Brokers speak out

It’s all to play for. As 2008 opens, UK commercial brokers are set for a tumultuous year. Will they sell to a consolidator? Pour resources into e-commerce? Start selling more schemes? And will they ever get through to that underwriter?

Insurance Times’ parent company Newsquest Specialist Media has canvassed broker opinion on an unprecedented scale. The results will set the scene for an annual research project and will provide a unique insight into how brokers are running their businesses, what challenges they face and what they believe the future holds.

The results of the research produced some surprises, and some results will cause red faces at insurers’ offices across the country, with complaints about service being almost vitriolic.

Consolidation dominates the findings, with 27% of respondents having concluded M&A deals in the past year. Not surprisingly 38% of those respondents who had received takeover approaches, had received them from Towergate.

“Soon, if you’ve no scale, you’re dead,” says one respondent emphatically. There was a clear consensus that consolidation is set to continue apace. The brokers were asked whether they anticipated their businesses being bought up, merged or closed within the next 18 months. Five per cent were already completing a deal to merge while a further 4% expected to do so within the next 18 months. A further 10% saw merging, or closing their business altogether, as a real possibility. Thus, up to one in five commercial broking firms could well have closed down or merged into other businesses by the start of 2009. As the report says: “To many, this will seem a sobering statistic.”

The consolidation has been driven largely by a handful of major players. As mentioned above, 38% of respondents had been approached by Towergate within the previous 18 months, and 32% had been targeted by Swinton. Equity Insurance Brokers, Willis, Oval, Cobra, AXA, Smart & Cook, Jelf and Giles were also named as potential purchasers.

What is driving independent brokers to sell or merge their businesses? Respondents pointed to: de-skilling in the insurance industry; falling profits; the growing burden of regulation; and the benefits, in money and improved business opportunities, that the consolidators had to offer.

According to one respondent: “In the present soft market, insurers are giving the pen to too many people. Insurance seems to have disappeared and premium is all that they are interested in – until a claim arises.

“Ludicrous price reductions are making the industry less professional by the year. There is too much funding available. The burden of the FSA is difficult to maintain as a small broker. A larger broker can afford a training division, compliance officer and HR department, but not the funds to employ someone to do the other work.

“I seem to spend far too much time doing jobs other than looking after my clients.

“Having said all of this, we have been successful in retaining a high proportion of business, but have still lost over £200,000 in premium in two years. There are too few

insurers dealing only with the independent market.”

There was a warning note for those throwing their lot in with the consolidators: many respondents felt that a hardening market could leave the biggest players overstretched and give opportunities back to smaller

brokers.

“Consolidators have little credibility with mid-market commercial buyers,” commented one respondent. “Effective products delivered by long-serving, relationship-oriented

personnel from an independent broker with market leverage and little debt have an increasingly strong position – thanks largely to the consolidators.”

And those staff newly working for consolidators can expect difficulties ahead too. “Consolidation is great for small broker owners. However it doesn’t seem too good for customers and senior team members, as the new owners come in and change practices,” warns one respondent.

“Senior team members who were big fish in a small pool often find themselves little fish in an ever growing pool.”

Brokers were given a rare opportunity to vent their frustration with the service they receive from insurers in the insurer service

section of the research – and they were quick to take it up. While there was some praise for particular insurers, the overall picture was of frustration and a feeling that brokers were often treated as troublesome middlemen, rather than valued partners.

Where are insurers going wrong? Many of the criticisms centred around staffing, with insurers either having too few staff, or seeming composed mainly of low-skilled school leavers with little or no understanding of the market.

There were numerous complaints about the difficulty of getting in touch with insurers, and offshore call centres came in for particularly scathing words. “We’re all fed up with pressing one for this and two for that and

listening to your tinny music and assurances that our call is important to you. If it was that important to you, then you would have enough people on hand to answer it,” said one irritated broker.

Policy documentation and shoddy claims handling were major bugbears, with errors wasting time and money for all parties. “The amount of incorrect documentation we receive is appalling,” said one broker from a large firm. “So much so that it is rare to get a policy that is all correct first time from certain insurers.”

Brokers’ experience of individual insurers varied, but there were some, for example Chubb and Hiscox, which regularly came out top of the pile. Brokers also confirmed that service was often as important, if not more important, than price, with many saying they would not hesitate to warn customers away

Much of the frustration stemmed from the struggle to make and maintain personal contact with individual underwriters. The once important function of an account manager seems to have dwindled away, with account managers either not existing, or being little more than ‘delivery boys’ for head office, with no influence.

Brokers also complained that account managers acted as salesmen for their insurer, selling new products rather than assisting the brokers with their business needs.

Despite their ire, 39% of the brokers surveyed had not made official complaints to their insurers – perhaps because they thought it would do more harm than good. But 16% had made one complaint, 31% had made two or three complaints and 14% had made four formal complaints or more.

The problems that drove brokers to complain were generally extreme delays in documentation, and shoddy claims handling – both areas which make the broker look bad when dealing with the end client.

Looking to the future, the research asked brokers for their predictions for the shape of the market in 2012. The number of brokers looks almost certain to continue falling, possibly by as much as one third.

Of course, start-ups will continue to enter the market, though they may find it challenging.

Schemes are set to be increasingly central to the broker market, with more than half senior manager respondents running at least one scheme, and many running more. Of the half running schemes, 81% believed they would increase in importance in the coming years.

A number of respondents thought that there would be three types of firms prospering in six years’ time – the large, the specialist and the large and specialist.

For brokers that currently fall outside these categories, there could be some tough decisions ahead.

These are just some of the insights from Newsquest Specialist Media’s massive survey of the broker market. With views as diverse as the respondents who gave them, it is difficult to draw one single lesson from the research. But what is for sure, is that brokers out there have a lot to say: it’s time for insurers to sit up and listen.