Direct threat

Selling insurance direct to small and medium-sized enterprises (SMEs) is in vogue, with Royal & SunAlliance, AXA, Zurich and Norwich Union all ramping up their efforts. Brokers, on the other hand, have been strangely quiet about a direct attack on an area that was 18 months ago described by a senior broking figure as "the brokers' heartland". There are even reports of brokers introducing clients to insurers' direct arms.

IIB director-general Andrew Paddick says that plans of insurers should not worry brokers. He believes that the types of business that insurers will attract will be those that are semi-professional, very small or finding it hard to get insurance. Put simply, they are the types of businesses that brokers don't really want.

"My view is that [insurers will] get a lot of the bad business on their direct books," Paddick says. "Most SMEs actually do want a professional adviser. They have an accountant, a lawyer and an insurance broker and they're absolutely essential."

He said that in the majority of cases, it is not economical for brokers to services SMEs whose premiums are around £1,000 or less.

"The vast majority of SMEs will stick with professional advisers. I don't honestly see it as an enormous threat," Paddick says.

Folgate Partnership chief executive Andy Homer is another who is unconcerned about the moves of insurers, providing they "recycle" unfulfilled inquiries back to brokers. But Homer says insurers will find cracking the SME channel "difficult". In order to ramp up its own SME presence, Folgate is rolling out its Riskline telephone-based small business servicing proposition across its office network.

Barrie Wells, executive chairman of SME online and telebroker PremierLine, says that in two years of business, he has found that about a quarter of SMEs are willing to

purchase through direct channels, such as the internet. He believes the moves of insurers will threaten the businesses of traditional brokers. "Certainly if [the insurers] set their minds to it, they will be successful," Wells says.

But he warns of a bigger threat just around the corner, if the direct writers, who have no issues of channel conflict, wade into SME.

Stuart Alexander managing director Stuart Reid is cautious. Reid says that while in most instances, SME's buying decisions are based on service and cover rather than price, this is not true of all sectors.

"Of course it's a threat. Insurers have a brand, brokers don't have a brand. The brand wins," he says.

But Reid says some small businesses might be turned off by the realisation that insurers can only offer policies underwritten by one company rather than a choice of products.

"I don't think anyone knows what the demand will be," Reid says. "The jury's out."

Despite the uncertainty around whether or not SMEs will actually convert to the direct channel, Royal & SunAlliance (R&SA) UK commercial director Brendan McManus says that R&SA plans to further expand its plans to sell direct to SMEs.

This follows an announcement by the insurer in January to use its More Th>n consumer brand to sell cover direct to SMEs, transferring around 10,000 existing direct customers into the channel.

McManus says: "What we want to do is leverage that and grow some more through brokers. But we also want to take advantage of an increasing desire of customers to go direct. We've already launched More Th>n direct and we will continue to invest in that brand. That's going very well so you can expect to see a lot more from us there."

He says that while the insurer is aware of the channel conflict of selling business insurance through both brokers and direct, it believes it has handled the move well.

"When we did it we decided to be really up front about it and tell everybody what we were doing so that it would not be a surprise," McManus says.

"Now its down to the customers. If they choose to go in that direction, that's down to them. But what were not doing is incentivising customers to go direct, we're just giving them the choice."

McManus says that rather than receiving negative feedback, "quite a few" specialist brokers have approached R&SA wanting to offload SME customers from their books to More Th>n, in return for an introducer's fee.

R&SA's approach differs from that of Zurich, which was recently criticised by brokers for sending letters to SMEs inviting them to renew direct with the insurer.

Zurich has sold direct to SMEs through its business insurance division for three years. It bought databases of SMEs' contact details along with renewal dates and began writing to them only in January 2003.

While the lists are cross-referenced to ensure and there is no overlap with Zurich Commercial's customer base, they are not checked against Zurich's broker agency base.

But Zurich has defended the strategy. A spokeswoman said the insurer is a multi-channel operation and is merely giving customers a range of buying options.

Norwich Union (NU) has based its decision to begin piloting direct sales to SMEs over the internet on test-group research, which found that a majority of commercial inquiries were taking place after-hours on the internet.

Tim Rolfe, NU's director of distribution development, says that the products would be priced the same as broker products and any unfulfilled web inquiries will be diverted back to local brokers. He says that the offering is aimed at brokers with premiums in the low hundreds of pounds. "If the demand for e-trading is there, it will only affect a minority of business," Rolfe says.