Charm offensive

What do the following have in common: regulation and the cost of compliance; the volatility of the insurance cycle; and the difficulties of recruiting good people at all levels? The answer is that they are subjects which have cropped up regularly on brokers' list of issues they are decidedly unhappy with in recent years. Yet, while there is little that can be done about the cycle, and even less about reforms to regulation now that the government has got the bit between its teeth, at least where recruitment is concerned brokers are in a position to do something about it.

Given that this subject crops up so often in bars and round tables as an industry-wide cause of concern, how come in 2006 it seems we are no further down the road than we were 10 years ago when it comes to recruiting and retaining quality staff? After all, the figures point to a rather depressing picture. According to a survey recently conducted by the Chartered Insurance Institute in conjunction with the Cass Business School, 75% of recruiters within the insurance industry said they struggle to recruit the level of people they need to fill the parts.

The situation is not getting any easier. Consolidation and natural attrition over the past few years has meant that there are naturally fewer people of the right calibre to choose from, while the opportunity to recruit from insurers - the traditional route for many brokers - is also not what it was, with most of the big names in recent years having already made the transition or been lured by the prospect of better packages and payment on the underwriting side of the fence. These really are difficult times indeed for the broker hoping to attract senior people to drive the business forward.

Painting an overly negative picture is not, however, that helpful. After all, even though the available talent may not at the moment be as abundant as it once was, there is still plenty to choose from for discerning employers, according to Peter Staddon, head of technical services at the British Insurance Brokers' Association: "When you see the amount of consolidation in the broking market, there are a huge number of qualified people out there, and also a lot of non-qualified people who are just as good, only without the initials."

Big salary syndrome

Despite the number of people on the move, there is no doubt in Staddon's mind that a degree of leakage is occurring. "We are losing a lot of qualified people out of the market and that worried me," he says. "So what are brokers doing?" In his opinion, much of the difficulty concerns the difficult choice that many heads of brokers have to make between keeping costs down in an environment of tight margins, and spending that bit more in the hope that by splashing out on good people they will in turn benefit your business.

"The bottom line is are you paying the appropriate price to keep the person you want or are you paying the money you can afford?" He asks. "So I'm wondering if there will be a movement to these companies that can afford it." Any such movement could have profound effects for those businesses losing staff, who he points out not only lose the person or persons concerned, but also continuity and client contact.

It is not only the brokers that are losing staff that could be suffering from the big salary syndrome. According to Barbara Schonhofer, managing director of recruitment consultants EJS Partners: "There are big challenges around remuneration issues because some brokers are writing big cheques to bring the people they want, making it hard for smaller brokers to compete. We have seen some silly money moving about." Despite such large sums being paid, activity is still evident, she adds. "There is a lot of movement in the UK broking sector at the moment, particularly the UK regional sector."

"I think it really depends on the broker and who they're trying to attract - whether they want a good planning broker or a producer," she says. "If you look at the level below the top three brokers you want someone who can produce their own business, either by converting them from their existing client base, or bringing new business. However, there are contractual issues to bringing clients with you."

Giving equity

So if a large salary is not the solution, what is? As Peter Staddon says: "You should maybe look at giving your senior staff equity, which is one of the biggest failings of regional brokers. Unfortunately, you get people who start a business and it is their baby after all, so giving away equity can grate."

Barbara Schonhofer agrees that there are as many problems with giving away equity as potential solutions. "A broker will often write out a big fat cheque rather than look at the softer issues, and equity is part of that. People who go up and start a business take a huge risk, however, with big fixed costs, so why would they want to give away equity?" She adds that the broker who might receive equity also needs to look carefully at exactly what is being given. After all, there are a multitude of different ways of tying someone into the business by offering them equity but each one carries different risks. A potential big hitter who is offered such a lure needs to ensure that not only is it worth the move but that it is not ultimately going to tie them into liabilities they never envisaged.

According to Tim Wilkes, a consultant at EJS, the recruitment problem when it comes to high calibre, experienced staff is much wider than simply that of the level of salary or the type of equity stake. It is a failure of the insurance broking industry to keep up to date with remuneration methods that have been prevalent in other financial sectors for years now.

"One of the major problems the broking community has is the way it rewards itself," he declares. "So, if you compare it to investment banking, it seems clear to me that the majority of brokers would benefit from reducing their salaries, including bonuses, and pegging those bonuses to an individual or team performance, which would concentrate their minds on fixed costs. However, it will probably take a generation to change that.Compared to investment banking, insurance broking is probably between 20 to 25 years behind the curve." After all, as he adds, why has the London market taken so long to adopt electronic trading?

More pertinently, in Wilkes' view, a growing problem for many senior brokers with big ticket clients is just how transferable their key relationships are. As he says, many of the large broking houses have now institutionalised their relationships with major clients, making it increasingly difficult for the individual who might be hoping for a lucrative move to ensure that the client he has built up such a strong relationship with will really follow when the time comes.

Overwhelming negativity

Of course, it is not only at the senior end of the business that brokers have had problems attracting people. The sad fact is that 90% of students will not consider a career in insurance, according to the joint CII/Cass Business School survey. Faced with such overwhelming negativity, the CII is determined to do something about it and will be launching a 'Talent Initiative' in October, which will be officially unveiled at the conference. According to Steve Wellard, marketing director at the CII, a steering group has been put together including representatives from the major insurers and the Lloyd's Market Association, which has links with the Faculty of Insurance Broking's John Moore from broker Thomas Carroll.

"We're putting together a campaign supported by a web portal that is all about careers in insurance, which will have a link to the student population that will kick off at the same time," comments Wellard, who says that the industry really suffers in relation to other sectors.

"The insurance industry still does the least amount of university campus visits and has the worst literature. We're trying to address this by creating an industry portal backed to the CII site that employers can go into," he says, emphasising that this is not solely an initiative for the big players out there. "This is not just about recruitment to the likes of Norwich Union or Royal and Sun Alliance - this is a market-wide initiative. We want to bring on board the regional, independent brokers as much as the nationals."

It seems that whatever the difficulties surrounding recruitment, at least the industry is alive to the problem and is intent on doing something to rectify it. However, while this may be relatively easy at the junior level, at the senior level the situation remains as sticky as it has been for some time. Until independent brokers are prepared to be more flexible with either equity participation or remuneration that includes bonuses, then they are likely to face a difficult time not only in recruiting but also keeping the good staff on board.

INCENTIVES TO JOIN

According to David Roberts, a partner and insurance broking specialist at accountants Littlejohn Frazer, insurance brokers can be motivated by equity participation but it is important to bear in mind that there are a number of different ways of structuring such participation:

- Handcuff or bonus type arrangements, where monetary reward is linked to continued service;

- share schemes that provide ownership;

- and phantom share schemes that provide cash bonuses based on increases in the value of a company's shares without ownership.

In Roberts' opinion, a key rule in a private company is not to spread the shareholding too widely, as this can become too time-consuming as the shareholder list gets bigger. He adds that ownership should also be centred on those building, maintaining and running the business at a serious level.

Matching the scheme to the individual is also important, he says, so that you might have shareholder schemes for directors and cash schemes for juniors - though many directors will not know the variety of ways in which they can do this. Each approach needs to be bespoke.

For more information on how you can get involved in the Chartered Insurance Institute recruitment portal, contact Andy Green, project manager, at talent@cii.co.uk.