SME special report: growing concern

The SME market is a difficult one to navigate at the moment and certain sectors are tougher than others. More than ever, brokers are having to get to grips with how they can tap into new areas and how they can add value to the businesses they serve. It’s only by offering that little bit extra that brokers will be able to steer their way through troubled waters.

We take a look at the four main areas brokers should be focusing on, and we ask industry experts how brokers can ensure that they provide maximum value to SMEs.

1. Specialise in a new area

Making your mark in uncharted territory can be challenging, but it is vital brokers identify growth areas and develop fresh expertise to stay one step ahead of the competition. “We constantly have to evolve our skills set to meet the demands of UK plc,” Brokerbility chairman Ashwin Mistry says.

Three sectors present opportunities to brokers. The first, sparked by the successful prosecution of a company under the Corporate Manslaughter Act last month, is an increase in demand for professional services cover. “Corporate manslaughter is a phenomenal issue that is going to affect everybody. It is a great opportunity to cross-sell public liability and directors’ and officers’ cover,” Mistry says.

Then there are opportunities relating to environmental liability. SMEs now face a greater exposure to environmental liabilities following the inclusion of the UK in the EU Environmental Liability Directive in 2009.

The third potential growth sector for brokers is health insurance, as clients are expected to invest more in the private health sector instead of relying on the embattled NHS.

All good news for brokers, but how do novices avoid floundering when they dip their toes in fresh waters? The key, according to Jelf chief executive Alex Alway, is to know your product and to have a genuine interest in what you are selling. Brokers should identify the best route to market, either by developing a relationship with a carrier or by liaising with a wholesale broker specialising in the area. “The best approach is to work out who’s best in the market. Whether that is the wholesaler or provider depends on the niche,” Alway says.

Biba offers schemes that allow brokers to enter into arrangements with a wholesale broker, in order to tap into certain market segments. Biba technical services director Steve Foulsham says this can help brokers break into areas where they could otherwise struggle, such as environmental liability.

The commission is divided between the broker and the wholesaler. While the divide can be as high as 50%, Foulsham says this is a price worth paying to gain an edge over competitors. He says that as brokers become more familiar with the product, they can develop their own expertise and bypass the need for a middleman. “At the beginning of this process, you are reactive, but once you become confident you can become more proactive.”

2. Manage your risk

Concerns sparked by the Corporate Manslaughter Act, as well as the ongoing need for firms to cut costs by making redundancies, mean employers are worried about their ability to ward off legal problems. A successful lawsuit could cripple many companies already struggling in today’s tough trading environment.

That puts risk management services at the top of many SMEs’ wish list. “Many organisations are pretty close to the water line,” Airmic chief executive John Hurrell says. “They may still be trading, and in some cases profitably, but it doesn’t take much to put them below the waves.”

But he warns that brokers must pay more than lip service to this concern. Those that want to tap into the appetite for risk expertise must invest time and money in the issue. “If brokers want to promote this option as an unbundled service with a view to getting additional fees, there is no short cut. Clients will look for best levels of expertise; they will look for technical knowhow,” Hurrell says.

This means investing in people with the right credentials, such a qualification from the Institute of Risk Management, as well as in property surveyors and accountants with business interruption expertise. Staff with environmental, governance and health and safety expertise are also valued. Mistry says the government’s recent cutbacks to the Health and Safety Executive have opened up a new recruitment ground for brokers in search of people with skills in this area.

“There will be a gap in this provision, and this offers an opportunity for brokers to pick up health and safety inspectors that the government and other agencies cannot afford to provide,” Mistry says.

While the cost of investing in new areas such as these may be offputting for budget-conscious brokers, experts are confident the investment will reap rewards in the long term.

3. Stay local or go national

Go large or stay small? That’s the question facing many brokers when measuring the value they can add to a client. There are many benefits to becoming a big fish in a small pond, as regional brokers are well placed to develop strong relationships with businesses in the local community.

“The SME sector prefers regional brokers. Everyone is scrapping for business and SMEs like dealing with someone on their own patch,” Alway says.

To develop a strong presence in a region, brokers should identify the dominant trades and businesses in the area and tailor their offerings accordingly. Joining a local chamber of commerce is a good way for a broker to increase its profile. Meanwhile, attending local trade fairs or hiring a marketing firm to produce a database of local businesses will help identify opportunities.

But it is widely recommended that the best route to becoming the local broker of choice is to maintain a personal touch through meeting clients face-to-face, so you are constantly in tune with their changing requirements.

“The broker should be the trusted professional for his or her area, rather like the local solicitor or local accountant. The regional broker has a major role to play in the SME sector,” Foulsham says.

Brokers with a niche specialism also stand to gain from the larger market on offer nationwide. Answer Network chief executive Paul Muir says: “If you have an expertise in a product or in writing that product in a quick and effective manner, a national focus is a good fit.”

If a broker decides to make the leap from regional to national level, processes such as electronic trading must be top notch.

“You have to learn your product inside and out. Make sure you are comfortable with the team that is offering and selling that product and make sure you have a system that is robust enough to deliver a very good service to customers,” Muir says.

The decision to stay local or go national depends on the direction the broker wants to go in, he adds. “Whether you are expert in a certain type of product should be the deciding factor in whether you target business nationally or not. If you are a good, strong commercial SME broker across general lines, you should be looking primarily at your local business.”

4. Engage with claims

It is often at the point of claims that the true value of the broker becomes clear to their customers. In a survey by Biba across its membership, 93% of brokers said they regularly negotiate up to a 20% uplift on claims on behalf of their clients.

Meanwhile, three-quarters (76%) of brokers said they had secured an increased payment for a claim over the past year following an initial lower offer from the insurer.

“With any policy, the proof of that policy can be seen in the claims operation. So every broker needs to engage in the claims process with their clients,” Foulsham says.

It can be a hard slog, but these issues are presenting new opportunities for brokers. Many are offering the services of client-facing loss adjusters or loss assessors as an add-on option for clients in packages.

As the pressure on clients mounts, brokers are looking to promote this option more proactively. Not only does this add-on offer another incentive to clients, says Foulsham, but it can also reduce the pressure on brokers at the point of claim.

Towergate retail broking division chief executive Jonathan Walker says brokers can adopt a range of strategies when helping clients through the claims process, including chasing responses from insurers, speaking to insurance claims handlers and keeping the client informed.

“Where required, we will do the legwork on behalf of the client,” he says.

But Walker warns that brokers must choose their battles carefully. It is important to avoid a one-size-fits-all approach to the claims process and recognise that each case must be treated on its own merits.

Brokers oversee a balancing act of weighing the needs of the client against the position of the insurer. If the broker continually adopts an aggressive position with an insurer, especially on weak claims, this could jeopardise future business relationships with that provider.

The overall message is clear: if brokers wish to keep their clients happy when it comes to renewals, providing sound advice and attentive service at the point of claim remain vital.

Walker says: “It is important the client feels that their broker is working hard on their behalf and it is never more important to do that than at the claims stage.” IT