Different strokes

While the insurance market strains to see a hardening market on the horizon, brokers struggle against a squeezed profit margin and forever demanding clients. Schemes business is now looking like a more attractive proposition for brokers that need to show added value and provide clients with innovative solutions, but so many schemes disappoint and fall short of expectations.

With most wordings already so broad and technologies to deliver them already so slick, how can brokers make the most of schemes business to increase their profitability? Have wordings really reached their limit of innovation or is there more that insurers could do to make policies more relevant? What are the value-adds that brokers should be looking out for from underwriters to ensure they are receiving the best product?

There are many schemes in the market encompassing most lines of business. The vast majority are based primarily on obtaining economies of scale with insurers by polarising brokers' business into one "pot" with insurers. The idea is 'the more business that is placed with an insurer, the greater the broker's buying power', and this is often combined with improved levels of brokerage, service level agreements and preferential rates.

The best deal

Although schemes have been around in this format for many years, with most brokers having at least one scheme in their specialist lines of business and the remainder being placed across a plethora of insurers, in recent years a new approach has been developed. Now, brokers are seeking to polarise all of their business into a few insurers across all lines of business. This should, of course, be to the benefit of many of the large multi-line insurers that underwrite property, casualty and liability business, but with such a broad-based approach the question must be asked of whether or not this is providing the best deal for the client.

Successful schemes rest on four cornerstone principals:

- Identifying a niche within a niche where both broker and insurer can add value.

- Providing a tailored policy with appropriate unique selling propositions.

- Listening to the profession's requirements and being flexible and innovative in your approach.

- Choosing an insurer that is a specialist in the niche, has a flexible, open-minded approach and views you as a partner, provides access to efficient IT and management information, provides meaningful marketing support and has solid capacity.

The professional indemnity market has seen many professions shoehorned into existing schemes for professional groups, with specialists having to play second fiddle to larger, more standardised professions such as accountancy, surveying or law. This is merely because the premium pot is larger for insurers and brokers alike. It appears sensible that if we are to attract new professions into purchasing insurance for the first time, or persuade existing professionals that we recognise the difference between the risks presented by specialisms within professions in more ways than just pricing, then we must recognise that even in specialist areas there are still niches within niches.

Why should one size fit all? Can we not provide a more tailored solution that recognises the difference between an interior designer and a full-service architect, or a structural engineer and an acoustic engineering consultant? It is accepted that many legal and procedural aspects of the wording may be the same, but each area, despite their similarities, may want coverage that is suited directly to the individual needs of their particular profession.

Rating

Although most schemes are driven by premium, there are other considerations. Many clients are unaware that insurers will automatically rate by virtue of a standard wording. If certain areas of coverage are limited or excluded entirely, other than those required specifically by law or the client's own risk proposition, many insurers will be willing to offer improved terms. If a true niche scheme were available, whether as part of a wider scheme or not, this would be possible.

A well-tailored policy for a scheme can also help to ring-fence certain prohibitive risks and maintain more favourable wordings and rates for those areas of a profession that have an entirely different risk proposition. This can be a highly tangible value-add for clients that otherwise would see their premiums affected adversely e.g. asbestosis or pollution exposures.

Meanwhile, e-trading and web tools are creating routes to market, marketing communication opportunities and gains in efficiency that brokers are well positioned to exploit to develop distinctive offerings. The ability to access these tools, especially in a soft market, could be the difference between success and failure. With both off-the-shelf and bespoke insurance systems becoming ever more sophisticated, it is now more appropriate than ever to bring new levels of technological solutions and efficiencies to scheme business. Where possible, any area that can be standardised should be and that process could be automated using flexible and efficient systems. This can reduce administrative costs significantly, provide an on-demand turnaround on policy documentation for the client - whether electronically or in the more traditional paper format - and help guarantee contract certainty.

Tools

Tailored policies and the ability to quote favourable rates will help to build customer loyalty initially, but there are a number of other tools that can encourage loyalty and longevity to a scheme:

- Rolling contracts. These are surprisingly little used, yet they aid client retention and reduce administrative costs.

- Packaging tailored products. The benefits of cross selling are evident, with increased broker remuneration and client retention. A client is far less likely to switch brokers if all of their liability needs such as their professional indemnity, directors' and officers', employers' liability and public liability are all provided for through the same scheme.

- Premium financing.

- Joint marketing initiatives with insurers and brokers working in partnership.

- Claims and legal helplines to offer clients immediate assistance and advice.

- Ongoing communication with clients showing your expertise and knowledge. Over time, as with anything, schemes can become stale. Ensure your clients know that you continue to keep your finger on the pulse of their industry and constantly review their insurance needs in light of changing legislation and market movements.

There is not much point in being a specialist in your client's niche industry and understanding their changing insurance needs if you don't work with an insurer that is flexible enough to respond or that shares your and your scheme's values. Choosing the right insurer is key.

Insurers also need a good level of understanding of the clients' industry. While no one can know your client better than you, securing favourable terms can often be down to effective communication. If an insurer understands well the liability issues your clients' industry faces already then it makes that process all the easier.

Most importantly, your insurer must be open-minded and flexible. Choose an insurer that is willing to listen and find a way no matter how unusual the risk; they should be seeking opportunities to develop solid schemes.

Once a scheme has been set up it can be all too easy to pay lip service to marketing support, but this is really vital to the ongoing success of a scheme and in encouraging insureds and the industry to place more emphasis on the quality of its wording rather than just price. If brokers do not communicate actively and regularly their new and innovative additions or beneficial changes to policies, then it is no surprise that insureds will lack the impetus to measure their insurance policy on anything other than price every year.

However, with the fortunes of the broker and the insurer so tightly aligned in schemes business, it seems only right that they should shoulder not only some of the cost but also assist in the delivery of appropriate marketing strategies. If the insurer has an excellent marketing department then why should a broker not be able to make use of it on schemes where it is in both parties' interests? It should be a partnership.

Flexibility

Brokers should be open to the benefits of offering clients face-to-face time with their insurer. While some might consider this direct approach a threat to their business, there are plenty of insurers that are dedicated to the broker wholesale channel and denying clients access to their insurer would therefore seem churlish. Some larger clients with equally large insurance spend really appreciate the offer to meet and discuss their issues or needs face to face with the man or woman writing their policy and setting their premium. Clients can see this as a real value-add differentiator.

Our industry has always viewed a hard market with swings to soft market activity as the norm. Is this really an accurate view of the market today, or are we all in denial? The soft market seems set to stay, and, rather than digging in for a long winter we should meet the challenge head on and not be afraid to change our approach or even our business models to suit. It is no longer so much a case of bigger is better, but rather of lean and lithe is lovely. The need to increase efficiencies, reduce costs, focus on profitable areas and find ways of adding value for minimal cost will be paramount. For brokers, finding insurers that offer you far more than just a price could really start to prove vital.

Schemes are definitely a slow-burn consideration. Brokers should be aware that there is no quick fix or fast bucks to be made, but a well-run scheme with long-term investment by brokers and insurers will pay dividends and present brokers with an ideal lifeline to survive the long winters.

- Chris Fletton, Director and senior underwriter, Dual Corporate Risks

UNIQUE SALES PROPOSITIONS FOR TAILORED WORDINGS

- Financial - Combined directors' and officers' and professional indemnity policies, multiple jurisdictions (including worldwide), outside directorships liability

- Environmental consultants - Pollution extension, bespoke proposal forms (so risks can be correctly priced and underwritten)

- Estate agents - Ombudsman awards clause, small claims handling agreements, property mis-description covers

- Accountants - Outside directorship liability and limited liability partnership covers, financial services and investment services

- Design and construct - Specific products insurance working in conjunction with the PI policy (to negate any short fall between the products and services). Any one claim or automatic reinstatement cover (for specific sectors within D&C, options to include EL/PL).