A recent broker barometer survey conducted by Insurance Age, in association with Close Brothers Premium Finance, explored current sentiment around business growth for insurance brokers in today’s environment, exploring current challenges and the expected sources, opportunities and outlook for future business growth. Padraig Floyd reports
The results of the 2022 broker barometer reveal a favourable change in sentiment compared with the previous Close Brothers survey conducted in midst of the pandemic (2020) but, with new and significant challenges ahead, brokers cannot afford to stand still and must look for every opportunity to grow business in order to thrive in the future.
Here we explore the key findings and what they can tell us about the state of broker business today.
Optimistic about growth
Survey respondents represented a strong cross section of the broker community, with around 70% focused predominantly or solely on commercial lines, and around 30% on personal lines. Likewise there was a varied mix of gross written premium.
Despite the differences, one matter that achieved strong consensus was that the vast majority (90%) believed they would see growth in their business over the coming year. In fact, the optimism was slightly higher than in 2020, as only 2% thought they would see a decline in growth.
Of those, commercial lines brokers were slightly more optimistic than personal, with only 2.6% believing their business would remain stagnant, compared to 28% of personal lines brokers. Much of that centres on consumer uncertainty driven by the cost of living crisis being experienced in the UK. Inflation has increased rapidly, and central banks are trying to cool the economy by raising interest rates. This has impacted commodity prices, in particular energy, which had already been disrupted by the Russian invasion of Ukraine.
Peter Blanc, group CEO, Aston Lark is “incredibly confident” because of the uncertainty in the market.
“Clients are facing all sorts of challenges and of course when anything’s changing, that’s generally when brokers can add value,” says Blanc. “We’ve got loads of work to get the right results for clients and help them make sure they’re properly covered. That adds value, and if you add value, you drive revenue.”
Blanc is not alone in believing the old style broker model as trusted adviser offers an “antidote to price comparison sites”, particularly in these straitened times.
Mark Townsend, managing director of motor and home at BGL Insurance is optimistic, and has seen growth in the past month.
“The inflationary pressures, particularly within the car insurance market – where the majority of our customers are – are well understood and publicised. It’s going to be a challenging time, but we’re looking forward to serving customers as best as we possibly can.”
Where will growth come from?
The vast majority of brokers identified two key areas of growth for their businesses. Almost four in every five (88%) expect an increased number of customers (82% in 2020), while 74% believe premium increases will drive growth (63% in 2020).
Seán Kemple, managing director, Close Brothers Premium Finance, says: “It’s good to see this degree of optimism, but premium increases will be tempered by inflationary pressure, and not every broker can grow their customer base as the market is finite. We would urge brokers to look at non-risk income opportunities, such as premium finance, to provide additional sources of revenue.”
Since 2020, we’ve endured the Covid-19 pandemic, which has made many people nervous about not only their future health, but financial stability. Fears about being properly covered – and for the right risks – will drive new business.
That’s no less important for commercial brokers, as clients may feel they were under protected before the pandemic and, during a period of uncertainty, will seek to mitigate as many risks as they can afford to.
But John Warburton, founder of Konsileo, sees premium increases as “a double-edged sword” as some clients may feel pushed into different products or become reluctant to seek cover.
“The increase in premiums isn’t just the rising tide that helps everyone,” says Warburton. “It all comes back to professionalism and quality. Clients might be more willing to talk to you, but have you got the right solution for them that’s really differentiated?”
While many in the insurance sector are paying more attention to digital transformation, relatively few respondents ranked tech investment as a key factor in future growth. Many brokers feel technology is not directly designed to drive growth as much as to reduce duplication in processes and therefore better control costs.
There was considerable agreement among the brokers we spoke to about using tech to improve broking businesses, but most said there was a limit, once duplication had been removed from processes.
Kemple said: “Investing in technology is expensive if brokers have to do it themselves, and by definition it becomes legacy as soon as it is implemented. It’s why they look to partners such as Close Brothers to do the heavy lifting, often developing and piloting new kit, such as our Focus 360 dashboard for commercial lines, with a number of brokers to ensure it is tailored to their exact requirements.”
Far from revolutionising brokerage, Warburton believes that software houses have been “acting like a block on innovation across the whole market”. As a result, brokers have taken technology-led innovation off the table as a competitive factor. But that doesn’t mean it shouldn’t be used, he says, provided the customer is placed at the centre of the process.
Aston Lark’s Blanc goes further, believing that digitalisation can bring “many dangers”, by commoditising the broking journey, cherry picking the risk and reducing the market to basic choices.
“In my experience, the vast majority of SME risks are not plain vanilla,” he says, “And it’s a real worry, because insurance is a complex product.”
Learning new tricks
At a time of financial uncertainty, higher commissions are unlikely and only 14% of brokers saw this as a way of growing their business (versus 15% in 2020). The hardening market means few think they’re going to be able to earn higher commissions, though premium inflation will deliver some growth.
The brokers we spoke to were pursuing more innovative developments, including app-based solutions, new product areas and of course, greater focus on cross-selling opportunities. Kemple said: “Technology partners can also help brokers to do what they already do, but more efficiently and with richer insights. Our new digital product for personal lines brokers, Foresight, uses predictive modelling to dynamically predict consumer behaviour, including propensity to cancel, at point of quote.”
Neil Lumb, corporate and employee benefits director at Verlingue UK, says that “new business is the lifeblood” of growth, but has done a lot of work on and training to increase the potential opportunities from cross selling.
Generalists can struggle to differentiate themselves and so Lumb has focused on specialisms where they had existing expertise, such as hospitality and fintech, which has worked well. There was also an opportunity to expand by developing a transactional risk team.
Transactional risk was not the only prize in sight, because at the end of a transaction, there’s usually a bigger – or different – corporate entity and they’re going to need an insurance adviser.
“If we do a good job, there’s the opportunity for us to develop a relationship on the general insurance side on the back of that and thereby create an ecosystem of opportunities,” says Lumb.
There are some new areas, too, says Selena Kearvell, regional sales leader, North and Scotland, Marsh Commercial, where the firm has been offering a service to SME clients to make them aware of any environmental, social and governance issues their businesses may be facing.
The search for talent
One of the key sources of growth is also highlighted as one of the biggest challenges facing the insurance market – that of recruiting talent. Though accessing talent came in as number four in the list of major challenges, it was cited by 42% of respondents compared with 29% in 2020, a near 50% increase.
Respondents shared interesting views on why recruitment was so tough. For some it is undoubtedly a hangover from Covid-19, with flexible working, making people reluctant to come into a work location, be that an office or a call centre.
Others noted a lack of enthusiasm from potential candidates not seeing insurance as an interesting industry, or underinvestment in creating pipelines of applicants, concerns about regulatory demands, regional shortages. And of course the great resignation has seen many older people leaving the industry, either fed up, or seeking something different.
But these trends are not unique to the broker market, which means there are opportunities, as well.
“We’ve seen a lot of new people join from all sorts of different career paths, says Marsh’s Kearvell: “I’ve had applications from more teachers than I’ve ever had.”
Other mountains to be climbed
Just over half of respondents identified underwriting capacity and a hardening market (both 53%) as the major challenges facing brokers currently. Many also cited poor service from insurers (43%), a matter on which commercial brokers were particularly vocal.
“It has been the worst service in my 30 years in the industry,” said one. “Covid has been the perfect excuse to fail to consistently deliver.”
Cost of living increases (36%) and the continued impact of Covid-19 (27%) are two of the five new entries in the major challenges table. Others include the war in Ukraine, the poor reputation of the insurance industry (in part due to Covid-19) and poor performance with regards to changing technology.
These challenges spell difficulty throughout the insurance and business cycle and firms will have to work hard to thrive in a tough environment, finding new solutions, and staying ahead of market trends and changing legislation, to maintain their reputation as customer champions.
Worryingly, while most respondents were supportive of legislation such as the dual pricing ban and believe it will put greater emphasis on customer service, the survey revealed a certain lack of awareness around forthcoming FCA Consumer Duty regulation, which focuses on good customer outcomes. A third of respondents (33%) claimed no knowledge of the proposals, while another 22% said they were confused.
The premium finance opportunity
One source of growth explored in the survey was the potential influence of non-risk income, such as from premium finance commissions. Some 36% of respondents have seen demand for premium finance increase in the last 12 months, and over half (52%) expect it to increase further in the year ahead.
The reasons are simple. The cost of living crisis and general price inflation is making it hard for people to pay all of their bills, not just for their insurance cover.
The proportion of brokers offering premium finance has stayed level compared with 2020 (89%) but respondents expect a higher proportion of their customers to avail themselves of the service, typically ranging between 10% and 50% of clientele.
And while only 10% of respondents pinpointed non-risk income offerings such as premium finance commissions as a key source of growth, both types of broker expect to see increased numbers of clients taking advantage of it. Among personal lines, it is almost unanimous, while 86% among commercial brokers are in agreement.
Almost all commercial lines brokers surveyed offer premium finance (94%), whereas 35% of personal lines brokers do not, suggesting a potential opportunity in the current environment.
Kemple explains: “Demand for finance is rising, and even brokers who don’t offer finance tell us demand for finance is on the increase, so it makes good business sense to offer this facility. We have the means to assist brokers to take advantage of rising demand for finance, and fulfil a growing customer need at the same time.”
The main customer benefits of premium finance cited by both groups are seen as affordability and cashflow management.
The most important reason 59% of brokers gave for dealing with certain premium finance providers was resilience. In other words, they want to know they will be there when times get tough. The next highest reason (57%) was that expertise backs the service.
The increase in use of premium finance is “a slight worry”, says Blanc, as this suggests more clients may face difficulties and fears the number of insolvencies is likely to increase.
“We’ve seen the portion of our customers who have decided to pay monthly remain pretty constant over the past 12 months,” says BGL Insurance’s Mark Townsend.
BGL closely monitors the need for premium finance – and the number of payment failures – on a monthly basis, to ensure they are prepared, he says.
“We have a dedicated lending support team in place and we’re just readying ourselves to be empathetic and supportive of our customers should they need us.”
Verlingue’s Neil Lumb believes that interest in premium finance has certainly increased: “Clients who traditionally who would pay it all in one go, are now saying they are far more willing to explore premium finance.”
Businesses are increasingly keen on finding ways to ease any potential cashflow concerns whether from repaying furlough grants, or having to increase bulk purchases due to supply chain issues.
A single agreement can cover multiple policies and in one payment, rather than a direct debit to each creditor.
“It’s a solution that we’re finding more and more popular,” adds Lumb.
Winners and losers
Brokers will certainly be tested in the months ahead, but if their optimism about growth is to be realised, resilience and innovation will be key requirements.
“Any broker can broker in a soft market,” says Lumb. “But if you want to differentiate yourself, it is when things get tricky that proper brokers come to the fore.”
Lumb says that while solving transactional friction points will satisfy the broader market, the winners will be those who are able to have a much broader conversation with their clients and deliver a much broader solution set.”
Businesses that remain focused on their customers and use tech to improve experiences for customers, and use data to understand what customers are looking for will be the ones to succeed, says BGL’s Townsend.
“That means being empathetic and sensitive to customers. Those are the qualifications to winning in our industry and I don’t think that’s going to change,” he says.
Kemple said: “The survey underlines the resilience of brokers – personal and commercial – in a macro environment that changes literally by the week. That resilience gives local and regional brokers licence to advise businesses and individuals on how best to protect their assets against the current headwinds in the economy, and how to make their insurance more affordable. It’s a great opportunity to put themselves at the heart of the communities they operate in.”
Aston Lark’s Blanc is convinced that the while the death of brokers has been discussed for many, many years, it hasn’t happened, because people like dealing with real people.
However he, like others, accepts that certain parts of the market require scale.
“If you’re a small niche player, you’ll do far better than a small generalist,” he says. “I think the winners will be the specialists and the larger brokers with more capabilities who are able to gain market access to facilities in all areas.”
The survey was completed in June 2022, attracting 219 responses from insurance brokers.
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