Target audience

The technological advances of the 21st century, together with economic and social change, have transformed the insurance market place.

Consumerism has driven customer expectations to an all-time high, while the increasing commoditisation of services encourages price-led buying decisions. The broking community, meanwhile, is battling to ensure that choice, personal relationships, expertise, service and quality remain recognised as consumer benefits and, therefore, important considerations in the buying process. Against this backdrop, regulation and the principle of treating customers fairly has seen all parties involved analysing their business processes and remodelling their strategies to ensure compliance. The need to differentiate to protect market share has never been more pressing and customer retention has become an overwhelming concern.

A question frequently asked, both of and by brokers, is how far will commoditisation penetrate the industry, to what effect and how will the broking community respond?

Insurers have reacted to the changing climate by consolidation, redefining their market segments and realigning their strategies to reflect either their insourcing or outsourcing philosophies and capabilities. Their partnerships with brokers and loss adjusters have also proven fundamental.

To illustrate, in the private-car sector, the market continues to compete head-to-head and price has become the key factor in customer choice. The latest technology, in particular, used by online insurance providers via their internet quote engines, has enabled their products to reach a wider audience, facilitating immediate quotations and reduced cost. As a result, the expectation and culture is now for most customers to shop around. Brand awareness, generated by high-profile media advertising and aggressive direct-mail campaigns, has led to a number of insurers becoming household names.

As a result of this culture, the role of the broker has diminished. Twenty years ago, brokers controlled the motor market; now their share represents approximately 25%. This is with the exception of specialised areas such as high-performance/non-standard vehicles and motor fleet lines.

Brokers that offer specialist services continue to meet and, to some extent, generate a market need. Indeed, some brokers specialising in fleet business are experiencing an upturn, where they too have targeted particular types of business for which they have sourced the right insurer to partner their services.

In the household sector, the traditional buildings and contents policies have been targeted in a similar manner by those with aggressive pricing strategies, but here consumers show less inclination to change. Many customers still place their business with their mortgage provider, drawing associated comfort from the accompanying relationship. Previous experience of the claims service can also be a major factor in the decision. This inertia is, despite the high-profile media campaigns, educating the consumer with regard to the assumed benefits derived by transferring and offering to cover any administrative costs associated with changing insurance provider. That said, price alone remains a powerful means to entice potential customers, particularly where cross-selling marketing strategies are used by their motor insurer.

The well-publicised model for settlement of household claims by reinstatement or replacement, using insourced contractor networks and selected goods suppliers, has also struck a chord with some customers, who immediately see the benefits. The work environment in the 21st century is pressurised and the time-starved customer is usually receptive to others taking the strain in such circumstances. More aged market segments are also a good strategic fit with this model, although they may have more time available, health, mobility and inclination represent significant considerations.

Currently, there remains a core of customers that retain their household insurances with their local broker. However, as the number of these organisations lessens, given the onset of Financial Services Authority regulation and their amalgamation with larger brokers to enable them to compete, so too the volume of business retained by the local broker market has reduced. Encouragingly, as with the motor sector, brokers that are playing to their strengths and targeting such niche areas of the market as high-net-worth and thatched properties, are successfully retaining their margins and thriving.

With the market evolving in this way, it comes as no surprise that many brokers see their future role in the 21st century closely allied to commercial lines.

In contrast to the manner in which the general domestic market has largely become commoditised, the commercial market presents greater challenges to this approach. A 'one for all' proposition is less welcome and less appropriate.

Commercial enterprises still rely heavily on the expertise of their broker in arranging their insurances and, understandably, have high expectations, particularly when it comes to the supporting claims service.

Irrespective of size, brokers who are fleet of foot, possess the ability to tailor their individual strategies swiftly and leverage the benefits of working in close partnership with insurers, underwriters and loss adjusters can gain a significant competitive edge.

Large corporate risk

Looking first to larger corporate risks, whether UK-focused or including global exposure, all clearly require individual insurance solutions to reflect their respective needs. Risk-management programmes may include large deductibles for which clients require assistance in handling claims within their threshold or multimillion-pound plant where key components are critical to continuity of business. Key customers and availability of alternative premises may be equally crucial. The expertise necessary to select appropriate policy cover and business interruption sums insured is paramount. In formulating the appropriate risk-management programme for corporate risks, brokers can call on their adjusting partners to ensure the right level of policy cover is achieved.

Some brokers have employed their own business interruption specialists and adjusting resources in-house but, for others where economics make this prohibitive, access to an adjusting partner that can provide the necessary business interruption expertise and technical support is invaluable. This has the effect of helping smaller/medium-sized brokers compete against the larger firms in the market and bridges any skills gap.

Working in a close partnership with an adjuster enables the broker to call on nominated personnel with specialist knowledge associated with specific types of corporate risks. This, in turn, delivers a high-quality service to the client, ensuring potential exposure is identified accurately and pre-loss details of the site and business processes can be obtained upfront. Key specialist personnel can be introduced to develop a rapport, the business plan and disaster recovery and business continuity plans can be reviewed and, in the event of a loss, the adjuster is well equipped to ensure that the business is restored in the earliest time frame, which is beneficial for all concerned.

Brokers can also further leverage their adjusting relationship by providing commercial clients with the full time-availability desired, via their adjusting partners. The ability to respond and react immediately in the event of an urgent situation is clearly paramount in the commercial sector.

More recent market innovations, such as access to online claims-tracking mechanisms and management information, enable brokers to monitor trends and track the progress of both property and liability losses. Not only does this immediacy of information add value to and enhance customer service and associated communications during the claims process, but also assists with future planning of risk-management strategies.

Adjuster nominations, therefore, support the broker in providing the necessary level of customer confidence in the commercial sector. A partnership approach, underpinned by the desire to provide exemplary customer service, builds a reputation both within the client base and the general market, which assists the broker with both customer retention and customer acquisition. Many such relationships have indeed been in place for some years, creating synergy and loyalty between insurer, broker and customer.

In comparison to the larger corporate-risk arena, some believe the SME sector is ripe for commoditisation. The market has already seen the launch of certain commercial package policies, which are available online, bypassing the broker channel. The broker, therefore, needs to be equipped to offer an economic and cost-effective alternative - which differentiates and adds value - in order to compete.

Some insurers are already one step ahead in helping the broker and provide them with online access to their SME product lines. However, it remains for individual brokers to develop a strategy to address the retention of SME business and, wherever possible, increase their market share.

Again, careful positioning, segmenting and targeting of appropriate SME sectors will be crucial. As has been seen in the general domestic market, brokers who clearly identify a specific need and illustrate the necessary expertise to deliver against that need, drawing on their partners as required, are thriving. Working in partnership with an adjuster who shares common goals and service principles and has the depth and breadth of services available, will support both the broker positioning and delivery of a targeted proposition.

Brokers are alert to the importance of continual professional development for their staff, in order to enable them to differentiate their service on the basis of relevant and specific expertise. Cost-effective access to external training resources is essential and, as such, brokers should leverage their relationship with their adjusting partners to provide training support specific to commercial risk and associated claims management. A by-product of this strategy will be the broker's enhanced reputation as an investor in its people and their personal development, which in turn will assist with recruitment and attracting staff of the right calibre.

The expertise available in adjusters is wide-ranging, along with the availability of technology and access to any supply chain.

Integrated claims management

As the insurance market continues to focus on the importance of reducing indemnity costs, an integrated claims management model can be utilised to control costs both directly via agreed preferential rates and indirectly via speed of response; particularly relevant to the commercial sector in order to minimise the business interruption claim. This integrated approach creates a win-win outcome for all parties involved and affords the broker significant opportunities to differentiate and enhance reputation.

As for the future, it is somewhat inevitable that aspects of the commercial market will become more commoditised but, equally, there remain opportunities for brokers that equip themselves to meet the challenges and who continue to differentiate themselves and the service they provide.

And what future initiatives might insurers and adjusters best look to develop to support brokers in this quest? Undoubtedly, further IT integration has to be a top priority for all. There are immeasurable benefits for commercial clients and personal lines alike. The speed of communication and immediacy of information derived from further IT integration would not only improve the frequency and quality of customer touch points during the claims process, but throughout the customer life-cycle. Not only would brokers be better supported in their quest, but our reputation as an industry would significantly improve.