What broker schemes are proved to be most profitable in 2022?

Cyber liability schemes continue “to grow and outpace” other lines of business when it comes to broker scheme performance over the last six months, with brokers’ commission earnings as a percentage of premium increasing by 82% for these schemes between 1 October 2021 and 1 April 2022, according to the Insurance Times Schemes Index.

Produced in association with software firm SchemeServe, the twice-yearly Schemes Index provides a snapshot of the most profitable schemes businesses for brokers.

Described by SchemeServe chief executive Adam Bishop as “the scheme with by far the highest commission earnings increase over the period”, brokers operating cyber liability schemes via SchemeServe’s platform saw their overall new and renewing business volume improve by 32% between October 2021 and April 2022, compared to the prior April 2021 to October 2021 reporting period.

Renewal volume, in particular, was up 74% in the most recent reporting period versus the prior six-months, while first and renewal premiums for cyber liability schemes grew by 107% between October 2021 and April 2022.

The growth trajectory of cyber liability schemes correlates to increased public awareness around cyber crime and its ramifications. For example, in March 2022, the Department for Digital, Culture, Media and Sport published its Cyber security breaches survey 2022.

This found that 39% of British businesses had experienced a cyber attack in the 12 months to March 2022, with 31% of companies and 26% of charities stating that they were digitally attacked at least once a week.

The report estimated that the cost of each cyber attack amounted to £4,200, with this figure rising to £19,400 for cyber attacks on medium and large organisations.

It is therefore perhaps unsurprising that SchemeServe’s data pinpointed that the total volume of cyber liability scheme policies recorded on its platform had grown by a massive 496% between October 2019 and April 2022.

The broker scheme yielding the second highest commission earnings as a percentage of premium in the last six months was combined liability, which can include cover for employers’ liability, public liability and product liability. Brokers’ commission earnings for these schemes improved by 37% between October 2021 and April 2022 – still far behind the escalating growth and success of cyber liability arrangements.

Alongside brokers’ commission earnings growth, the total premium income received for combined liability schemes climbed by 32% over the most recent reporting period.

However, Bishop added that “volumes have remained largely static in the last six months”, growing by just under 6% between October 2021 and April 2022 when compared to the prior reporting period.

Bishop believes that the recent “modest” increases reported by SchemeServe for this line of business indicate that “growth has levelled off” following “steady improvement” during the Covid-19 pandemic.

For example, since the October 2019 to April 2020 reporting period, “volumes of first premiums and renewals are up 40%” for combined liability schemes, while “premium income [is] up 119%”, Bishop explained.

Pandemic fluctuations

Many broker schemes are still being hit by pandemic influences too.

For example, brokers’ commission earnings as a percentage of premium for caravan and trailer schemes has fallen by 29% over the last reporting period – despite these arrangements reaping the largest increase in premium volumes between 1 April and 31 September 2021, according to SchemeServe.

Despite this, “commission earnings in the last six months are up 52% [compared to] the start of 2020”, Bishop noted.

He continued: “In the last six months, [overall policy] volumes have dropped 44% compared to the previous six months, at the height of staycation summer, but this is still 94% higher than at the start of the pandemic.”

New and renewal premium income for caravan and trailer schemes dropped 25% between October 2021 and April 2022.

There has also “been a marked drop across the board” for pubs and clubs schemes. Comparing SchemeServe’s last two reporting periods, commission earnings as a percentage of premium for these arrangements dropped 14%, total premium income fell by 16% and the overall policy volume decreased 29%.

Event insurance schemes have also not bounced back, despite coronavirus restrictions being scrapped in the UK earlier this year. Comparing October 2021 to April 2022 data with April to October 2021 stats, SchemeServe found that overall policy volume is still down 29%, overall premium income has dropped 95% and brokers’ commission earnings as a percentage of premium is reduced by 100%.

Bishop described these results as “surprising” because “many of us would have expected the events industry to have picked back up more recently”.

He said: “This could be a case of needing more time for confidence to grow in this area.

“Bigger events are taking place now, however a lot of small, provincial, local events have not picked up the momentum they had pre pandemic. It could be that smaller events companies have gone out of business and people are just getting back on their feet.

“It will take at least 12 months for this to pick up after the first year of no lockdowns.”

Pet insurance schemes dipped too, with overall policy volume falling by 70% over the last six months.

“Is this a sad indication that the boom in pet ownership during lockdown has abated, or possibly that pet insurance is being sacrificed during the standard of living squeeze?” Bishop mused.

Potential for growth

One potential post-pandemic growth area for brokers, however, is specialist combined schemes, added Bishop.

Although “figures have been static in the last six months” for these schemes, there have been some notable improvements since SchemeServe’s October 2019 to April 2020 reporting period – such as a 92% increase in brokers’ commission as a percentage of premium and 32% growth in total premium income.

This is despite overall policy volumes only increasing by 3% since this reporting period.

“Premiums were reduced in lockdown for a lot of specialist combined insurances, for example where non-essential workers [or] companies were not trading and cover requirements were striped right back or cancelled,” Bishop explained.

“Commission and premiums should now increase [for these schemes] as clients get back to trading.

“Also, wage roll and turnover have an impact on premiums. Post-pandemic, companies’ wage rolls and turnover forecasts have and will be increasing, thus [creating an] increase in premium income and - in turn - commission income increase.

“Volumes are likely static as there are fewer new businesses requiring cover.”

Steady rate

Some broker schemes are adopting a more even keel following SchemeServe’s latest reporting period.

This includes professional indemnity schemes, which were found to be the most profitable schemes for brokers within the index’s 1 April and 31 September 2021 reporting period. In the past six months, however, brokers’ commission earnings as a percentage of premium rose just 13% - a big change to last period’s 272% increase in commission earnings.

“Comparatively this last six-month period has flattened out,” Bishop said.

Contractors’ all risks schemes – defined as one of the “best performers in 2019 [and] 2020” by Bishop” – is also now “showing a steady improvement” following an earnings dip at the beginning of the Covid-19 pandemic.

Motor trade schemes is another line that has experienced “a marked improvement and bounce back following the lockdowns”, Bishop noted, but “premium income levels are still nowhere [near] where they were before the pandemic.”