Brokers in the drivingseat

Companies stayed loyal to their brokersBrokers were successful at retaining different types of business in 2003, but had difficulty hanging on to large corporations, large limited companies and small plcs, a survey has found.According to Datamonitor, less than 4% of companies changed broker between 2002 and 2003. Large UK-based corporations, large limited companies or small plcs were the most likely to change brokers, with more than 80% of those companies who changed broker coming from these groups. But the reasons for changing broker differ between these groups. Datamonitor says that large UK-based corporations tended to have a lower level of loyalty than multinationals due to increased choice, greater competition from a larger number of players and their high levels of sophistication within the insurance market. But it says customer loyalty among small plcs and larger limited companies was decreasing due to the trend for brokers to reduce the frequency and levels of service it gives these clients. With Datamonitor estimating that processing a new small client costs around £800 in additional paperwork, communication with the insurer and extra client meetings, keeping clients is crucial to maintaining a profitable business.

Fewer brokers in business after FSA regulationDatamonitor's commercial broker survey reveals that the majority of brokers believe that FSA regulation will result in a contraction in the number of brokers in the market. Datamonitor says that this drop-out would be due to the structure of the UK broker market, which was characterised by a large number of small brokers. It cites issues such as the number of brokers close to retirement age, lack of succession and a reluctance by some brokers to invest in order to achieve compliance or to improve technology to become more competitive as key factors driving consolidation. The survey found that half of those questioned indicated that they would definitely meet the FSA's application deadline in order to be authorised by the time regulation begins on 14 January 2005. A further 42.5% said they are currently preparing for regulation and expected to apply on time. The remaining 7.5% said they were making changes to their businesses and would not require authorisation.

Price influences broker selectionResults of a survey of the UK small and medium enterprise (SME) sector conducted by Datamonitor found that brokers dominated the market, with 98.3% of companies currently buying their insurance through a broker. But with recent premium hikes, SMEs have become increasingly sensitive to price, with many identifying price as an important factor in broker selection and even in switching brokers. But advice still dominated the demands of SMEs with 90% of those surveyed indicating that getting advice from their broker was important. Risk management advice remained the most sought after, followed by legal advice and financial advice.

Independent brokers rule the marketThe report found that brokers remained the principal distribution channel in the commercial insurance market. According to ABI data, they increased their share of the market in 2002 from 81% to 85%. Datamonitor says this reverses a three-year decline in broker prominence within the market from a peak of 88% market share in 1998. But the analyst estimates that the market share of independent intermediaries was closer to 91%. While super-provincials are listed as having an estimated share of only 5%, Datamonitor predicts that they would be the biggest movers over the coming years by more than doubling their market share by 2007, at the expense of provincial brokers. Conversely, Datamonitor estimates that multinationals would lose some market share in future due to alternative risk transfer becoming more popular. It estimates that direct writers had only about 3% of the market by GWP, and Datamonitor does not expect this to increase significantly in the future.