Which broker schemes were most profitable in 2023?

Earlier this year, Insurance Times reported on how broker schemes could present an opportunity to better serve clients’ needs with specialism and expertise while diversifying their businesses.

Delegates at Insurance Times’ BrokerFest 2023 event in February 2023 heard that to better compete in the broker market, they would need to make the decision to emphasise either scale or specialty – schemes provide the avenue to pursue that specialty, but which lines are the most profitable?

According to the latest Insurance Times Schemes Index, the scheme type with the biggest growth in brokers’ commission earnings for the period encompassing October 2022 and April 2023 was in medical insurance schemes, which saw a 33% increase over the period.

The total commission earned by brokers operating medical insurance schemes in this same period increased by £80,168.

The schemes with the highest percentage increase in total commissions after medical insurance were caravan and trailer schemes and pubs and clubs schemes – which saw 30% and 28% increases respectively.

Produced in association with software provider SchemeServe, the latest biannual Schemes Index provides a snapshot of the most profitable schemes businesses for brokers by comparing the data for the period between April 2022 and October 2022 with the period between October 2022 and April 2023.

Medical insurance, pubs and clubs and caravan and trailer schemes were also among the top schemes included in the Schemes Index for increases in total premiums earned over the period.

Pubs and clubs schemes operating on SchemeServe’s platform saw an increase of £1.6m in premiums earned over the most recent period of analysis – the only schemes type to break £1m of growth in premiums earned over the period.

Medical insurance schemes came in second in the increase in total premiums earned at £402,564, while caravan and trailer schemes grew by a total of £209,016.

Adam Bishop, chief executive of SchemeServe, explained: “Caravan and pub and clubs have seen something of a resurgence in the last six months, however our latest data show that the general decline in schemes that begun during the pandemic has continued in [the latest period of analysis] across many lines, including cyber and public liability.”

Cyber performance

Cyber schemes grew strongly during the pandemic and increased in volume by nearly 500% – but the last 12 months have shown a steady decline in the performance of these schemes.

Across the latest period, the total commission earned via schemes operating in this line fell 31% – the second largest decrease in the index and equivalent to a fall in total commission earned of £111,711.

Total premiums for cyber liability fell by a similar amount, tumbling 26%, equivalent to a decline of £476,258.

As might be expected, the amount of cyber schemes policies sold also fell by 496, down 31% from the previous analysis period.

The amount of cyber scheme policies renewed fell by 175 (28%), while new policies fell by 321 (34%).

Commenting on the slowdown in cyber scheme performance, Bishop said: “Incidents of cyber attacks are widely reported to have dropped during 2022, while premiums rocketed – commentators in the market also tell us that brokers continue to find this type of cover difficult to sell.”

This slowdown in the profitability of cyber schemes for brokers is perhaps the result of the cyber market becoming more established – despite this, however, many risk managers working in the UK are reportedly struggling to understand the product.

Speaking at the Airmic annual conference in Manchester last month, Marsh’s UK cyber growth leader Brian Warszona said: “We have seen businesses looking to understand the answers to key questions around cyber insurance – ‘what is covered, what is it and what benefit does it bring to my business?’”

The decline in the popularity of cyber insurance schemes is somewhat surprising given the increased risk that UK businesses face from cyber threats. In July, Howden released its annual Coming of Age report, which warned that ransomware attacks surged by nearly 50% in the first half of 2023, compared to the same period in 2022.

Movers and shakers

Outside of cyber and some of the more popular lines, what other types of scheme make for interesting results?

The Schemes Index measures the change in volume – or amount – of certain schemes operated on SchemeServe’s platform from reporting period to reporting period, the change in premium generated by these schemes and the change in commission that brokers generate as a result.

The index further breaks down its reporting into first premium, new schemes and renewals, allowing for investigation of the trends in schemes that can provide long term utility for broker firms.

The scheme that increased in volume by the most in terms of sheer numbers was breakdown, with 9,094 more policies in force on SchemeServe’s platform across the period of analysis when compared to last year.

Proportionally however, this volume remained largely stable when compared with the previous period, with only 5% volume growth. In terms of the change in premiums earned, breakdown saw a slight fall of -4%, which was equivalent to £187,629 less than the previous reporting period.

Despite this fall in earned premiums, the index showed that commission actually rose by 14% in the most recent period, growing by £38 when compared to the figures for last year’s commission earnings.

In terms of long term trends, those schemes which show high growth in the amount of premium generated by renewals can signal an area that is both stable and growing.

The best performing scheme for growth in the percentage of premiums generated by renewals was vessel insurance, with 38% more premiums generated by renewals than in the previous period.

First purchase premiums for vessel insurance schemes also grew by 66% when compared to the previous period, contributing to a total of 53% growth in premiums in the most recent analysis.

This is not to say, however, that vessel insurance generated good growth in commissions. Indeed, schemes of this type actually saw a 21% fall in total commission, albeit for a low total sum decrease of £401.

The other best performing scheme types by renewal premium percentage change were pubs and clubs, household, caravan and trailer and car insurance.

In comparison, the best performing schemes for positive growth in renewal based commission percentage were household (34%), pubs and clubs (32%), caravan and trailer, specialist combined (17%) and breakdown (14%).

Worst performers

While it can be enlightening to reveal the types of schemes on the up, it is also vital to examine those lines that have seen decreases in premiums, commission amounts and volume.

When compared to the previous period between April 2022 and October 2022, aviation schemes operating on SchemeServe’s platform between October 2022 and April 2023 saw earned commission fall by 87%, equivalent to a decline of £165,944.

Total premiums earned by aviation schemes also fell by 86%, equivalent to a decline of £786,841. This decline can be somewhat explained by a 92% decrease in the policy volume when compared to the previous reporting period.

The second largest decrease in commissions earned belonged to cyber schemes, as discussed above, but the other scheme types filling out the top five for declines in commission earned were marine cargo, the aforementioned vessel insurance and personal accident.

In terms of volume, the lines that declined the most were aviation (-92%), cyber liability (-31%), personal accident (-16%), commercial property owners (-8%) and medical insurance (-7%).

And where total premium declines were concerned in terms of hard currency, the biggest losers were commercial combined schemes (-£1.5m), combined liability (-£1.3m), commercial property owners (-£987,423), aviation and marine cargo (-£682,712).

As SchemeServe noted, “the second half of 2022 showed a drop across the board on most schemes in terms of volume and total commission earnings and the data shows this trend continued into the first quarter of this year, with only a few notable exceptions”.