Think small

Commoditisation continues to prove a challenge for brokers and one that many believe can only be overcome through an effective service-driven proposition. However, are brokers fighting a losing battle in some areas, and can regional brokers invest the same level of resources as the nationals into the provision of added-value services?

There is some consensus that brokers need to avoid trying to be all things to all people. Chris Blackham, managing director of Layton Blackham, believes brokers need to assess their skills and define their target market. He explains: "There will be a place in the commodity market for brokers who are able to align their businesses accordingly, just as there will be in more specialist advice-driven segments. The challenge will be to choose the right area and then to excel in it."

So, does Blackham have any advice on how to differentiate services, when so many products are becoming commoditised? "The real answer is not to play if you can't afford the entry cost," he warns. "Particularly where differentiation is hard to achieve, and the cost of playing is high."

Competitive edge

Stuart Reid, chief executive of Stuart Alexander, explains that niche or scheme areas of business can provide a competitive edge. "If you have a bespoke product that you have specific experience in and you have a relationship with an association, that's a very difficult thing for a generic offering on the internet to come in and attack," he comments.

The national brokers are forging ahead with the provision of added-value services such as claims assistance for their clients. Is it realistic to expect smaller regional brokers to develop similar propositions?

Blackham believes regional brokers are currently developing their skill and resource bases and are more able than ever to take on the nationals for the right types of business. "The skill has been, and always will be, not to get too greedy and to only go for risks that you can comfortably manage and who are happy not to buy from a national."

Eric Galbraith, chief executive of the British Insurance Brokers' Association, comments: "You will be pleasantly surprised at the level of expertise and technical skill available from regional commercial lines brokers, although there will be areas where they have decided not to invest in that expertise. This may be around specialist issues, for example, credit, aviation or marine. If they cannot provide all the specialist areas they need to know where they can source the expertise on behalf of their client."

Reid recognises that these are difficult times for smaller brokers. He points, however, to the advantages they hold in their close relationships with clients: "They're the ones with the two to five-man-bands in rural towns where the insurance companies and the larger brokers have moved out and perhaps that is where they will find their position - in their acute closeness to the client."

Most brokers will agree that a customer service proposition is important. However, brokers are busy people at the moment, with issues such as regulatory compliance still proving a drain on resources for some. Steve Wellard, communications director for the Chartered Insurance Institute, points to CII Faculty of Insurance broking research that he says would indicate that too much time was focused on administration and back office and operating issues - often between insurer and broker - rather than customer-facing activities that generated revenues, such as offering wider business continuity advice, developing propositions and marketing them.

Furthermore, it is not enough simply to implement a service proposition and it is important to have the facility to promote that offering. It is all very well having a carefully considered service proposition in place but you are still unlikely to attract customers if they do not know what is on offer. Galbraith comments: "Brokers and intermediaries do need to stand out from the crowd and demonstrate their professionalism, expertise and service."

Dave Parry, intermediary development director for Zurich, believes brokers should be focusing on who their target markets are and marketing to them, rather than attempting to attract customers from across the board. "When you look at the amount of marketing brokers do, it is generally very low key. Many brokers are very modest about their own capabilities and they leave customers without a full sense of what they are able to do. Be prepared to tell the customer what your proposition is."

Wellard agrees: "In my view the day of the broker trying to be all things to all men is looking less sustainable. The broker that relates to the specific needs of a market and customer sector, where it provides what the customer wants, will succeed as it will be able to provide value and meet customer expectation."

The direct writers are starting to compete on what should be the traditional broker ground, believes Parry, who explains: "A lot of the advertising is talking about the quality of the product they sell. The features they are extolling have often been around for years but the point is that they are going to the effort of telling the customer about it."

The process of marketing and advertising the services on offer is particularly important when you consider the stereotypes that continue to dog the broking sector. "Unfortunately the whole general insurance industry needs to address its image and reputation," says Galbraith.

Nick Bowyer, marketing director for Swinton, believes there is a healthy proportion of consumers who recognise the professionalism of the industry and remain loyal in their buying habits. However, he adds: "For many customers the word broker has lost a good deal of relevance to the way they purchase insurance and it is probably true to say that it is unlikely to regain their affections. The basic proposition however of providing a value for money deal with superior service provision will always remain valid."

There is no denying that some customers will always buy on price alone. However, it is equally true that others will always require the help and services offered by a broker. Parry explains: "The people who will only buy the cheapest will fit a certain segment of the market but to assume that the whole UK public will want to buy the cheapest is illogical. Otherwise we would all be driving around in little tired out cars. People do realise when buying insurance that they are protecting their valuable assets, be it business or personal possessions."

Reid also believes that while some will buy commoditised products, the personal lines broking sector is not as endangered as some might believe. He comments: "You do have those that don't just buy on price but buy on cover. They do exist and in much greater numbers than Joe Public might give credit. It is my understanding that the majority of motor insurance is still dealt with in the broking environment."

Embracing change

As far as the business to business sales are concerned, Reid believes they will still rest very much in the insurance broking market. "There may be direct writers that do that although, historically, distribution has been a very difficult thing for insurers in this area to get hold of."

However, despite encouraging signs that not all customers are focusing on price alone, those brokers who rest on their laurels do so at their peril. Personal lines in particular is undoubtedly more commoditised than it was a decade ago, and the direct writers are showing interest in small commercial lines.

The CII published research earlier this year indicating a widening split in the broker sector between 'traditionalists' and 'innovators', which will see competitive pressures intensify on those unwilling or unable to embrace change (see box).

Wellard comments: "Innovative brokers will be those that are able to spot an opportunity and adapt to a changing trading environment in order to meet a need or demand. It is, in short, about understanding customer requirements and then being able to service them in ways that meet customer needs. This is true of all intermediaries, small brokers right through to the large nationals. It will be the firms who spot an opportunity and utilise their skills, expertise, resource and understanding of a market to succeed."

Blackham is a firm believer in the importance of innovation. He asserts: "Some years ago our mantra was 'change or die' and, in our fast-changing market, this has never been more right. Tomorrow's winners will be those who think outside the box, now, and provide the insurance solutions of tomorrow - not yesterday."

Reid is enthusiastic about future possibilities and believes distribution is changing dramatically at the moment. "Brokers of size may well go beyond doing the documentation for insurers and the claims, and actually do the underwriting for insurers. That may be the next step."

There are some very interesting developments on the horizon where brokers could be looking to diversify, claims Cathie Bruce, head of customer service proposition for Groupama. Bruce points in particular to the Clementi review, and the prospect that people will be able to buy legal services through alternative markets than just a law firm. "You only need to consider on an average day the people a broker gets to speak to. Let's say they offer the full range of insurance products - they would include people who are married, have an office, need a will - all of their customers have the potential for tying into some kind of legal service provider as an add-on. That's a fascinating area for a broker to explore."

There is no doubt that there are challenges ahead as far as commoditisation is concerned. However, there are also exciting prospects in store for brokers who are able to explore new avenues. As Wellard asserts: "The opportunity for the broker has probably never been stronger for those who are willing to adapt to change and evolve."

RESEARCH SHOWS WIDENING SPLIT

Recent research from the Chartered Insurance Institute points to a widening split in the broker sector between 'traditionalists' and 'innovators', which will see competitive pressures intensify on those unwilling or unable to embrace change and look to the future.

This is a key finding of market analysis conducted by the CII's Faculty of Insurance Broking, in conjunction with Oracle. Their report, Opinion Leader Research: Broker and Insurer Relations in a Regulated World, assesses the current state of play and looks at the current and evolutionary trends marking out the future of the industry.

The research also identified a widening split in the way in that regional and national brokers charge for their services. Nationals are much more in favour of full disclosure of fees and commissions, with 47% having already adopted this practice compared to 27% of regional brokers.

Chris Westwood, head of insurance at Oracle UK, said the market also needs to focus on technology and overcome its scepticism: "To compete in this increasingly competitive market, insurance companies and brokers need to innovate and be fleet of foot - and outdated legacy technology cannot be allowed to stand in the way. Using technology as an enabler will benefit the industry as a whole, with insurers becoming more efficient and brokers being able to service the needs of clients."

The report is available for free download at www.cii.co.uk

Source: Chartered Insurance Institute.