Best of Brokers: On the western front

Consolidation, a soft market, clients under economic pressure and lack of organic growth opportunities have kept brokers in the South West and Wales on their mettle. In the last of our Best of Brokers regional profiles, we find that wily independent brokers who are willing to adapt are proving they can stay the course.

However, the challenges are many. Jelf Insurance chief executive Phil Barton believes that public sector cuts will affect the broking sector, but its impact on the South West of England will be very different to that on Wales, which relies more heavily on the public sector.

The South West is seen by many as a fertile ground for start-ups, and its stronger private sector economy means it is well placed to cope with the cuts. “Its core reliance on owner-manager businesses and its tradition for start-up businesses means it will be a beneficiary of the cuts to come,” Barton says.

However, LV= Brokers’ regional manager for the South West, Steve Meredith, is less optimistic. “I think in the next few years there will be a number of businesses that won’t survive,” he warns.

Mott Insurance, based in Penarth near Cardiff, has already felt the full effect of the recession, as personal lines makes up half its business. Founding partner Ben Mott says: “A lot of people were turning to the internet to get cheaper quotes. Unfortunately, a lot of the time – especially on motor insurance – we just weren’t competitive enough.”

Change of strategy

Although Mott blames insurers for turning to the internet rather than investing in smaller brokers, he admits that brokers should shoulder part of the blame. “Some had their heads in the sand thinking: ‘We’ll get by because we are a local broker with local service and ethics’. But we’ve got to be realistic. We said: ‘If we can’t beat them, we’ll join them’. We now offer quotes on the internet too,” he says.

A change of business strategy to stave off the recession’s adverse effects was also the solution for Exeter-based broker Foster Leighton. Faced with a slowing economy in 2008, the company abandoned commercial lines in favour of not-for-profit social lines such as charities, while increasing its focus on clients’ needs.

Foster Leighton chairman Rod Fry says:“Because we are a smaller company, we moved out of our traditional areas and looked at new areas for business. We tried wherever possible to prevent the insurance company from putting adverse renewal terms on or increases in premiums that would prompt the client to go into the market.”

Bristol-based Ntegrity’s managing director, Gary Horswell, has mixed feelings about the upcoming cull of public sector jobs by the coalition government. “Working in professional indemnity, the negative side is not knowing how many businesses will cease to exist, as some of our clients work in the public sector. But on a positive note, if firms are cutting back, it could well mean people with redundancy cheques are going to be setting up new professional services businesses.” And that means fresh business for brokers.

But while many wait for new business to emerge, there is an increasing emphasis on retaining local clients. Working in a niche is one way in which regional brokers can see off rivalry from national broking firms.

Horswell says: “With most classes of commercial insurance, if you go into them deeply enough and specialise, you realise there’s a heck of a lot to work with.”

As well as gaining an edge on competitors, he believes specialisation gives small regional brokers credibility in the broader UK broking sector. “Big brokers struggle sometimes because their portfolios are too big. They’re trying to be all things to all people.”

Alex Collett, managing director of Cardiff-based Insight Insurance, says his company’s specialisation in insuring television productions meant the effects of the recession hit home rapidly in 2008 as television budgets were slashed.

But as the firm’s clients recovered, so did its business. Collett says: “Actually we have done rather well out of it. As a small, independent broker we seem to be able to move faster and the recession seems to have been to our advantage.”

Winning combination

Foster Leighton’s Fry believes a combination of specialisation and maintaining face-to-face relationships with clients gives his firm a competitive edge in the region. He cites one long-term client, the oldest oak tannery in the UK. “They want the personal service. If you are going to tell them bad news about a claim not being paid or a hardening in the market, it’s better to be there to see the whites in their eyes,” he says.

Horswell says independents have the greatest incentive to succeed: the need to survive. “The beauty of smaller firms is that they are fired up with enthusiasm, well motivated and generally fleeter of foot,” he explains. “Many of the larger organisations are stodgy and become bogged down with politics, compliance and national relationships that don’t always work locally.”

Apart from one other high-street broker in Penarth, says Mott, his firm has no other local competition. The real competition comes from the direct insurers and comparison websites offering prices that severely undercut the prices independent broker can offer. “To get the renewal business, we have to cut commissions or drop our fee, which creates a lot more work for us.”

For LV= Brokers’ Meredith, national competition is somewhat stifled by the South West peninsula’s remote location. “It’s difficult for the London market, as there is really only one road in,” he says.

But this means insurers can lose touch with the region’s brokers too, believes Mott. “Years ago, we had big insurance reps coming to see us, telling us what was new or what was happening in the industry. But now that has stopped. We only have visits from companies we have large accounts with, such as Aviva and Towergate.”

Fry sees things from a different perspective. As part of the Willis Strategic Network, the independent broker has access to a large panel of insurers, including Aviva, Alliance, Zurich, RSA and AXA. “I always tell our staff that 49% of your loyalty should be to your client and 51% to your underwriter because quite frankly you could be the best broker in the world but if you have made an enemy of your insurance company, you will never get any business placed,” he says.

Consolidation effect

The Cardiff market has seen steady consolidation over the past few years, according to local brokers. Giles has bought several Welsh independents since 2007, including DS Howell, AGM Insurance, Paul Murphy Insurance Services and Hancock General Insurance. In 2008, Giles bought Penarth-based broker NG Insurance and moved the branch to an office in Talbot Green, 14 miles away on the other side of Cardiff.

It’s not all bad news for the local brokers left behind. “It’s been of benefit to us because some of their customers don’t want to go to Talbot Green,” Mott says.

Meredith agrees that south-west England and Wales have experienced higher-than-usual consolidation rates in the past five years, but that the rate is slowing.

He says more than 50% of the brokers in the region are now members of broker networks and alliances. “Brokers see there is a greater strength in being part of a bigger network than trying to survive on their own. They have benefits of compliance, marketing and enhanced commissions going via the network,” he says.

But Mott argues that broker networks are “not hugely helpful”. As a member of both Broker Network and Key Choice, he has had a mixed experience. “While commissions do increase, they tell you they can get you this deal and consolidate this book of business, but all the deals I have done for this business I have done off my own back.”

According to Horswell, entrepreneurial brokers working within national firms are struggling. “General commercial broking is extremely tough in the West. There has been a lot of consolidation. There are an awful lot of disillusioned people who aren’t functioning as well as when they were in their own entrepreneurial outfits.”

Despite the dark economic clouds still looming over the UK, Mott says there is a definite future for regional independent brokers in the West and Wales. “There’ll always be a sector, especially in commercial insurance, that won’t be able to just get a quote online. You want someone to come round, someone to speak to face to face,” he says.

But he is unsure how many will survive in their current state. Mott says that all brokers must adapt their business to suit customers by offering both face-to-face service and internet quotations like the larger broking firms.

“Customers will become savvier in future. They won’t be lulled into buying a cheap policy from some unknown insurer. They’ll do their research and then look around for quality,” he says. IT