Brokers have the 'right stuff'

There has been a lot of talk recently about the demise of the smaller broker and there is no doubt that competition has never been so tough.

Many smaller brokers have faced testing times before but have managed to adapt their business and survive.

Most brokers have been in business for 30 or 40 years and have seen numerous developments which have threatened to encroach on their domain. Insurers going direct, the internet and high street brand assurers are just some of the contenders. And yet many smaller brokers keep going, concentrating on providing superior service levels and in-depth knowledge of the market they are selling to.

However, insurance brokers are not the only small business sector to have faced challenges. Travel agents, for example, have had to pursue new strategies to cope with increased competition. This has polarised those who have chosen the 'big is beautiful' route and those who have found a small niche and exploited it.

There is no doubt that to survive and prosper in the years ahead, smaller brokers will have to evolve their businesses to suit changing times. But will this prove as impossible as many are predicting?

High street retailers have also faced immense challenges and have been severely threatened by large supermarket chains and out of town developments.

The common reaction by retail businesses has been one of initial panic followed by a complete re-evaluation of their strengths in the marketplace, and avenues that can provide extra revenue such as new and more exclusive products, retail finance and add-ons.

No push over

Do brokers feel that they are being pushed in similar directions? We commissioned some independent research asking brokers how they felt about competition and found that it varied by size of brokerage. But it is also interdependent on the type of brokerage as well as the selection of insurers worked with.

Brokers have long believed that they could operate successfully by offering clients a level of service that is not available elsewhere. The brokers that we surveyed believed that, whether in personal or commercial lines, they were able to offer the client a wider choice; both in price and in terms and conditions, as they take the 'hassle factor' out of renewals.

Even shopping around on behalf of the client and helping the claims process if required.

But there the common ground seems to end. The larger brokers will offer clients a much wider range of advisory services, as you would expect, and have access to a much wider range of insurers.

Small operators are of course far more restricted in the number and type of insurers which will work well with them and they are not as well positioned to offer clients truly competitive quotes. Even in the claims process it can be much harder for those small brokerages to have their voice (and that of their client) heard. However, they are still expected to keep up with changes in technology as demanded by insurers from a very small turnover, and receive little sympathy if they lag one step behind.

In the middle you have a number of brokerages which do have 'muscle' in dealing with insurers, but which also recognise that without further growth their options will always remain more restricted than those of the big boys.

And the restrictions are not limited to the number of insurers available.

As one high street broker surveyed said, "There are not a lot of people able to make underwriting decisions nowadays. If we have a client with something a little different to cover, it is hard to find coverage. It seems that you have to fit the mould that the insurers have decided upon or else they will not quote."

Interestingly, that message is reversed when talking to brokers with more clout. In contrast they find that it is just those occasions that wins them new business because they can find coverage for the client struggling elsewhere.

One of the brokers that we surveyed, Peter Allen from Peter Allen Insurance, told us that in his opinion competition has always been there and will always come and go - and that it was how you handled it that mattered.

He did however fear that the likes of Wal-Mart might arrive from the US with huge buying power, and 'do it differently' because of their sheer size.

In contrast, a Manchester based broker specialising in one commercial class of business had a quite different perspective, commenting that because they had found an exploitable niche they had little competition from the likes of the internet or even direct sellers. Even this broker had some serious concerns, commenting that he had to work hard to keep the business healthy because coverage was tightening and he was finding it harder and harder to deal with insurers.

Again in contrast to others with a similar turnover surveyed, he found service was a real issue and that he had more in common with the very smallest high street operators. He has had to adopt a strategy of getting as much authority as possible at the outset so that the business can shield clients. As a result they can handle about 70% of business in-house. He said that it appeared that some insurers felt cushioned by the hard market and the knowledge that clients had little choice in finding coverage.

The broker added that, thanks to its retained lawyers and in-house team, most of the claims are eventually sorted out but said it can still prove costly when claims are rejected in the first instance. "By the time the argument has moved sufficiently up the chain that it is settled to our client's satisfaction, our relationship has been badly damaged - that is not good for business."

Will to win

These arguments may sound depressingly familiar, however, the determination and will to succeed of smaller brokers shouldn't be underestimated. The message from many of the brokers we talked to was 'where there's a will there's a way'. These brokers can offer an unrivalled service to the local community they serve and provide their customers with coverage that is tailored to their personal and business needs.

In the midst of so much turmoil, it might seem the worst possible time to take a step back and really analyse what services you can offer compared to the competition. What in-house processes need to be sharpened? How can you market your business to your existing and potential customers?

Re-evaluation is essential to ensure that your company is well placed to overcome any problems.

Any businesses can grow and prosper in good times. The test of a business is if it can grow in bad times. Smaller companies can be quicker to respond to the market, more flexible and more innovative. Companies in the insurance sector that are failing to service smaller businesses properly should remember that smaller brokers may be down at the moment but they are certainly not out.