New business will be vital as renewals slump. Which is why, says Stephen Lark, it’s a false economy to slash the sales and marketing budget
Amid all the discussion about how the recession will affect the insurance and life and pensions sectors, we need to ask what we can do about it.
The response will vary from one broking business to another. Some will attempt to keep costs under control while hoping that the economic “grim reaper” doesn’t take their bigger clients. Others will push harder to keep their top-line revenues moving forward. But where will these increases come from?
The days of achieving big increases in revenue through higher commission levels have ended.
Many insurers are taking a tougher stance on commission levels, as they look to reduce their own expense bases.
Brakes on broker consolidation since last April also mean that, for most businesses, increases in revenue are unlikely to come from acquisitions. As the availability of debt finance contracts, there are fewer companies looking to sell and fewer buyers.
New business will be vital as renewal revenues slump, the result of clients going into administration or seeing their own revenues reduce. Lapse rates might also increase as more clients focus on the costs of insurance.
As a result, many brokers will rely on new revenue coming from new clients and products. Have these skills died, while easier growth was available elsewhere? It seems ironic that an increased dependency on new business comes at a time when the sales and marketing budget is under close scrutiny in many businesses.
Brokers will have to focus on the return they get from their marketing campaigns. A costed development plan is vital, with a detailed budget for the income that will be produced. They also need to do their research before any product or campaign is launched – and regularly review these campaigns to ensure the marketing expense is producing the expected revenue.
Many insurers will have the same concerns, although new revenue could be a bigger challenge for them if rating discipline is effectively enforced. They will be delighted to hear from brokers with plans to develop new business; joint market research and marketing support could even result.
There will still be plenty of opportunities for clever and well-targeted marketing campaigns – there is a receptive audience out there for enhanced products and service, reduced premiums and improved risk management.
More clients are also likely to become dissatisfied if service deteriorates and delivery is reorganised as brokers and insurers try to cut costs and re-engineer their operations. The prospect of a hardening in rates also creates opportunities for new business success.
Many brokers will also look to the sale of other products to existing clients, although it can take considerable time and effort to embrace a cross-sales campaign. But the rewards can be high – the reception you get from a “warm” existing contact can be much more welcoming than one from a “cold” prospect.
Everyone agrees that attracting and keeping the best people is one of the main challenges facing many broking businesses. Active and successful sales and marketing campaigns are a vital part of ensuring that people continue to be motivated. New business success is the oxygen that sustains many companies, especially when renewal books are unlikely to make relaxing bedtime reading.
Brokers must not assume that sales and marketing should be part of any cost cuts. Perhaps, instead, it is the right time to consider targeted investment in this area – and it might be just the thing that helps to sustain brokers through these tough times.
Stephen Lark is group managing director at Lark Insurance