National brokers - The big picture

It is no real surprise that the recession has yet to take a major insurance broker casualty, however, many national brokers are suffering.

As the pressure hits profit lines, many national brokers may look to rationalise some regional office functions, create operational efficiencies and look hard at staff that are not performing. On 29 January, Aon announced that is was to make 94 roles in its Southampton office redundant following a review of its affinity-based business. Also, Willis has asked for volunteers to take a month's sabbatical at 30% pay.

Although each broker has its own strategy, as some traditional income revenues suffer, national brokers are becoming increasingly interested in the small and medium-sized enterprise market: in February, Marsh announced that it intends to recruit 16 consultants to target SME regional business. Jardine Lloyd Thompson has also invested time and money in the SME sector, with small, dedicated SME teams conducting business primarily by telephone and fax.

Brendan McManus, chief executive officer at Willis UK and Ireland, is keen to suggest that the Willis Commercial Network gives the broker an advantage over its national rivals in the SME market. He says: "SME is not traditionally an area where the big brokers have played before, however, we are accessing this market directly and through the Willis Commercial Network, which has strong regional brokers with good books of SME business."

Marsh has jumped on the "broker community" bandwagon by launching Marsh ProBroker but is avoiding the word 'network' carefully. According to Bruce Fertnig, who heads the community, ProBroker is designed to move Marsh further into the SME space based on bringing the leverage of Marsh to the provincial broker that has "the personal relationship touch." Fertnig aims to have 50 to 60 brokers, of a size between £3m and £10m commercial premium income each, joining the community.

Regional

Niches are the meat and drink of smaller brokers that are more easily able to create special schemes because they are more nimble and agile. Mike Rogers, head of product and business development at Broker Network, believes that national brokers are not a threat to smaller, locally based brokers' SME books and says that Broker Network intermediaries have not been losing SME clients to the national brokers - despite their best efforts. Rogers says: "SMEs like to deal with one person rather than separate teams for each area of insurance. Customers of Broker Network brokers are saying they need to cut costs and want to know what areas of their insurance they can afford to cut back on. National brokers with huge portfolios and segmented teams are just not in a position to have this kind of conversation."

However, a spokesman for Lockton highlights that, when dealing with SMEs, not all national brokers will have more than one person that is client facing: "Under the Lockton Partner model, through the lifetime of their relationship with us, SMEs will typically have one point of contact."

The SME sector presents challenges for national brokers that have to work harder for less premium than their larger clients. Therefore, national brokers need to cut as much cost as possible if they are to justify investing time on SME accounts. One method of cutting SME business costs is automated trading.

JLT has invested in online SME opportunities. Two years ago, the firm purchased a successful online company called Pavilion, which at the time handled only personal lines business. Mike Langton, commercial director at JLT, explains the logic behind the investment: "We have invested heavily in our online proposition; we see this as having a great role at the micro end of the SME market. We have now created our own direct online presence for business insurance, Insurantz" (see Technology, p.10).

Rogers believes that web-buying capability will allow brokers to compete with direct insurers but, even when buying online, clients will still go through a local broker who is more likely to be known in their business community. He comments: "Customers want to know the broker is there and the service is still behind it. The big boys do not have the resources to deal with individual SME claims with the same service levels."

New direction

There are also signs of the aggregator route being considered for SME business; Moneysupermarket.com is one quoting in this area. Ray Vincent, managing director at software house Transactor, believes that national brokers have an advantage over regional counterparts to exploit the aggregator route to market because they can better invest in technology. However, he warns: "It is important for them to remember that aggregators bring the penalty of reduced retention; clients that buy their insurance through an aggregator are likely to return to this route on renewal and potentially choose a different supplier."

Steve Albutt, head of strategic account management at Allianz Commercial, believes that - for the foreseeable future - we will not see many national brokers investing in aggregator relationships for their SME book. He says: "There well may be an impact from aggregators in the SME space like that in personal lines in the future but the broker market is very strong. SME directors have emotional bonds to their businesses so want to talk to a person rather than buy online."

JLT has no plans to invest in aggregator opportunities. Langton says: "We are not involved with aggregators; currently, the products do not sit easily with that model. Clients require more interaction with advisers regarding cover, limits and so on. Unless you are on the very simple micro products, the aggregator model does not work for JLT."

A recession can create opportunities for the nationals because they have such a large array of offerings at their disposal. Human resources consultancy and risk management are becoming increasingly popular among SMEs, especially those looking to make redundancies. McManus believes that additional consultation services are the future for national brokers in a recession. He says: "Big players will refocus sales efforts into sectors that have been less badly hit, for example employee benefits, as clients look to reduce costs. Risk management has risen to the top of our agenda. Our consultancy business is doing well."

Practical

According to research published by LV late last year, SMEs are more likely to use additional services such as legal advice on handling redundancy or guidance on how to claim money from a company that has gone into debt, so in this respect things have changed. Mike Crane, commercial director at LV, says: "We include a legal advice element as standard to SME polices to reflect increased demand."

However, Albutt warns that national brokers should think carefully before concentrating too many resources on consultancy services for SMEs because it is more difficult to justify much further expenditure. Albutt remarks: "SMEs do not have particularly large budgets. Each broker needs to ask what it can afford to offer its SME clients for the amount of money that it is able to pull in from these clients. However, customers will pay more for what they consider to be good value."

The nationals' SME strategies Lockton - Despite selling off a significant chunk of its SME business (approximately £40m GWP) in February 2008 to Cullum Capital Ventures, a Lockton spokesman said: "We cover professionals such as solicitors and accountants through our Profin team and our partners in our affinity area of operation are achieving great successes." Aon - Gareth Butler, director at Aon, told PB: "We have always been committed to SME business and have strong aspirations to continue growing our market share." Willis - "The big brokers have traditionally not been involved in this space but I now see this as a real growth market for Willis. The Willis Commercial Network is integral for our SME business," said Brendan McMannus, chief executive officer at Willis UK and Ireland. Marsh - Marsh announced in March that it had launched an independent broker community - ProBroker - led by Bruce Fertnig and aimed at independent provincial brokers with between £3m and £10m in commercial premiums. Marsh also has an existing SME book, primarily through regional offices and franchises. Jardine Lloyd Thompson - Mike Langton, commercial director, said: "We have dedicated teams dealing with SME clients. Depending on what the client needs or prefers, we do visits from one of our regional offices and use phone email, letter and fax. We have also invested heavily in our online proposition at the micro end of the SME market." JLT has around 40,000 individual SMEs insured across all its platforms. Heath Lambert - Mike Owen, managing director, commercial affinity and small business, Heath Lambert said: "In May 2007, we announced the formation of our commercial affinity and small business division. We can take advantage of the traditional specialist sector approach and also develop bespoke, affinity-based solutions to cover diverse businesses. The latter will predominantly come from organisations that have strong brand recognition and access to significant numbers of businesses."