Without frontiers

It is becoming the norm rather than the exception for UK businesses to expand by trading overseas and brokers are responding to these demands by extending their reach beyond the UK. Most find that the competitive advantages outweigh the significant challenges in setting up global operations, yet in an era of virtual offices and online communications, questions abound as to how important it is to have a physical presence overseas and whether or not the benefits justify the investment.

Those brokers that have expanded successfully outside their UK bases emphasise the importance of local service and client accessibility. Christof Bentele, chief commercial officer at Aon Middle East, asserts: "The global client wants an adviser to guide them through the various jurisdictions and you will struggle to do so if you do not have a local presence."

There is also the view that a physical presence ensures visibility, which helps attract new business. Michael Bartlett, chairman at Leeds-based Bartlett Group, observes: "Having our own office enables us to deliver a consistent level of service to our clients and helps us attract new clients, especially where we are competing with the major brokers." Bartlett, an independent broker, has clients in over 30 countries and its own offices in Philadelphia, Hamburg, Amsterdam, Paris and Hong Kong; it also services international clients' overseas interests through a network of agents.

Advantages

The Howden Broking Group is another firm with extensive experience in operating internationally. It is represented in 14 territories with 49 international offices including the USA, South and Central America, Spain, Scandinavia, Eastern Europe, the Middle East and India. Group broking director, Andy Bragoli, explains: "Howden has been committed to growing and developing internationally as well as in London." Bragoli emphasises that being part of a global group brings strong growth potential and enhances the knowledge, skills and processes of each office.

Expansion overseas should also be viewed in the wider context of exploring new business opportunities. As Christopher Hood, senior manager in the insurance broking team at PricewaterhouseCoopers, observes: "In the current soft market, brokers are redoubling their efforts to stabilise and, if possible, grow their revenues. One option is to expand their networks across Europe and globally in order to gain access to new clients and markets."

Oliver Laughton-Scott, managing partner at IMAS Corporate Advisors, points out that the larger international brokers have established strong international networks and that it is important for brokers to be able to differentiate their offerings. Laughton-Scott explains that firms are looking more at skills and expertise rather than geography as key differentiators.

Before planning overseas expansion, it is worth asking how important a physical presence in a region really is. Laughton-Scott observes that people are now much more accustomed to working in a virtual world, adding: "Given the communication revolution that has taken place, the benefits of building an international network are far less than 20 years ago."

In many ways, the answer lies in the type of business that the broker is dealing with. Mr Hood explains: "In personal lines, small corporate and commercial business, a local presence is fundamental to establish the regular relationships that can attract a sufficient volume of business. Local regulations may also require the presence of a local entity. The larger brokers are emphasising their 'global service, local delivery' capability and, in such a relationship-driven industry, there are obvious benefits."

Personal touch

Bragoli outlines Howden's position: "The crux of our offering is that we are there when clients need us most - when it comes to handling claims. When you have a claim in professional indemnity or directors' and officers', it can be very disrupting and intrusive and potentially cause significant reputational damage. You need someone that can help you though that process personally without relying on a machine."

There are many routes for brokers looking for a presence overseas, from merger or acquisition of a regional operation to setting up offices from scratch. Clive Hassett, director of operations for major risks at Ace, remarks that brokers can respond to a demand for local service by establishing themselves in an overseas territory or partnering with an affiliate broker, or an insurer. Ace itself has an initiative, Ace Evolve, which supports brokers in servicing clients' non-domestic operations.

For many, joining a broker network is one of the most efficient, cost-effective routes. Hassett notes: "There are affiliations of brokers and overseas broker networks emerging and that's often the route that brokers will take to achieve their overseas presence."

Bragoli says that it is a question of what suits your business and which part of the world it is. Howden's experience is based around building relationships with local companies and, in some cases, it has bought them subsequently. Bragoli explains: "We don't set out expecting to buy a local broker. Our philosophy is to work with the best and sometimes the best don't want to be bought." He adds that it is not essential to own an office to be able to deliver the most important ingredient: great service.

Laughton-Scott stresses the importance of aligning needs when acquiring: "Buying allows rapid access to one chosen market with a business that reflects the local culture, however, it is crucial that both parties know what is expected of each other and how they will achieve this. Unless this happens, the acquired business simply sits on a limb and tends to wither. This happens too often, with the acquirer having to go to the expense of a further acquisition."

Hood identifies some key challenges inherent in setting up a company or choosing the acquisition route: "Setting up a new company or office can carry a heavy bureaucratic burden in some territories, as can the ongoing reporting requirements. There may be limitations in place regarding the degree to which an overseas group is able to invest in local businesses, which may limit the degree of control they can achieve when trying to make acquisitions."

Local knowledge

Bragoli also emphasises the differing regulatory obstacles in addition to foreign investment rules, taking India as an example: "In India, foreign investors are only allowed to own up to 26% of a company. For Howden India, that means that it is all-the-more important to have the right relationships in place."

The larger brokers also need to make best use of their resources in positioning their brand across geographic boundaries. Greg Case, chief executive at Aon, summarises Aon's approach: "Recognising the international nature of companies in this segment, we have been aligning our resources globally so that we can meet their needs. We created Aon Global in 2006, which was targeted at the large multinational segment and brought together Aon resources from around the world. Building on the success of that business, we have taken all of our risk and insurance businesses to the global level, covering clients of all sizes. This means that all three of our businesses, Aon Risk Services, Aon Consulting and Aon Re Global, are operating globally."

As global trading continues apace, the question of achieving an overseas presence is becoming relevant for the smaller brokers as demand increases. While the challenges in expanding outside the UK should not be ignored, the world is now more accessible to brokers of all sizes than ever.

OVERSEAS OPTIONS

What are the major routes for a broker looking for affiliations overseas? Christopher Hood, senior manager in the insurance broking team at PricewaterhouseCoopers, outlines the options:

- Acquisitions (either controlling or non-controlling), partnerships or networks, setting up branch offices or subsidiaries or representative offices. The preferred approach depends on the circumstances, intentions and consequences.

Considerations include:

- The regulatory environment and impact.

- Legal issues regarding ownership and the transaction of insurance business in the territories being considered.

- Financial and accounting factors, such as local reporting and standards.

- The quality, availability and expertise of local resources.

- The maturity of the market sectors being targeted and barriers to entry. Tax considerations in the context of the existing group structure.

- The degree of commitment to that particular market or territory - the choice between acquiring and partnering.

- The financial resources available to achieve this overseas expansion.

- Possible exit strategies.