A measure of things to come

Insurance broking has rarely, if ever, been free from external threats and portents of doom. Currently, however, it seems that the sector faces more pressure than ever before. Competition from direct sales, pressure on commissions, availability of cover, legislation, inadequate and infuriating insurer service, and impending statutory regulation all make for an unappetising market.

Brokers need all the friends they can get if they are to survive and in response the Chartered Insurance Institute is increasing its broker support. For example, the CII has collaborated with the British Insurance Brokers' Association to create Broker ASSESS, an online support tool that enables brokers to tackle training and competence rules under the forthcoming regulatory regime.

Conference sessions

The CII's UK Insurance & Financial Services Conference, held in London in September, is also devoting a number of sessions to brokers. Sarah Wilson, director of the Financial Services Authority's high-street division, will offer a presentation on the countdown to 2005, when brokers will be regulated by the FSA.

Bob Beckett, chairman of the Beckett Group, will talk about survival under the new regime, using real-life examples to illustrate the threats and opportunities. He will be accompanied by two other high-profile brokers: Mark Redburn, managing director of the Willis Network, and Ian MacIver, managing director of the Folgate Partnership.

Other sessions, though less directly targeted at brokers, should also prove helpful. The conference will assess imarket, the Polaris technology initiative, and analyse the latest trends in flood and terrorism risks.

It will also look into claims management and examine how the industry and the government are tackling the difficulties surrounding employers' liability.

Sandy Scott, director general of the CII, believes brokers are a key part of the CII's constituency. He points out that the CII promotes the interests of the entire insurance and financial services industry, from product providers to brokers to independent financial advisers to service providers. He says: "It would be a mistake for anyone to suggest that we concentrate on the company market or indeed on any particular niche."

Scott says the CII is focusing on brokers at the moment, however, due to the pressures they face. He adds: "Our role is to ease those pressures and help brokers thrive."

New CII president

The CII's commitment to the broker market can also be seen in the fact that it has nominated Bob Beckett as deputy president for 2003/04. Beckett believes brokers are entering a watershed period, in which there will be fundamental change. He says: "The onset of regulation will be the primary mover for change, though other factors are also coming into play. Brokers will need to be at the very top of their game if they are to survive."

Beckett is particularly concerned about the increased costs brokers now face. "It has been said that compliance with the regulatory regime is a mixture of good business practice and common sense. Most brokers are effectively compliant anyway," he points out. "But the real issue is demonstrating compliance within the parameters being laid down by the FSA. That is where the costs come from and that is why many smaller firms are going to find life difficult in the run-up to 2005 and beyond."

The market is already seeing a high level of takeovers and mergers, which Beckett sees as inevitable. He points out that people who become brokers want to help clients get the best protection at the best price, not administer businesses within narrow guidelines.

He adds: "Unsurprisingly, they are looking for ways to collaborate or pool resources so that they can get on with what they are good at - the nitty-gritty of compliance taken care of by dedicated services."

Beckett believes that the tough market conditions are sapping brokers' strength. He says: "Wherever you look in the broker market there is cause for concern. Take insurer service - brokers are experiencing delays and coping with indifference on a daily basis. And it is brokers that have to carry the can in front of clients, perhaps having to explain why a policy needs to be extended because holding insurers simply haven't produced renewal terms. That kind of situation inevitably saps morale."

Across the board

Beckett points out that many insurers deliver top-notch service but says others are struggling to cope with market pressures. "We have been through a tough couple of years," he says. "We have seen a dramatic fall in investment income, the emergence of new sorts of risk, the rise of the terrorism threat and huge costs relating to litigation. Many jobs have been lost and a lot of skill and experience has disappeared. What the CII has to do is find ways to restore the professionalism and vitality of the market so that there is an improvement in quality and service across the board."

The CII maintains close links with the government, the FSA and other industry bodies to help shape legislation and regulation. Scott believes the policy makers look to the CII for guidance and direction, pointing out that the FSA is working closely with the institute. He says that the CII is working closely with the FSA on the whole gamut of regulatory issues, including those affecting the general insurance community. He believes that the organisation's work on training, education, qualifications and continuing professional development is helping shape the context of competence.

Market issues also receive close attention from the CII. "Liability occupies much of CII members' time," says Scott. "How could it be otherwise when firms up and down the country are struggling to find affordable cover? We provide forums at national level through the CII conference and through CII local institutes where the best brains in the industry can pool ideas and find ways ahead."

Professional indemnity insurance has also been hit hard in recent months, making it nearly impossible for brokers to place this type of cover. Beckett says he sees the problem every day. "When you talk to brokers it takes only a moment before the conversation turns to PI. Premiums have rocketed in recent years and many firms are struggling to find cover at any price at their current renewal."

The CII hopes to help by offering a bridge between underwriters and policyholders.

"I am sure the open sessions at the forthcoming conference will see many questions from the floor on the subject of PI," says Beckett. "Brokers simply want to know how clients are expected to continue trading if they cannot obtain an essential element of business protection. There are strong echoes of how the EL issue is affecting the commercial sector in general and we can look forward to a cross-fertilisation of ideas as these various problems are debated."

Scott says the character of the conference has changed in recent years, reflecting the changes in the insurance market. Where the conference once pondered the issues of the day, there is now a much greater sense of urgency.

"In previous years the mood was one of certainty and unshakeable faith in the ability of the industry to move forward," he says. "We are living in tougher times and, therefore, need to offer much more practical help."

Beckett agrees: "Nothing can be taken for granted - no one knows what lies around the corner. Who would ever have forecast the demise of stalwart companies like Equitable Life? How can anyone be totally sure of the future in a world where events like 11 September can take place?"

Nonetheless, the CII hopes to keep the conference upbeat. "The only approach we can adopt is to be positive and constructive," says Beckett. "The need for sound, independent advice will remain so we need to develop ways in which it can be delivered. Will that be via larger companies formed out of mergers and acquisitions? Will it be through the collaborate efforts of individual firms in the form of networks and associations?"

Exams and qualifications

Whatever approach brokers take, the question of how to restore consumer confidence remains. Higher standards of professional practice are essential, underpinned by exams and qualifications.

Consumers are looking to the insurance industry to demonstrate that practitioners are qualified for the complexity of the product being purchased. They also want to see that competence is being maintained.

Entries to the CII general insurance department have risen by 40% during the past year and the CII hopes this is indicative of a rising tide of professionalism. But qualifications are not only a good way to prove to consumers and the FSA that an individual is up to the job. Better staff training should also allow individuals to give more, boosting their job satisfaction and performance.