News analysis: Return of the local broker

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As the middle has been hollowed out by consolidators Insurance Age learns of a resurgence in small, SME focused brokers with service at their heart

The insurance industry is currently seeing a resurgence of the smaller regional broker, with an abundance of new businesses reportedly setting up shop.

There have previously been concerns that the aggressive pace of consolidation could lead to a hollowing out of the sector, after many of the large and medium-sized independents were snapped up by eager buyers.

But, as it turns out, this is far from the full picture. Experts have argued that, while it is true that many of the familiar broking brands have been bought in the last few years, the sector is being repopulated by start-ups hungry for growth. 

And while they do not yet fill the gap that the medium-sized brokers left behind, it is clear that the often predicted demise of the insurance broker has, once again, been put on hold. 

According to experts, consolidation has also traditionally been one of the main drivers behind people setting up new broking businesses, as some people are unhappy with the culture in a larger organisation, while others fear that redundancies are on the horizon as a result of integration.

Rise in ARs

Colin Halliday, broker relationship director at appointed representative (AR) network Ten, stated that he is seeing more enquiries coming through now than he did this time last year. 

“People working for big national brokers express a frustration that they’re no longer allowed to deal with clients that they dealt with previously because the income that those clients produce for the broker is under the limit,” he noted.

“An account executive can only go and see a client if they generate x amount of income for that brokerage and anything under that amount is dealt with by another part of the business, often a call centre.”

He argued that irritation about this sort of rule has led to an increase in start-up brokers with a heavy focus on local service, as businesses look to go back to more traditional broking to meet demand from SME customers.

Is now a good time to start a business?

“Consolidators have taken a lot of the mid-sized brokers and that is a great opportunity for people to go in and win clients and grow their own businesses. 
“People have also got used to having a different lifestyle and working in a way that suits them and what they want to achieve. It’s fantastic for people to start up and control their own agendas.” 
Howard Pepper, Momentum

“Now is a perfect time to start your own business – the economy is buoyant and new businesses are opening up. 
“Any broker starting now should be able to attract new business from companies that are small but growing and, as the businesses grow,  the income for the broker will be growing too.”
Roger Gaunt, Gauntlet

“All of our ARs are regionally based and they know their clients and the local area because they’ve looked after these clients for a number of years. This is probably the best time to be doing it.”
Colin Halliday, Ten

“One problem has been the comparison websites, but they’ve now gone full circle. They’re cheap but when people start having claims that’s when the problems start. 
“People now want to deal with a human rather than a call centre and that’s the biggest opportunity at the moment.”
Nathan Waters, Waters & Co

“A good opportunity for a new broker is when people are dissatisfied in terms of premiums going up. It’s a good time because people will look elsewhere. 
“Given PI prices are on the way up it’s an easier conversation to have with someone when they’ve just found their premiums have increased.”
Michael Filson, Coverex

“A lot of businesses have had to close because of Covid and there’s been a lot of reductions on cover. 
“Now more than never businesses will value a broker and see the importance of a broker to help, not just with business interruption claims, but also with guiding and advising on what’s needed.”
Tom Baker, Instinct IRM

Halliday continued: “Consolidators are always looking at cost and, if they’ve got two offices within a five mile radius, they will close one down. The locality gets taken away and the new brokers that come out and start up can fill that gap.  

“Insurance has always been a people-led industry and I don’t think we’ll ever destroy how valuable it is to see someone in person.”

Gauntlet Group managing director Roger Gaunt noted that he had also seen a significant increase in approaches from people who want to become ARs.

He argued that consolidators “seem to be overly aggressive with their placement policy”, encouraging staff to place business with certain markets over others.

“This doesn’t sit well with the more established account execs who have been looking after clients for a long time and want to respect the clients’ wishes to stay with a particular market or go to another market,” he explained.

More opportunities

Gaunt further noted that, as the larger brokers continue to centralise their services to SMEs, this opens up opportunities for other brokers.

“The SME community isn’t being looked after in the way that they want to be looked after,” he continued. “Because of the pandemic we’re seeing a resurgence of start-up businesses that want to talk to a local broker for advice. The community around wanting to support local businesses is quite powerful now and we’re going to see an awful lot of start-up brokers.”

Howard Pepper, MD at Momentum Broker Solutions, added: “Consolidation is healthy from a start-up perspective because it gets people thinking about their futures and what they want to be doing.”

He noted that the pandemic and the UK-wide lockdowns had also led to people wanting to start up on their own. “There is lots of activity at the moment and we’ve had a number of new joiners,” he said. “The lockdown world and working from home has probably had an impact on that.”

The drive to provide advice to local businesses is one of the reasons why Nathan Waters founded Waters & Co Insurance Services, which started trading at the end of May as an AR of Gauntlet. 

“A healthy sign”

Steve White, chief executive of the British Insurance Brokers’ Association, noted that it is “difficult to tell” whether there are more brokers starting up at the moment than there have been previously.

He added that new brokers starting up is a “healthy sign” that the sector is continuing to thrive.

But, White warned: “The pandemic has given a lot of people the chance to have a think about that work life balance. 

“Clearly if you’re going to start your own business you need to be confident that you’ve got the support of potential customers and whether you can guarantee that during a pandemic or not is hard to tell.”

Waters explained that he had decided to go out on his own partly because there were no chances of career progression where he worked previously and partly because he was unhappy that the business had started moving away from focusing on client service.

“I had got into it to focus on local communities and relationships and to make sure service isn’t something that’s just spoken about but is something that happens,” he stated.  

Waters argued that there is a “massive lack of service” across the industry, which leads to an opportunity for new brokers to step in. 

Based in Southbourne, Dorset, he further noted that there are no other brokers in the local area and that he aims to become a one-stop-shop for local businesses.

Attracting customers

According to Waters, the battering the industry has taken over business interruption cover during the pandemic is another opportunity for new brokers to attract customers.

“The reaction wouldn’t have been as bad if customers had been correctly informed at the beginning and a lot of people will be shopping around this year for that reason,” he argued.

Meanwhile, Tom Baker, director of Instinct Insurance & Risk Management, which started trading in January 2021, stated that he had always wanted to set up his own company. He saw an opportunity to fill a gap in his town of Stone, in Staffordshire, after he claimed the only broker that was previously based there closed its doors after being bought by a consolidator. 

“I would like to go traditional and give some employment back to the area if I could,” Baker explained. “It’s what the town where I live is very much about, they support local business. I’d love nothing more than to be able to help the businesses around town, walk down the high street and know all of the business owners.”

He further agreed that centralisation within the consolidators is an opportunity for brokers that wish to go down the more traditional route.

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Traditional route

“I genuinely think the industry is very much built upon relationships – both with insurers and with customers,” he added. “Visiting clients is key to doing the best job you can do for them. This is my town and I want to help them get the best insurance deal I can, I want the businesses to thrive.” 

Similarly, Michael Filson set up broker Coverex, an AR of Ten, in November because he saw an opportunity to bring back the “personal touch” to customers. 

“At the lower premium end of the market people still like to have a chat and a trusted adviser to talk to and, if you take that away, they don’t necessarily feel the support,” he added.

Filson further stated that starting up is “quite daunting”, which is why he had decided to become an AR

“One of the things you don’t want to have to do is get wrapped in with the back office stuff,” he continued. “It’s almost a job in itself to keep up with all the regulation out there and one person doesn’t want to be spending a lot of time on that whilst trying to develop a business.”

Network support

David Hopwood, chief executive officer of GRP-owned Hedron Network, argued that brokers looking to start up often go down the network route in order to get support around compliance, IT and – most importantly in a hard market – access to insurers.

“What’s hardest for any new start-up is getting the infrastructure they need to support their clients,” he explained. “It’s a difficult marketplace to come into with reduced capacity.”

He added that, in addition to start-ups, Hedron is also seeing an increase in enquiries from brokers that set up as ARs a few years ago and have now gained enough scale to want to become directly authorised by the Financial Conduct Authority.

Hopwood noted that the upswing in new brokers is good for the whole industry, including insurers.

“It gives insurers the opportunity to deal with a broader audience,  which enables them to not be as restrictive in what they can offer,” he argued. “Dealing with the bigger consolidators is a harder negotiation for them for sure.”

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