Best of Brokers: Fertile ground?

The traditional prosperity of the UK’s South and East means their economies have, to an extent, been cushioned from the worst effects of the recession. However, the past couple of years have been far from easy for those regions’ independent brokers. Ongoing pressure on SME businesses from the downturn, heavy consolidation and the persistent soft market have all taken their toll. Even proximity to London continues to be a mixed blessing.

“It’s still tough. Businesses aren’t expanding and commercial rates are soft,” South Essex Insurance Brokers’ deputy chairman, Barry Fehler, says.

Nonetheless, independent brokers have fared better than their counterparts further north or in the Midlands. The dominance of robust technology firms and nimbler service industries has left the South East more recession-proof than the traditionally industrialised North from the downturn, softening the blow on independent brokers from the downturn.

“We are probably better off than most other regions,” Fehler says. “The heavy industries of the North have been badly hit by closures. Steelworks and motor manufacturing have been in decline for a long time, whereas in the South we have a bigger selection of smaller businesses and computer-based companies.”

Show of confidence

DF Edmonds & Co director Kevin Clark, based in Brighton, agrees. “The South East rides the storm a little better. It tends to be stronger, with more well-off areas, and is less susceptible to changes in the economy,” he says.

Hertfordshire-based Ashbourne Insurance managing director Peter Smits adds: “There is a much higher concentration of people in the South compared with other regions and that gives us a bigger client base to target.”

Some independent brokers have even benefited from the crash, as people have grown increasingly distrustful of big-brand financial services names and returned to their local high-street broker. “That has been a positive development,” says Smits. “It has created a degree of nervousness about the bigger corporations and it is bringing people back to our front door. Our shops have been busier than they have ever been in the past few years.”

Other independent brokers in his area are also weathering the storm. “There are four or five brokers within a two-mile radius and they are all still here and still trading,” he adds.

While the region remains competitive, brokers are not exposed to the ferocious undercutting that characterises the trading markets of Leeds and Birmingham.

Zurich’s head of broker market, south, Dave Carey, says: “The South is made up of smaller centres of insurance areas, so our brokers are spread more geographically instead of all being based in a city centre environment such as Leeds or Manchester.”

Brokers in the South have also benefited from increased specialisation. Norwich-based brokerage Knowlden Titlow’s sales and marketing director, Michael Buse, says a focus on niche markets has enabled independent brokers in the surrounding area to rub along nicely. “Everyone has their one patch: we are dealing with medium-sized corporate risks and an independent broker down the road might be specialising in small property. So we are not stepping on each other’s toes,” he says. “It is nothing like in the Midlands, where brokers are fighting like cats and dogs to get business and undercutting each other.”

Smits believes intense competition between local brokers has not become an issue in the East’s smaller centres. “We don’t compete with other brokers,” he says. “Instead, we are getting business that was originally held by national brokers, which makes me think that independent brokers around here are doing very well.”

But while they appear to be in good shape, the regions’ brokers are far from immune from the downturn. Those specialising in property and construction have been hit particularly hard.

Allianz South East regional underwriting manager Andy Wells says: “We have seen reductions in estimates and exposures in construction. Brokers in those areas that are on commissions rather than fees have seen their income fall.” This has prompted more brokers in these regions to turn to fee-based rather than commission-based income, he adds.

Lack of capital and faltering confidence in the economy has stifled entrepreneurship, leading to a dearth of small start-up businesses. This in turn has curtailed the growth of many independent brokerages.

Start-ups stifled

“There are not enough business start-ups. We are not seeing the emergence of smaller businesses any more,” says RG Ford Insurance Brokers managing director Giles Ford. This means brokers have had to focus all their energies on retaining existing clients. “In these times, you have to retrench and make sure you look after existing clients,” Ford adds. “New business tends to take more of a back seat.”

The proximity of the London market continues to present both advantages and drawbacks to independent brokers in the South and East. Undoubtedly, brokers benefit from easy access to key decision makers in the insurance market. “I can get on a train and get to Fenchurch Street station in just half an hour and we can be right beside Lloyd’s, with all the major insurers next door,” Fehler says.

However, the IIB’s chief executive Barbara Bradshaw believes the capital’s influence can add pressure to local operators. “A small broker on the edge of London is always going to be up against a larger London broker with access to a much wider market than he or she has,” she says. Bradshaw adds that this has enticed many brokers into the arms of networks such as Cobra, Brokerbility and Broker Network.

While Chelmsford, Reading, Southampton, Maidstone, and Croydon remain vibrant insurance markets, there is a feeling among brokers that these towns and cities are overshadowed by the capital. RSA’s southern regional director, Neil Peters, says: “They are less important in the South of England than perhaps some of the other regional centres because of their proximity to London.”

Insurers’ failure to devolve

power to regional centres in the South and East has led to frustration among some brokers. Clark says all the major insurers except Aviva have closed their branches in Brighton. “Zurich, Allianz and RSA have all moved away and that has affected us. It is down to insurers’ desire for centralisation, but personally I don’t think it has been for the better.”

Buse adds that when it comes to dealing with more complex business or risks, the final say usually rests with the capital. “The frustration is that if you are putting a scheme together or if it is a decision that involves a few more key stakeholders, the decision does get sent back to London,” he says. “The branches are autonomous enough to do the deal but it is just carrying it forward that is the problem.”

In addition, some brokers remain dissatisfied about their relationships with insurers. “Service levels are still poor by and large. They take too much time to turn around quotes and there is a lack of knowledge within their own offices,” Fehler says.

If the mooted merger between RSA and Aviva materialises, he adds, it could create even more headaches for independent brokers. “I wouldn’t like to see another big merger, which would mean we would have to go through a period of even worse service,” he says.

The capital’s magnetic pull on talent from the regions means brokers often struggle to retain high-quality staff. “It is difficult to recruit staff. Because we are so close to London, you can get London salaries for the price of an extra half an hour’s drive,” Ford says.

The South and East have also suffered from the might of the consolidators, which have swallowed a large chunk of the regions’ independent brokers. Towergate is particularly strong in the regions.

“The landscape has changed. We have seen the rise of consolidators across the region, which has changed ownership of previously independent large regional brokers,” Zurich’s Carey says.

But some independent brokers feel they can reap benefits from this consolidation in the long term. Manor Insurance managing director Ian Mantel, who is based in Hastings in East Sussex, takes a bullish attitude. “If the consolidators want to buy out all the competition, well then let them,” he says.

“ While it might mean that they have more clout, it also means they will upset more customers who are still on the look-out for the genuine personal touch – and that is good for us.”

Smits points out that insurers seem to be banging the drum for the independent broker, as they become increasingly disillusioned by the consolidators. “The consolidator model doesn’t work. All that has happened over the years is that insurers have got the same business, with the privilege of paying the same commission,” he says.

Economic factors

Despite encouraging noises from insurers, the rate of start-ups in these regions remains sluggish and lack of capital and poor confidence in the economy continue to prove a barrier to aspiring small brokers.

However, Hampshire-based Bloomhill Insurance Solutions managing director Matthew Stringer, who started his brokerage two years ago, points out that areas such as Southampton could be a breeding ground for new brokers. “There are pockets in the South where brokers could take advantage. The local broker can still win local business,” he says.

Knowlden Titlow’s Buse adds that while the climate in the region remains tough, independent brokers with flair and tenacity will flourish. “The smaller broker still has something to offer and can be quite a thorn in the bigger broker’s side. We are still a force to be reckoned with,” he says. IT

Case study: Knowlden Titlow

Knowlden Titlow is a commercial insurance broker based in Norwich, in Norfolk, East Anglia. It was established in 1991 and ran as a partnership until it became a limited company in 2010. The brokerage specialises in corporate clients with a premium spend of more than £50,000.

Sales and marketing director Michael Buse says the brokerage benefits from strong ties with local businesses. “There is a lot of loyalty, which you don’t have in London, and a lot of good business. It is hard for the big boys to come in and set up in Norwich because the clients are so loyal.” Local brokers’ increased focus on niche markets has prevented intense competition in the area, he adds.