It’s a tough time to be small

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It’s all very well telling brokers not to let the recession get them down – but it’s hard to find opportunity when there is less of it around

Chief executives at big broking houses tried to persuade their peers at the Biba conference last week that they shouldn’t allow the economic downturn to get them down.

However, with confirmation that the UK is officially back in recession, and that the 0.3% dip in the economy in the first quarter of this year was worse than the 0.2% drop the Office from National Statistics had predicted, it’s tough to be cheerful.

The big broking heads argued that the downturn presented opportunities for brokers. In one sense they are right – buyers of insurance need good brokers more in tougher times to help them find the right deals and restructure coverage to arrive at a cheaper price. Brokers have an opportunity to shine in such conditions, as this kind of deal-making is their stock in trade.

This is only true, though, where brokers actually have business to place. The biggest reason for the 0.3% drop in the first quarter was a 4.8% slump in construction. If there are fewer construction projects to insure, all the deal-making prowess in the world is not going to plug this gap.

Also, some of the opportunities discussed by the larger brokers will not be enjoyed by the smaller firms. A recession may create prospects for acquisitions as weaker brokers throw in the towel, but only for those with the capital or borrowing power to finance them.

Other opportunities discussed were emerging pockets of new business, such as academies. But while it might be a snap for a larger firm to hire new expertise, expanding into new areas is much tougher for smaller firms with less money.

Another opportunity is international expansion. While construction, for example, may be shrinking in the UK, it is booming in the faster-growing emerging economies such as those of Brazil, China and the Middle East. But setting up abroad is a cost and risk that few smaller UK brokers can afford.

Brokers of all sizes are smart, and will find ways wherever they can to add value and get paid for doing so. Some will survive, either because their area of specialism is recession-proof or they have enough excess costs to cut that they can ride out the downturn. Others will inevitably end up in the hands of the consolidators.