Insurance Times together with our partner, Norwich Union, held a roundtable discussion where a panel of experts gave their views on the state of the Scottish market and the issues it faces.
The Scottish brokers were keen to talk about how the economic crisis had affected their businesses. Insurance Times editor Tom Broughton introduced the topic, saying: “I think we can all agree that we are in a period of unprecedented economic turmoil. I am interested to hear how this has affected your businesses and how your clients are reacting. I am looking to hear about how this is affecting you personally and how you see the wider economic climate.”
Robert Hannah of The Business Insurance Bureau replied: “We are living through strange times. I would not call them catastrophic, although that may follow.
“From a personal point of view, I have not seen my business collapse or change significantly. We have lost some clients, but this has only been through their inability to continue to trade. Where that has happened, we have managed to pick up some of the phoenix companies coming out of those episodes.
“Therefore, in the very short term, I do not see a large or dramatic change in my business. However, I do think that, as this crisis starts to manifest itself, we will see big and important changes. We are not going to see them until two things have happened. First, the bank bail-out will have taken place on the credit markets and will have freed them up somewhat. Second, because of all of this – including the Bradford & Bingley Financial Services Compensation Scheme episode – we may well find that our industry is affected with unexpected consequences and costs, and with some pressure on the reinsurance market.
“What we may seem to lose in the short term may well be made up for by a series of hardening rates coming through in 2009. I think that is almost inevitable.”
Ken Whitton of EH Ranson had a different point of view: “As we deal mostly with SME/commercial clients, it is not affecting us too much at the moment. That is not to say that this will not come later on, as things gradually filter down. The evidence at the moment is more with the building trade. We even have requests from builders to do
mid-term adjustments on their estimates, turnover and wages, which are normally done at the end of the cycle. That is now being requested in the mid term. If we do not do it, frankly, they will go out of business.”
Colin Preston of Smart & Cook thought different sectors would have different responses to the current crisis. “In the construction industry, the clients’ turnovers are reduced. I have one client who is in the construction industry – in the household market – but its turnover is holding up well at the moment,” he said.
So what does this mean for the government’s much-vaunted house building project? Bernard Dunn of MacDonald Reid Scott said: “We are in times where it is very difficult to predict what will happen next. It also presents the government with an opportunity to say that anything that they had said in the past is now off limits because specific times need specific measures.
“[Prime minister] Gordon Brown has said the government will do anything it takes. He is basically saying the rule book can be rewritten in order to do what is necessary. I do not think we can hang a hat on anything in the past in relation to the government’s guidelines.”
On an optimistic note, Dunn said: “Rather than the cake going from one broker to the other, new premium to the market is great for insurers and for brokers. There will be new premium as there will be new businesses. You need to make sure that you are ready.”
So would it be new money coming into the market, or rehashed premiums from the past? David Wilson had the answer: “It will be a case of the survival of the fittest.”
And as Dunn added: “You have to be ready for the phone call.”
Norwich Union’s George Berrie believed: “The new businesses are going to happen; it is just a question of when. When they do happen, they will be older and wiser because they will have been burned from these times. A business going bust is never good, but if it starts up again it is smarter. Most entrepreneurs go through the phase where they do well, then go bust, then start again wiser and smarter. That is going to happen.”
So how many entrepreneurs are out there and can they get the finance they need? “There are probably fewer,” said Dunn. “Historically, the broking industry has relied on great service to maintain the core book. Most of the businesses around this table have an excellent retention rate, both now and historically. Now is when we have to look for new business opportunities.
“The Scottish broker market can be seen as slightly dour. What is being played out in reality is that Scottish brokers are seeing opportunities here. I find that quite inspiring.
George Berrie, NU
“There probably are fewer, but there are still banks that are more protected. For example, the Clydesdale Bank is in a much better position than some of its competitors. They are still very keen to lend on deals, whether that be debt finance or other kinds of finance. There are still banks that will lend.”
John Silcock of Borland Financial Services sounded a note of caution. “We are going through some economic hard times, particularly with some banks and some residential construction companies,” he said.
“However, we have to be careful. We cannot broad-brush the whole economy into recession. The manufacturing sector is still buoyant, as is the engineering sector. The oil and gas industry in Aberdeen and the North East is still very buoyant. As the pound weakens against the euro and the dollar, that will open up more opportunities for exporters.
“Without a doubt, it is slightly challenging at the moment, but I also believe there is plenty of opportunity. As a group of business people, we need to be responsible and not talk down the whole economy because it can be self-prophesying. If you talk yourself into an economic recession, you will fall into one. I still see many positives in the economics.”
Berrie concurred: “Every broker so far has agreed that times are difficult, but the word ‘opportunity’ keeps coming up. There is probably a good role for the broker in the discussion with the client. In an SME market, it could be a small client or a big one. If a broker comes across as all doom and gloom, that is not going to inspire much confidence in a client. If a broker talks about opportunities, that is bound to impress the client. It will show that the broker is optimistic. The client will probably want to go with this optimistic broker.
“There is definitely an opportunity for brokers, in discussions with clients, to give a sense of reassurance, hope, and that, with the right thinking, the client can thrive in the opportunities. That is value added that you would not normally see coming from a broker. Everyone today has raised this so far.
“The Scottish broker market can often be seen as slightly dour. What is being played out in reality is that Scottish brokers are seeing opportunities here. I find that quite inspiring.”
So what does the current economic trend mean for rates in the insurance market? “When you reach this stage in a cycle where the industry is saying that in the tough times we need to increase rates, opportunities are presented, as we are all agreed,” said David Wilson of McCartney.
“However, it probably presents greater opportunities for those insurers that have been on the very fringe of the game, muscled out by the bigger companies. They have lost their underwriting guides in an effort to retain or increase market share.
“There are always deals available. There are always new or keen insurers who can use skills that do not have the same broad-based exposure that some of the bigger insurers have.
“People who have earned or bought the tag of ‘insurance broker’ in a soft market when, realistically, trained monkeys could operate as brokers, now is the time when brokers rather than salesmen excel.”
Berrie summed it up: “Price is always going to be an issue with insurance, but is it everything? What came up at the Leeds roundtable was that the professional broker would not have a ‘once a year’ discussion with the client at renewal. If that is all that happens, you will only talk about price because that is all you have to offer.
“Some of the brokers at that roundtable were deliberately having more discussions throughout the year to build a bond with their clients, first so that their clients would not go to a different broker, but so that they could educate them along the way as to what was actually going on in the industry.
“Therefore, when it came to the renewal, rather than have the desperate discussion of getting the premium cheaper – and the commission goes down, and they as a broker become more vulnerable – they could get the client to at least comparative to the year before. It makes a world of difference.”
Here in Glasgow, meeting brokers from across Scotland, our roundtable discussion was very focused on the economy, both the effect it was having at a macro level and the pivotal role brokers play at a micro level in helping clients maintain their businesses.
At the macro level our discussions centred around the sense that, while the climate is creating cost and cashflow pressures for many clients, it is not all bad. Some sectors and geographical regions of the Scottish economy are continuing to flourish. Over time these factors are likely to change the local business environment, with start-ups emerging from the sectors currently struggling and other businesses flourishing in difficult trading conditions. Local brokers have a spread of clients across all sectors and will often have a unique cross-industry perspective on the local economy; this macro view is of significant value to clients and can help them understand where opportunity exists for them.
The micro level is about doing the basics right. There was passionate discussion about professional broking services being more important now than ever before, servicing clients well to ensure broking businesses add value and thrive, and a real sense that professional broking services will see more and more demand.
The brokers round the table talked about the basics of their clients businesses, understanding the risks, being able to recommend appropriate cover and risk protection, delivering this at the right price and level of service. We also discussed the importance of ongoing contact with clients, understanding changes in their businesses and communicating wider insurance market features that may impact them. For example, brokers have experience of the insurance cycle and what this means for clients, they are significant in being
able to communicate this outside the pressure point of renewal.
As a fresh pair of eyes, I am keen to build on the value that we at Norwich Union bring to brokers that trade in Scotland. We have a trading team of 95 dedicated to the Scottish broker market based in Edinburgh, Glasgow and Aberdeen, as well as an on-site presence in a large number of brokers offices, and we are all committed to supporting the role of the independent broker. I drove away from this event feeling enthused by the strong work ethic and professionalism of the brokers gathered there and looking forward to the times ahead.
Gareth Hemming is head of trading for the North East and Scotland at Norwich Union.