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 Welsh market and the issues it faces.
The Welsh insurance market is different from that of other major cities and regions, according to Gary Stevens of Antur Group. “It is very parochial,” he said. “Welsh businesses like to deal with Welsh people and they like to deal in Wales.
“Obviously, the credit crunch is hitting home, people are looking for a good deal but their preference is, if at all possible, still the local firm. To them, local in west Wales means in west Wales. They would view Cardiff as almost a different country.”
Stevens said a local presence was important for insurers that want to build a book of business in the region, as it helps them understand the market and its needs.
“Those [insurers] that are doing the best are those who – whether or not they are based physically in Wales – have a Welsh offering,” he said.
“The insurers that struggle the most are those that think they can deal with Wales centrally, from either London or Birmingham or wherever. People would place business with them if they offer the best proposition for that particular client, but the majority of business is placed with people who have a local presence.”
The market has gradually changed over the years, with many insurers no longer having a presence in Cardiff or Swansea, according to Mike Brain of Wood Insurance Services. “Slowly but surely they have moved over the bridge to my old hometown of Bristol,” he said.
“It has helped in some ways, because there used to be a major difference between the West Country and south Wales as far as attitudes and integration were concerned. Because we have to deal with Bristol now, in many cases, it has helped. It has also meant that we have not concentrated on the local Welsh market. To expand, we had to go nationwide.”
The decline in heavy industry in Wales has had a major effect on brokers. Richard Rowlands, of Underwood Insurance Services, said: “The heavy industry is falling back and it is never going to come back. We were the brokers for British Coal. We picked up a lot of business in the engineering, transport, subcontractors and other businesses that were involved with British Coal.
“Where heavy industry has dissipated, we have had to move into different areas. We spread into other schemes and clubs.”
Paul Charlton of Norwich Union said the Welsh market was particularly entrepreneurial
Rachel Mulheron of personal lines broker Blue Insurances said client retention rates were high in Wales. “The retention rate is high-90s, because the local people like to go into the local branch. They like the face-to-face contact and I think that in west Wales and in the valleys, you have a loyalty that you would not get nationwide. I think that is quite important for the market, in personal lines anyway.”
“We find it very difficult to recruit. At the younger levels, 18 to 21, their grammar and spelling is in many cases atrocious.
Richard Rowlands, Underwood
Stevens added: “Where we lose business, it is not to local brokers; we lose business to the websites, to the banks and building societies. When we get new business it is when people have tried the websites, the banks and the building societies and they have saved money, but find they are not insured as they thought they should be.”
The panel also talked about the difficulty in hiring good-quality staff. “We are finding it very difficult to recruit people,” said Rowlands. “Between the ages of 30 and 40 there is a dearth of prospects. What I do notice at the younger levels, 18 to 21, their grammar and spelling is in many cases quite atrocious, as well as their insurance knowledge.
“Even though some of them are looking at the CII and so on, they do not see the wood for the trees; they are learning it but they are not really seeing the big picture, and it is difficult.
“Experience comes with knowing clients, but I do find it a difficulty and I do not see the quality coming through.”
Simon Thomas, of Creative Risk Solutions, added: “I think it [recruitment] is a problem, but because of all the [consolidation] activity that has gone on in the past six to 12 months. I have seen more CVs in the past two weeks than I have seen in the past two years. People are starting to get to understand what being with one of the consolidators is all about: that you will place that business with X, Y or Z [insurer].”
The panel discussed whether mandatory disclosure of commissions in commercial lines business was a threat to brokers.
Thomas was not concerned about disclosure: “For us, it is not an issue at all as 95% of our clients are on a fee-based remuneration structure. We have actively moved away from over-riders, hidden commissions and so on, so we are absolutely transparent. We are different to the national brokers which are creaming 2.5% off the front-loading, or from other brokers with profit share deals. For us, we would embrace it [commission disclosure]. We think it is a fantastic opportunity to be honest.”
Thomas said his clients were generally happy paying fees. “A lot of our clients like it and they get it after a while. A couple were a bit suspicious at first asking, ‘Why am I paying you a fee?’ So you go through the whole process and explain it.
“There are lots of benefits to it and the biggest one is being close to your client, because you are demonstrating the value of what you do.”
Thomas said he earned about the same amount through fees as he would do if he charged commission, although others on the panel were surprised at this.
Rowlands said: “I thought it would be less but, saying that, a fortnight ago, with the help of Norwich Union, we held off a risk that a national broker was chasing, and our premium with commission was £5,000 less than that broker’s, which was doing it net plus a fee at the end tagged on. My thoughts are that once you go down the fee field, your income is going to reduce.”
“Local people like to go into the local branch. In west Wales and in the valleys, you have a loyalty you would not get nationwide. That is important
in personal lines.
Rachel Mulheron, Blue Insurance
Phil Bayles of Norwich Union said: “It does depend on the class of business, because there are certain types of business where commission levels are perceived to be unacceptable by a client, and there are others, which you could sell quite comfortably.
Rowlands said: “A fee probably works well on the employers’ liability side, where you get low commissions. So fees are probably better there, but overall, I am not really sure on that.”
He added that mandatory commission disclosure would not worry him. “It is difficult to say, but I would not have thought so. Saying that, we are part of Broker Network and one of the things we get are enhanced commissions, so one could probably argue that, as we get 25 points on a particular bit of business, perhaps the client would think, hang on, he’s making a lot out of me here.”
Thomas said there had been cases where the fees were actually more than the commission, because of the nature of the case and the work involved. “It is all about your client and the relationship with your client, and demonstrating what you are doing for your money.”
Stevens said increased transparency would force down commissions in some classes of business. “It depends on the level [of commission] you are starting with. I think the customer, if he was aware you were earning 50% commission, would have major concerns about doing business with you, regardless of whether you are the most competitive. But I have no problem in saying to a customer that we are generating 15%, 20% or 25% if I can justify that as a realistic and reasonable amount. You would have more problems with the consolidators and larger brokers which are allegedly generating these very high commission rates.”
Bayles said: “One of the things we are actively trying to address is that the market has become distorted in some respects over the past four or five years, in certain areas. Large consolidators in particular are an example of where commissions are unsustainable and unjustifiable from the consumer point of view.
“In certain classes of business, and I think property owners is the classic one, where you have to say that it does not feel like a sustainable model, because at some point,
at those levels of commission you are basically leaving the door open for someone like Direct Line to come in and say, ‘You are being ripped off by your broker and we’ll undercut your prices by 30% or 40%’, because they could. That is the danger; it is unsustainable.”
Brain said he would welcome a level playing field in relation to broker commissions. “If a consolidator is getting 50% commission, he can come into the market at a discount of 30% and then we are down to my earnings, which means that in a competition, he can beat us every single time.
“We are seeing more and more of the large boys discounting rates to a zero commission rate, even a negative commission rate, just to get the business, and then hammering home the direct sales on evening phone calls to the client to try to cross-sell other business, which is where they are going to earn their money. We cannot do that, so we are at a major disadvantage before we even start. “
It is good to see that the entrepreneurial spirit is alive and kicking in Wales, with independent brokers not just simply surviving, but thriving.
Our guest brokers confirmed that, while consolidators are moving into Wales, it was unlikely to be an easy ride for them, the loyalty of local clients is strong here, but all agreed that there was room in the market for both types of player.
Once reliant on the success of heavy industry, something that no longer exists to quite the same extent today, the Welsh business community has had to turn to alternative forms of employment. This need, coupled with strength of character, is the driving force behind the successful independent brokers that have developed.
Simon Thomas, managing director of Creative Risk Management, provided an explanation: It is due to the brokers understanding of the local business community that enables them to go out into the market and find out exactly what their clients need. And by using local underwriters, they know that they are dealing with people who also understand the nuances of the Welsh business landscape.
For example, the brokers around this table are unconcerned by the recent FSA legislation to treat customers fairly; their view is that this is their main intention anyway.
This manifests itself, for example, in the way some local brokers adapt to meet their clients needs by having Welsh-speaking staff in certain offices coupled with supporting printed material.
Norwich Union has had a local presence in Wales for longer than any other insurer; in fact, we have remained rooted here while others have come and gone. Today brokers praised the knowledge of our underwriters, both office and broker-based, complimenting Norwich Union on its service-oriented approach and on our understanding of local businesses and issues.
I spend a lot of time in Wales and have great admiration for the entrepreneurial and go-getting spirit of the brokers that I see. They deserve their thriving business status, due entirely to their continued effort to do more than merely survive.
Paul Charlton is head of trading for the West and South Wales at Norwich Union.