Going the distance

With consolidation starting to slow down in the broker market, the need for succession planning has never been more acute. Jessica Pothering highlights the challenges of guiding a company towards a happy and healthy future

'In good times and in bad' is a familiar phrase, and one that should be resonating with brokers and their clients more than ever. The current financial climate is tough and brokers simply cannot afford to turn a blind eye to their long-term future any longer.

With cash at a premium, consolidators have pulled back from the heady days of rolling acquisitions, meaning brokers can no longer hold tight waiting for a buyer to come calling. In addition, as it is still unclear how severe the banking crisis will be, there is no timeline for when consolidators will start acquiring again. As such, brokers must now look at succession planning and start preparing for the day when they retire.

The trend for most brokers has been to focus on immediate client needs over long-term business plans, according to John White, managing director of financial services at RSM Bentley Jennison. "Most owners in the sector are more concerned with selling insurance than being a businessperson, learning about operations and thinking about them strategically," he says.

Financial Services Authority (FSA) regulations require companies to have a succession plan in place. However, for most small to medium-sized broking firms, these tend to resemble emergency evacuation procedures more than strategy and development planning. In addition, most companies have little protection in place should there be a sudden death or serious illness among their leadership team.

In a sector that depends on building and maintaining client relationships, brokers cannot afford to be so short-sighted. Shaun Crawford, head Ernst & Young's insurance practice, explains: "Brokers depend on their client base and if their relationships fall apart during a succession, their businesses won't survive. Building relationships that can survive tough times is important and brokers need to show clients they are not only buying a company name, they are buying an ongoing relationship."

The critical question is figuring out how to turn over their client relationships when a new business leader steps in. As Mr Crawford points out, relationships do not transfer easily - brokers need to establish a process for passing on their businesses several years in advance.

So how do they start planning? Consultants to the insurance industry agree that succession planning begins by identifying company goals and direction and considering what leadership skills are needed to move the business forward.

Clare Ryder, managing director at Salient Solutions, says: "Succession planning has its place as both a long-term and immediate exercise. While it is important to develop strong management skills for the long-term, it is equally vital to identify skill gaps that could impact on a business in the immediate future."

However, Lyndon Wood, chairman at Moorhouse, believes the broking sector as a whole looks much the way his company did four years ago, when he served as the senior manager for every division, from operations to human resources. "Most solitary managers are too involved with the day-to-day tasks to focus on how to grow their business, so it's crucial to get the right team of directors in place to think about long-term goals and direction," he says.

It is generally agreed, however, that there is a dearth of management skills in the market. Buying the talent needed to fill the leadership gaps in a company can come at a premium, as it did for Moorhouse. Mr Wood explains that he was willing to pay for the best people in the market but, even so, it took him three years to get his current team in place. The other option is to train and develop staff internally. "This takes longer," Mr Wood comments, "but it's beneficial because those on the inside already know the business and its culture."

Charlotte Prow, joint managing director at Wilson Insurance Brokers, admits this can be challenging: "Change is difficult, especially for small companies that have operated under the same leadership for a long time. People can be resistant to change in a company and it slows down the process."

Handing over control

Wilson has started implementing a succession plan as its current chairman, John Prow, will soon be handing over control of the business - and its 85 staff - to his two daughters. Ms Prow says this process has required a full revaluation of the company values, implementation of new professional development initiatives and a review of the employee appraisal process. "We have been able to cope with the challenges by communicating with staff openly about the changes and helping them understand why they're necessary and what it will mean going forward. We've also tried to give our staff opportunities to provide input and share their views, especially in developing our values and employee appraisal process."

Initiating a succession plan can be costly and challenging, especially for small businesses. While some companies may argue that the current unpredictability in the financial market does not warrant the additional strain, particularly on small companies, a broker's ability to build and maintain relationships could offer it a unique advantage in the short-term and put it in a strong position for the future.

By putting in place a process for turning over business leadership, brokers can reassure clients they are committed to maintaining their relationships. "We may see a push back in people wanting more personal relationships. Trust is a now a big issue in finance," Mr Crawford concludes.

SUCCESSION PLANNING TIPS

By taking the following steps, a company will ensure it has the necessary skills and resources to achieve its business objectives:

- Define business size, strategy, position in the market and future plans;

- Identify key roles within the business and areas where skills are needed or where one person manages numerous functions;

- Focus on building a strong HR function;

- Consider how to balance external recruitment with internal skill development;

- Devise a competency framework for both external candidates and current staff;

- Update the plan regularly as both the business and individuals develop.

Source: Salient Solutions.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@insuranceage.co.uk.

You are currently unable to copy this content. Please contact info@insuranceage.co.uk to find out more.

You need to sign in to use this feature. If you don’t have an Insurance Age account, please register now.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: