Making the connection

From information technology and agency agreements to office costs and marketing budgets, company directors will be doing all that they can to stretch their pennies.

This year, perhaps more than any other in recent times, reaffirming the status and market positioning of a brokerage will be essential to success. Questions abound, such as whether or not businesses can remain independent, what is on offer for those wanting support and, vitally, whether firms should sell out, join an alliance or sign up to a network.

These questions have been swilling around the industry for a long time and, as ever, there is no definitive answer. For those considering a network, there are a number of options to weigh up and this is true for those worried about losing their independence and ability to influence the direction of their businesses in the future.

Perennial problem

For mid-tier and regional brokers, the struggle has always been making their voices heard. When it comes to sitting at the insurer's table, garnering the best service, rates and commission has been difficult - if not impossible - for these brokers. The question therefore remains: what should they sacrifice to get their hands on this holy triumvirate?

This is where Peter Staddon, head of technical services at the British Insurance Brokers' Association, believes the nub of the matter lies: "It is about independence versus access to market: these are the core issues."

However, Staddon is adamant that networks and any other kinds of organisation trying to win the signature of an independent broker will have to show exactly what they can offer for the money that they take in return.

Simply bringing disparate firms together will not be enough for either brokers or the insurers with which they do business - adding value is what counts and it is the standard by which networks will be judged ultimately.

James Sharp, a director of The Enterprise Network, which specialises in promoting start-up brokers, highlights: "Is it is a network that adds value and earns its keep on a daily basis, both from the viewpoint of its members and the insurers that deal with it? Or is this a network model that depends upon the premise of consolidation: if you join our golf club then your salary will miraculously increase. What are the core values of this network?"

For many networks, allowing members to remain independent is at the centre of their propositions; it is their independence that has made them successful and so there would have to be an extraordinary reason for wanting to take that away.

Robin Thomson, sales and marketing director at Layton Blackham Business Services, comments: "To us, independence is very important. It is the key to their success and growth and we want to complement that."

Thomson remarks that LBBS is so keen to see new brokers coming to market that it has established a franchise service, supporting individuals in setting up their own firms.

Ambition

In time, Thomson says that these fledgling firms will buy out the share of the book held by LBBS and hopefully use the services offered by the network as fully formed and successful brokers in their own right.

The cost of compliance, the difficulty of competing with larger rivals and the problems in securing the best agency agreements with insurers have all put an effective dampener on the traditional route to market for new brokerages, so breaking into the market is no longer as easy as it once was.

By choosing to help brokers launch and stand on their own two feet, albeit for commercial gain, Thomson believes that LBBS is giving a clear demonstration of its desire to encourage a competitive array of independent firms in the market.

He is not alone in his views. Mark Radburn, managing director of the Willis Commercial Network, says that this ethos revolves around not only keeping members independent but also in "giving them an unfair advantage in their local area" through the support provided by Willis.

This may seem all very well in theory, yet many will question whether or not it works in practice: is the network anything more than a small part of a large commercial organisation that is seeking nothing but new revenue streams? Consequently, small businesses may justifiably be apprehensive about placing all of their trust in these larger organisations without losing their identity.

It is a difficult thing to come to terms with for many firms and there are agreed strategies to negotiate and sign up to in a bid to ensure both parties are happy with the agreement that they enter, according to Radburn.

Jonathan Rowe, director at KL Plester Insurance Services, says that his firm is coming up to its first anniversary as a member of the Willis Commercial Network and that, since its inception in 1964, it has always protected its independence fiercely. That this would be guaranteed was one of the major concerns when the company was looking to join one of the many networks that it reviewed and, to date, Rowe says that he is very pleased with how things have worked out: "Our experience is that it has had no impact on our independence."

He adds that the big plus is the firm's ability to play on a larger stage as a small provincial broker and, rather than only enjoying close relationships with one or two major insurers, it now has better access to the whole market.

He comments: "We are treated as key-broker connections by firms that did not do so previously." In turn, Rowe hopes that this will not only help keep some of the larger clients on board as customers but also convince others that K L Plester has the capability, through its network partner, to meet all of their needs and deliver the kind of products and support offered by a multi-national broker combined with the personal service of a local firm.

New competitor

Our Network, launched in August 2008, is the latest entrant to the market and it believes that, while many others may claim to be working for the benefit of their members, very few can actually show themselves to be so closely aligned with them.

Our Network is 73% owned by individual broker firms. As such, Jason Beech, head of product development at the network, highlights: "Interests are very closely aligned and those that join are all working for the common good." Such strong affinity within the network is one of its major selling points, according to Beech, and although it is relatively young, he points to the more than 150 members it has already attracted.

There is still a long way to go before Our Network's online platform can really do the job for members to provide them with the diversity of products required to make it truly effective, though in the meantime Beech states that members can still access the network's panel of insurers, while access is also provided to the Lloyds Market should it be necessary.

Speculation

In the coming 18 months, one of the big considerations for brokers looking at networks will be what the future holds for them; there has already been a good deal of conjecture and rumour about consolidation in the market and few rule out significant changes over this period.

Radburn is damning in his assessment of the market: "A network has to demonstrate value to the insurers and the members. The simpler models that just aggregate premiums may come unstuck." He questions if all of them will be able to offer the same, enhanced commission levels as they have in the past and believes that many may not be around for too much longer: "Not all the networks will survive the next 18 months."

This is a view echoed by Thomson, who says that rumours around the sales of Westinsure and Cobra have added spice to the market. Commenting on LBBS, he adds: "We are here for the long term and have the infrastructure to grow with the right people at the right time." Only time will tell.

Whatever happens in the network sector, it is imperative that the 500-or-so firms that are members have not tied themselves into contracts preventing them from taking any action they see fit should the circumstances of their network change. After all, brokers should join a network only because it is good for their business. If that changes then leaving to move on must be their priority.

Steve Daulby, managing director at Daulby Read - a member of Broker Network - is very clear on this point: "Being part of a network but not being owned by them means it doesn't really matter what happens to the network in the long run. If the worst were to happen, we would simply move on."

This is not how Daulby wants to or believes that things will unfold and he adds: "I don't want that to happen and believe that Broker Network is the best deal on offer."

The point, however, is a stark and salient reminder to all brokers that, should they join a network, they should only do so if it is advantageous and does not tie them to a restrictive contract.

With good value so high on everybody's priority list in 2009, existing network members would do well to re-examine their existing arrangements, while potential members should look carefully before they leap.

It is very easy for brokers to be sold a proposition by those looking to recruit them but the first question that each firm should ask when considering a change in its status must be: 'What's in it for me?'

UK NETWORKS AND NUMBERS OF MEMBERS

Westinsure: 150

Broker Network: 207

The Purple Partnership: 28

Layton Blackham Business Solutions: 65

Cobra Network: 117

Our Network: 187

TEN: 45

Willis Commercial Network: 90

Countrywide Plus: 49.