Back on the map

The tide has turned. After years when mergers and acquisitions dominated the headlines and the consolidators seemed unstoppable, the independent regional broker is back in the limelight. The broker barons that control vast swathes of the country, with multimillion-pound books and deep local relationships, are set to reap the rewards of their patience as insurers court their business.

“We’re getting a lot of TLC,” says David Slade, chairman of Perkins Slade, a £40m gross written premium broker based in Birmingham. “Since Christmas, the insurers have been coming round to see us, asking us to place business with them.”

So what’s changed? First, mergers and acquisitions have slowed to a trickle. Dealogic recently reported that a record number of deals were cancelled last year, with the total number across all sectors down 30% on 2007. Private equity buyout funds invested less in the fourth quarter of 2008 than in any quarter since 2005, casting doubt over the future of the highly leveraged consolidator model. Ecclesiastical bucked the trend this week by taking a 40% stake in Lycetts, but such deals are rare.

More importantly, as the market shows signs of hardening and investments suffer from the recession, insurers want to boost their underwriting profitability, even if that means sacrificing volume. This means they want to work with the local and regional brokers that accept more reasonable commissions than their consolidator counterparts, though they have smaller books of business in some cases. This will drive down their distribution costs and thus improve their combined operating ratios.

“We are really keen to work with anyone that wants to work with us,” says Kevin Roberts, RSA’s head of mid-market commercial. “We are taking various actions, pushing higher rates through, and our approach is very much based on partnerships.”

While RSA has been quiet and consistent in its relationships with independent brokers, some of its peers have been more outspoken. Norwich Union, for example, launched its Club 110 last year in an attempt to get close to its mid-tier of brokers – those regional brokers that have substantial businesses but are not consolidators or necessarily national players. This year it has taken a further step with the launch of the Broker Independence Group, a form of club for smaller brokers.

Igal Mayer, the insurer’s chief executive, has been outspoken in his support of regional brokers. In January he told Insurance Times: “You start with our belief on what is the winning proposition for customers. Personal lines are sufficiently commoditised so customers can choose to self-navigate and self-service, but I don’t believe that’s the case for businesses.

“Even small businesses have a level of complexity where formal risk management and advice is imperative – a small businessman or woman can derive a great deal of value from an independent broker as their risk manager. But that’s just part of the story. They need to be local, to be close to the business, and to deliver that proposition, they need to be able to offer choice.”

Independent brokers also enjoy freedoms that the regional offices of consolidators could only dream of. Consolidators tend to have paymasters, whether private equity houses, insurers or the stock market. Every decision has to be scrutinised and justified to a bureaucracy.

Moreover, the consolidators have sprawling networks of regional offices that are answerable to a central chief executive. Those offices have limited decision-making powers and negotiations tend to be centralised. As a result, insurers are dependent on one key relationship. Independent regional brokers can offer the insurers quicker decisions and are free to manage their client relationships as they see fit.

Simon Cooter, distribution director of Brit, adds that the best regional brokers also have strong succession plans, allowing them to build personal relationships with insurers that will last for decades, and bring them closer to clients. “It means price is not the only factor, though it always will be important,” he says. “What a client really wants is to know that their needs are understood.”

So much for what insurers want from independent brokers – what are the brokers looking for? For Slade, it comes down to service. “We want to talk to someone about the products,” he says.

“Regional brokers like us are looking to give customers a good service and take a reasonable commission or fee. We want an insurer who will help us do that, by providing good service, a good product, competitive premiums and first-class claims handling.”

Finally, brokers are getting what they need. “There’s never been a better time to be an independent regional broker,” says Mark Boucher, chief executive of Unitas, an alliance of sizeable independents, many of which are profiled on the map, left, and typify the kind of broker baron insurers are now wooing.

“Insurers have come to realise these businesses can offer them long-term partnerships, profitable business and incomparable customer relationships,” he says.

However independent brokers still face numerous challenges. As Alec Finch, chairman of Alec Finch Group, points out, the greatest of these is compliance. “It’s time consuming and it’s expensive,” he says. “But there are people who can help.” Unitas, for example, offers compliance support to its members, as do consultancies such as UKGI.

So what happens next to the consolidator model? “We are watching the market very carefully,” says Roberts. “We just don’t know.”

He adds that entrepreneurs that sold their businesses to the consolidators are now coming to the end of their restrictive covenants, so a new wave of start-ups could materialise.

For many of the independent brokers that have survived this last round of consolidation, the answer is even clearer. Slade, for example, nearly sold his business to Oval last year, but the deal fell through. “It showed us what a valuable commodity we have, in terms of our working life and our relationships with clients,” he says now. “We are steadfastly committed to remaining independent.”

This is exactly what insurers want to hear. Here we profile just some of the broker barons doing business around the UK ...