Best of Brokers: When size matters

How well do the biggest insurance companies serve small independent brokers? The short answer is not very well. Despite the widely held view that large insurers have undergone a miraculous conversion in their relationship with small brokers in recent years – investing in broker support systems to prove it – many independent brokers still feel like the industry’s poor relations.

“There’s a lot of froth and platitudes with large insurers, but little substance,” says Ian Warnock, managing director of Scottish independent Mackay Corporate Insurance Brokers. “Large insurers talk a good game, but they are much harder on small brokers than they are on the larger players.”

It’s hard to gauge the exact worth of small brokers to large insurers, but they account for up to 20% of large insurers’ business. As a rule they offer large insurers a more profitable line of business than bigger rivals, albeit small independents can’t provide the volume business of large brokers, consolidators and networks.

But because large insurers require a range of distribution streams that can offer both scale and profitability, they have recently refocused their attention on the small broker channel. This stems from a growing awareness that the commoditised model, through online aggregators, is neither providing the returns nor overall quality of business that add up to a profitable book.

Insurers downplay the suggestion, but the reality is that large insurers are becoming increasingly dissatisfied with the ‘never mind the quality, feel the width’ model of the aggregators. They can see the potential for a better quality of business garnered through small brokers.

Team efforts

This has led insurers to launch an array of initiatives to smooth relationships with small independents, allowing them to grow while bringing in new, profitable lines to the insurer.

Axa has set up a division to work with small independent brokers, which incorporates dedicated telephone case handlers and offers help with renewals and Axa software. “It’s an area we’ve invested a lot in and will continue to invest in,” says AXA managing director of personal lines intermediary Mike Keating. “I take small brokers seriously, but the key for me is: is my investment getting a return? At the moment the answer is yes, so I will invest further to maximise that return.”

Keating says Axa’s initiatives have yielded a 15%-20% improvement in renewal retention rates and new business has improved. “It’s not a case that I don’t get returns from large brokers. It’s simply that small brokers offer a different model. They’re not hostage to aggregators because they have a loyal customer base,” he says.

That point is echoed by Allianz general manager of commercial business Chris Hanks. “Small brokers are an important, profitable distribution channel for us. Generally they don’t have as many markets as larger brokers, but they operate at a lower cost level and you can reflect that in your prices.”

Allianz provides a service to small brokers through its branch network, including dedicated account developers. Its commercial division’s head of market management, John Warburton, says: “We’ve invested in reviewing our service and speaking with small brokers to ensure we work with them in the most effective way.”

All this sounds encouraging for small independent brokers. But the brokers remain unimpressed. “There are some good outline initiatives out there, but they don’t really make a difference,” says Ashbourne Insurance Services managing director Peter Smits. “I don’t see any insurer investing in giving us mainstream access to underwriters that can handle bespoke inquiries. In terms of on-the-job deals and on-the-job communication, we are not seeing any improvement. It’s almost as if they’re saying: ‘We’d rather have the package, one size fits all’.

“It is more difficult for my staff to communicate with underwriters that have the power to negotiate and re-broke bespoke deals than at any time I can remember.”

Hanks is not entirely unsympathetic. “I think insurer service has deteriorated in the past 20 years because many have reorganised and centralised, but we still have a strong branch network that handles brokers, and it’s expanding.”

The point about centralisation is keenly felt by Mackay’s Warnock. “Aviva did away with its Scottish regional managers and replaced them with a single manager in Manchester. It’s not easy to see that guy,” he says. “Another thing is that you never know how long a large insurer will stay in a sector. There’s no long-term strategy, yet strategy is all large insurers talk about.”

NIG’s departure from its poorly performing personal lines business is a case in point. It led to an angry backlash from many of the 3,000 brokers that did business with the group, as they scurried around trying to find new homes for clients.

What insurers want

But if brokers want insurers to adopt a consistent strategy towards lines, pricing and service, what do insurers want from brokers?

“I’d like a broker to be placing a regular flow of business to me and some level of loyalty around renewal and retention,” says AXA’s Keating. “We’re looking to invest in products and services that will be unique to independent brokers. In return we expect profit growth and loyalty from brokers.”

"Those are fair things to ask for,” Smits says. “But I can’t afford to throw all my eggs in one basket with an insurer who comes up with a marketing wheeze now, then in two years there’s a change in direction and everything is suddenly different. We’re here doing the same thing we’ve been doing for 30 years and will be around for another 30. Insurers need to be consistent over a longer period of time. It's that simple.” IT