a short shelf life.
Insurers might grumble about the perceived lack of business flow. But if their products, prices and working methods aren't right, it doesn't make any difference whether a broker is an alliance member or not. Our approach encourages our partners to get back to basics.
And the benefit of simplified distribution, particularly for smaller insurers, cannot be underestimated. It is much more cost effective for an insurer to deal with one alliance than to send someone round to 60 individual offices.
Another area demonstrating buying focus is premium finance. For example, having agreed partnership terms at the beginning of this year, we already deliver more than £7m to our largest premium finance partner.
Some voices in the industry are suggesting that brokers are being 'forced' to join networks and alliances - and that the personal service of the community broker is under threat as a result.
The fact is that smaller independent brokers had it reasonably easy in years gone by. But we live in a different world now. A passive approach to business is no longer possible.
With segmented insurer offerings, a soft market, regulation, and pressures on commissions, community based brokers need some help to compete.
An alliance can provide this help. Members can participate in centralised marketing services and lead-generation opportunities, which will help them to grow their businesses. In today's market, brokers must find ways to raise their game.
And then there's the increased burden that statutory regulation has brought to the broking industry. Again, networks and alliances can make life easier for their members in this area.
However, brokers should be able to join an alliance without losing their identity and they should actually be able to improve their customer focus.
The right partnership should enable brokers to remain independent while improving their access to markets and their bottom line. It is the job of the alliance to create a climate in which its members can prosper, meet their regulatory requirements, and ensure they 'set the bar higher'.
So, as well as providing much needed support to member brokers, the modern day alliance has to deliver profitable business in a cost effective way to its insurer partners and suppliers. Alliances are now beginning to meet this challenge. IT
' Denis Morgan is operations director of Westinsure