Where next for personal lines?

The demise of the broker in the personal lines market has been widely predicted since the mid-1980s, first with the growth of the presence of ‘direct’ insurers, and then the development of insurance businesses amongst the large retailers and supermarkets.

The more recent online aggregator model has added an additional competitive force, and made it easier for policyholders to shop for the very best deal each and every year. With the vast majority of brokers unable to compete with the huge IT and marketing budgets ploughed into these sectors by the competition, there’s no doubt that the broker sector has been substantially squeezed, and huge numbers of smaller high street brokers have disappeared.

But it certainly hasn’t spelled the end of the broker in the personal lines sector, and in fact those specialists that remain have prospered. Some have stayed in the more mass market lines of standard home and motor, but through investment and acquisition have been able to continue to develop their businesses despite the competition.

Others have focused increasingly on niche sectors and, having carefully refined and targeted their marketing efforts, have been able to build dominant market positions in their chosen areas. Sectors covered here include motor bikes, classic cars, overseas homes and travel.

Some brokers have gradually increased their focus on the mid and high net worth sectors. Despite there being numerous definitions of the boundaries of these markets, it’s here that there is still an opportunity for brokers to add value to the process through advice in areas such as the choice of insurer, claims process, home security and many issues relating to the actual structure of the policy. The clients appreciate the personal service that brokers offer, which is so different from the call centre delivery in the mass market sectors.

This general move away from volume home and motor for many brokers is a natural reaction to the influx of powerful competition. It has also taken brokers into areas where renewal retention rates are higher, and mid-term cancellations are fewer.

As is always the case, those brokers that haven’t reacted to the changing market dynamics will be the ones in danger. The process of identifying threats to business lines is vital, and if these are not identified or are ignored, then increasing lapse rates and reducing revenues will follow quickly.

For brokers to flourish in the personal lines sector, they have to be thinking well ahead about who is trying to take their market share and, equally important, about where the next opportunity is and how this can be accessed through the appropriate product and marketing.

This is now a continuous process because it seems pretty clear that the pressure on margins in the volume sectors (driven by the aggregators and the increased focus on price as the sole factor for many buyers) will drive more insurers to niche sectors, searching for profit in personal lines.

The experience of the past 25 years has shown that the best personal lines brokers will survive and prosper, but their sector focus in 10 years’ time is likely to be different from where it is today. IT

Stephen Lark is group managing director of Lark Insurance Broking Group.