The seeds of change

It does not seem so long ago that when claim settlements were being negotiated, local brokers were a force to be reckoned with. Brokers were a key part of the equation and always needed to be kept in the loop. It was also not unprecedented for a broker to express concern to an insurer that the adjuster might have been acting, shall we say, with too much 'fervour' in their approach.

In those days, the insurance industry was relatively fragmented. Supply chain management and national framework agreements had not kicked in and local relationships were important. Today, the situation has changed. Brokers operate in an industry dominated by national supplier deals, framework agreements and 'contact' centres. However, have these eroded the intimacy that comes with local knowledge, local contacts and local presence?

Some say that the future is a mirror that often reflects a distorted image of the past. Would the insurance industry ever go back to a model that mirrors the past, to when smaller, independent brokers are a force to be recognised in the claims process? Why did insurers become increasingly concerned about giving claims authority to high-street brokers?

Maintaining a reputation

No one would argue with the fact that independent brokers have a vested interest in maintaining their local reputation. The provision of quality service and giving support and guidance when the customer really needs it - usually at the point of claims value - ensures repeat business. The problem, however, is that while brokers are intrinsically sympathetic to their customers when it comes to claims costs and settlements, insurers are less willing to swallow those higher costs.

Some insurers with multi-distribution channels recognise that average claims settlements through broker channels can be higher than direct or corporate business lines. There are different reasons for this, including the lack of use of insurer supply chains. In an industry where claims cost control continues to be one of the key drivers of change, is it not surprising that claims settlement authority has increasingly been taken away from independent high-street brokers?

This is not to say that some of the larger broking organisations are not able to keep and, in some cases, increase their claims settlement authority. The impact of regulation continues to force improvement in competence, but this often increases to marginalise smaller brokers that have fewer resources.

There appears to be a mixed message. In a recent survey, one of the most important critical success factors for large insurers was viewed to be that of broker relations. Oddly, however, brokers seem to increasingly be dropping out of the claims process loop.

In his paper 'Lessons to be Learned From the Autumn 2000 Flood Disaster in the UK' (Insurance Research and Practices V17), Ron Salthouse referred to the many parties involved in the claims scenario - brokers did not get a mention. At Carlisle, those claims firms that provided the best claims service embraced and co-operated with local brokers.

The situation is not unprecedented. Smaller Canadian independent brokers, affectionately described as 'Mom and Pop businesses', faced a similar problem. For them, the answer rested partly in technology. Over time, and with the development of readily accessible internet-based systems, it became apparent that if the same IT and sources of repair data were being used by everybody - insurers, adjusters, inspectors and repairers - then it would be easier to spot trends. This enables best practice and any weaknesses to be identified and independent analysis avoids the suggestion of bias.

By utilising such technology, the Canadian playing field has become more level. The overall effect of this is that independent Canadian brokers have become part of a 'virtual community' of similar organisations, linked through the use of common practices and technology, without the untidy problems of merger, acquisition or partnering.

Could this happen in the UK? The green shoots of collaboration are sprouting everywhere in the claims industry. There is already evidence of successful working partnerships in the underwriting process and across the UK property claims sector, as demonstrated by shared best practices issued for flood repairs, subsidence, drainage and, coming in late 2007, fire damage.

Best practice

Shared best practice in drainage repairs took 40% off the spend of one major insurer, coupled with improved customer service. Elsewhere, best practice in subsidence has reduced the claims cycle from years to months, with millions of pounds saved annually. It is interesting to note that with both of these developments, there is little evidence of the broker community becoming engaged in these discussions, which many put down to the relatively fragmented nature of the sector.

As such, can there be a renaissance for independent high-street brokers? Perhaps brokers should remember the three things that are said to have started the Renaissance, which is said to mark the beginning of 'modern times'.

The first is said to be the invention of the printing press in 1454 by Johannes Gutenberg, which fundamentally changed the manner of communicating across distances. Is this being mirrored by the continued maturing of the internet and emerging internet-based systems?

These new ways of working provide brokers with low-cost access to technology and information, without the need for major hardware expense, excessive commitment, the risk of making costly mistakes in choosing the wrong product or trying to develop a product themselves and reinvent wheels that already exist.

The second is said to be the fall of the Byzantine Empire. There is no suggestion that any insurance empires are about to fall in the immediate future, but the main effect was the migration of scholars and other experts to different territories. Is this migration mirrored today in the movement of expertise between sectors in the insurance community, for example, ex-loss adjusters now working for brokers?

The third, ironically, is said to be the discovery of the 'New World' in 1492 by Columbus. His trip eliminated the idea that ancient philosophers knew everything. Who can deny that, nowadays, businesses operate in a global community, especially the international insurance market? Who can deny that we also have things to learn from other parts of the world?

Working together can feel counter-intuitive but the benefits can be substantial and, as the Canadian market found, can be achieved without loss of competitive advantage. Technology will bring about a step-change for the better in the way residential claims are resolved, but it should be seen as an enabler rather than a threat or a gimmick. This will restore the role of local brokers and allow them to play their part when they are most needed - that is, at the point of claim.

- Tony Boobier is vice-president, international solutions, of Marshall & Swift/Boeckh.