Year of the independent?

It has been a tough trading year for brokers, by any measure. Rates have continued to soften, there has been pressure on remuneration levels and the credit crunch continues to make the headlines. This all puts pressure on margins.

Customers are becoming more demanding as the economic screw tightens and we cannot take for granted the retention of our existing clients – or the winning of new ones.

Against this backdrop, you’d expect the insurance market, and brokers in particular, to share the pessimism that has swept through the financial services industry. However, my recent conversations with independent and national brokers show that the opposite is often the case. The best brokers seem to be doing well, winning new customers and growing revenues.

Although the financial crisis continues to play out, with the next set of output figures sure to confirm the UK’s recession, I believe there is cautious optimism about business prospects for 2009.

At the end of last year, consolidation was on everyone’s lips. The seemingly endless stream of deals meant many predictions of the imminent demise of the independent broker. Sure, there was a flurry of activity in the first quarter of this year – and there have been some notable deals among the broking giants – but broker mergers and acquisitions have slowed as the credit crunch takes its toll. In 2009, broker acquisitions will be closer to the long-term average.

It certainly appears that the multiples being offered have come off and there are fewer buyers out there.

Who knows, 2009 could turn out to be the year of the independent broker. There appears to be a hard core of quality brokers committed to independence, many of them now run by the next generation of young, dynamic boards.

I also expect a flurry of broker start-ups in the latter part of next year and early 2010 as credit restrictions begin to relax. There are undoubtedly teams and people out there ready to make that move. The only short-term constraint, although an important one, is access to funding.

It could also be the year when the word “consolidator” begins to slip from our vocabulary; look at the so-called consolidators and you’ll find that the one thing they have in common is that they have all grown through acquisition. Beyond that, their business models, the way they interact with insurers and their client propositions, are all different.

E-trading also will continue to gather pace next year, with more and more small/micro businesses choosing to buy insurance online. Many predict that direct insurers will be the main winners. I disagree. One look at the private motor market shows that many of the most successful insurance businesses – measured by growing revenues and profits – are brokers. They are nimble, understand their market dynamics, know how to cross-sell and they have a broad footprint. The same will be true for the small business market.

I expect the winners to be brokers who adopt e-trading solutions and insurers who can back these solutions with low-cost, quality products and service.

And for insurers? With capital at a premium, I expect to see a hard market return during 2009. Good old-fashioned underwriting will be paramount and insurers will be forced to focus on service delivery. They will have to, because brokers will demand it.

So, as 2008 started with some market commentators suggesting the imminent demise of the independent broker, it ends with the broker sector as buoyant as ever with nationals, consolidators and independents competing head-on to win and retain customers.

This is good news for customers, for the long-term future and success of the broker market – and the insurers who play in that market.