Expert view: Informed placement

As both insurers and brokers work towards improving their margin, they look to better and more effective ways of trading. It is a simple equation: increased income minus reduced costs, equals more profit.

Increased income means: for brokers more brokerage/fees; for insurers, increased premium. Conversely, both parties will seek cost rationalisation. For insurers, claims costs reduction could be the Holy Grail, but claims, like death and taxes, are a part of life and the foundation of the business we are in. Most businesses have gone through cost rationalisation on multiple occasions in recent times, and there is little fat left for brokers and insurers to lose. The only remaining element to shift the equation is therefore increased income. (Of course there is the ongoing move towards enhanced technology to reduce transactional costs, but that is a separate subject in itself).

One area that remains a key focal point to increase income for both insurers and brokers, is the rationalisation of trading partners, whether it be from insurers who “want to offer more to fewer”, or for brokers who want to “optimise trading with their chosen partners.”

In reality, what do these really mean?

Brokers want an enhanced (and exclusive) client proposition, to allow them to win new business and retain their existing account, and to get paid more for doing it. So why would an insurer offer to take on potentially more risk for a greater acquisition cost? Answer: because they want the ability to access and write more premium and it is the compromise they are prepared to make provided there is value and service delivery.

To “formally” reduce your trading partners, you need to undertake an increasingly resource heavy tender selection process. As the regulatory focus around this type of methodology intensifies you may prefer to seek another approach. There are alternative methods that can offer simpler and more effective routes to achieving a comparable outcome, whilst maintaining a client-centric approach.

Simply put, brokers need to look at their own business and challenge the status quo - who sits within their own insurer panel, and why? Informed decision making is not about saying no; it is about saying yes for the right reasons. If you have to have a particular specialist insurer agency to access a certain essential coverage for one of your clients, then so be it. Just know why you are doing it.

I met a broker recently who places business into 70 different agencies. Unsurprisingly, the top 20 represent over 92% of their total premium. That means there are 50 agencies making up the remaining 8%. Within that 50, there are 20 writing just one policy which equates to less than 1% of the total portfolio each. There may be absolutely sound rationale for each and every placement, with the client at the heart of the logic. But could one of the top 20 have taken on 1 more policy and delivered the same (or better) client solution? …

My background, together with my role at Willis Towers Watson Networks, gives me a unique insight into the power of strategic placement and portfolio optimisation. Both are tools we deploy to support our Network Members in growing their businesses.

We take the time to work with our Network Members, supporting them in analysing their portfolios and, often with a few changes, optimising placement whilst keeping their clients firmly at the heart of what they do. Each Network Member has individual requirements, so there is no ‘one size fits all’ approach. Our expertise and relationships with insurers help to benefit the Network Members’ own relationships, to achieve a better client and business outcome, by working smarter.

At Willis Towers Watson Networks we work hard with our Network Members to optimise placement. To find out more about how we could help you and your business please visit www.wtwnetworks.com or contact me directly.