A shared interest

Changes in the shape of insurance distribution mean that the principal threat to brokers is arising more directly from the champions of the high street - banks and major retailers. And who is driving these changes? The customer.

Buying behaviour dictates that financial services are provided in the way the customer wants, and what customers want is myriad choices. They want to buy cheaply, but they also want to make the transaction process easier - hence the role of the internet - and they want to be able to shop outside of business hours, when they are taking more overall control of their insurance purchases. What also comes into play is a brand loyalty factor that capitalises on the trust the customer is willing to place in an insurance provider, which, for example, also supplies them with their weekly food.

Many insurers and some major brokers have already responded to this challenge in a manner that protects brokers' commercial future, i.e. multi-distribution. Research over recent years has shown that some brokers do not have active succession plans in place and this needs to be addressed to ensure that their businesses thrive in the future.

Customer-driven change

The customer is driving change and insurers and brokers alike need to provide a variety of options in order to deliver their products and services. There remains a market for personal lines insurance across all of the distribution channels. The advice available from the broker is still valued by the customer, as suggested by the overall levelling off of personal lines business transferring to direct models of distribution. The demand clearly exists for brokers selling personal lines products to those customers that require a more hands-on advisory service.

The commercial reality facing brokers is to search for those areas in which they can create a competitive advantage for themselves. Already, some smaller brokers are joining networks and gaining the benefit of being part of larger partnerships. Many are also embracing the advantages of using the latest technology, thus helping them to drive down their own operating costs.

Brokers can add a hugely different dimension to the insurance transaction, and working in partnership with insurers, which can assist in re-evaluating their business models where appropriate, to see how and where insurers and brokers can add that all-important value.

Today, as part of the ongoing trading relationship with brokers, insurers offer intermediaries far more than just the traditional remuneration methods. This includes help with Financial Services Authority regulation; comprehensive support for brokers that wish to improve the marketing of their business; and, not only with specific campaigns, but more long-term, strategic guidance for those brokers that seriously want to grow their business. This is embodied by the availability of experienced business consultants who can, among a variety of things, advise on how to get a better return on personal lines business and outsourcing propositions that take away some of the administrative headaches.

The growth of the 'super-regional' broker has brought to those businesses its own share of new problems, for example, in managing human resources. The larger insurers have years of experience in addressing these issues, which can be drawn on and shared where necessary.

In terms of training, insurers can help by providing courses focusing on core insurance skills where a broker considers it to be of benefit to their business.

Online services

Using insurers' online services is another way for brokers to differentiate themselves and potentially reduce costs. Along with bespoke internet-based tools, such as regulatory risk-assessment programs, e-trading is enabling brokers to trade personal lines and small commercial package insurance more effectively.

Distribution in the complex commercial market remains very much the sole domain of the broker and it is important that insurers and brokers continue to work together effectively in this arena.

One of the insurer offerings available to support brokers in increasing their service on complex commercial business is risk-management information and services. This can cover all sectors and can include an array of fact sheets, helplines and websites and also training and consultancy services to both brokers and customers. Many large organisations use insurers' risk services to help serve clients' risk-management requirements. Helping the client to manage their business by implementing sound risk-mitigation measures is an attribute the broker should take into account.

However, despite the wealth of help available to brokers, to realise the often-stated aim of adding value to their clients, the take-up is far from universal. Clearly, there are good reasons for this. Some brokers feel they are in a position to do it better anyway; others do not know what training or advice to choose; a large number will simply have no time to do it or will consider the provision of such services by insurers as too much of an incentive, therefore, compromising their reputation for impartiality.

In this context, insurers are beginning to make these added-value services more elective, rather than showing brokers everything that is on offer. In this way, intermediaries can focus on what is important to them.

Ultimately, insurers and brokers share an interest in making their businesses more successful. This is not simply transactional, but about developing unique propositions that distinguish one business from another and deploying them to a segmented customer base.

Kim Kearney, Director of broker operations, Norwich Union.