HUB BROKERS - At the hub of the net-worth networks

It is almost certain that many brokers reading this article would love to be involved in the high net worth (HNW) market. The sector is booming; new entrants are coming into the market on a regular basis; and this kind of insurance is getting massive exposure.

It is widely recognised that the number of householders falling into the accepted 'HNW' category is higher than ever before, and many experts are heralding the sector as one of the major growth areas of 2003. It is an ideal time for the provincial broker to take advantage of this ever-growing market opportunity - except that, as many provincial brokers will undoubtedly confirm, that is not quite as easy as it sounds ...

The chance to cross-sell

At a time when the well-documented market pressures in the commercial sector are making brokers' lives more difficult, it makes sense that a broker would wish to cover all their clients' insurance interests and cement the broker/client relationship. Also, very importantly, the acquisition cost of adding policies to an existing client's portfolio are much lower than obtaining completely new clients. Whilst, in general, most brokers are pretty successful at retaining clients, the industry could do a much better job of cross-selling its products. HNW cover offers an ideal opportunity to do just that.

Usually, if you provide good service on a client's household business, that client is more likely to recommend you to his friends or associates.

Hopefully, that leads, not only to more household business, but also introductions to some commercial business as well.

However, in providing good service to HNW clients, it may be that brokers are talking their way out of keeping business. Why? Because when we are talking to clients about personal insurance requirements, it is likely we would advise purchasing an HNW policy to ensure the widest cover possible- HNW policies are well-suited to clients with high-value properties, as the cover afforded is superior to standard household products. Unfortunately, however, recently many established HNW players have undertaken a major reduction in the number of brokers they wish to do business with - leaving many provincial firms with no market in which to place their clients' business.

The reasons for such agency cancellations are clear and understandable:

- By its very nature, HNW insurance is a niche product. It requires a different approach to standard household covers and the underwriters handling this business are specialists in the field. It therefore makes complete sense for the brokers the insurers are dealing with to also be specialists.

Much of the business is written on binding authority, so insurers need to be confident that brokers are themselves of sufficient expertise to underwrite in the way they would themselves.

- By dealing with a small number of specialist brokers, underwriters can build strong relationships with the broker contact.

- It is impossible for HNW insurers to be able to deal with every broker within the UK; costs would be prohibitive and service level sunmanageable.

In addition to the existing markets trimming their agency base, the many new providers in the market are only opening their products to a small number of brokers. So what should a small broker trying to place HNW cover do?

Getting attached to a hub

Well, the first and least favoured answer would be to advise a client to speak to another broker who is able to access the necessary markets.

Obviously, this is far from ideal; in the current market, the last thing you want to do is to give clients to your competitors. Also, it would give a very negative impression of your own abilities and would put doubt in your client's mind as to whether you are able to place other business effectively.

The second, far more palatable, option would be to link up with a broker that has a relationship with one or more of the HNW providers. As mentioned already, in recent times underwriters have decided to concentrate their efforts on a smaller number of specialist brokers. This has led to the birth of the broking 'hub'.

In essence, a 'hub' broker acts as the eyes and ears of the insurer, providing underwriters with access to many more brokers without incurring the huge servicing and costs issues which would occur if they were dealing with every broker themselves.

Quite often, a hub broker will have either full or limited binding authority, enabling it to provide quotations, give immediate cover and issue policy documentation.

Forerunners

The concept of the hub broker is not entirely new. For years, there have been brokers offering specialist schemes on many types of high-risk or difficult-to-place commercial business, and many of them have gained excellent reputations in their chosen fields. The biggest market making use of this method of transacting business, of course, is Lloyd's. To transact business at Lime Street you must be a Lloyd's, or 'provisionally accredited', broker; if not, you must approach a Lloyd's broker to have it place your business for you.

The development of this type of intermediary in the HNW market is a natural development of insurers' agency rationalisation drives. With ever-hardening market conditions in many sectors, it is becoming more and more difficult for smaller provincial brokers to offer the kind of complete insurance solution that cements a broker/client relationship and prevents competitors with different strengths getting a foot in the door. In HNW - and perhaps in other specialist sectors in the future as well -the advent of the hub broker could be the solution.

- Richard Brunger is account executive in charge of the HNW division at Camberford Law.