A team for marine

Smaller commercial brokers have historically tended to be wary of specialist business such as marine. But, if this view is taken, brokers could be missing out on a valuable source of additional income and new business opportunities. There is a case for brokers to take a more proactive approach to marine business and, specifically, working with specialist units within composite insurers. So, if hull, cargo and freight liability have always seemed unattractive it may be time to reconsider.

The traditional response of smaller brokers when confronted with a marine risk would be to either contact a specialist marine-only insurer or to sub-broke the risk to a wholesaler. But, there is another, potentially more attractive, option. Several of the UK composites have expert and well-resourced marine teams. A broker placing marine risks with a composite with which they already have a relationship will almost certainly secure a better deal for them and for their client.

That is all very well, but just where is all this marine business on which brokers are missing out? Hull business covers everything from cruise liners like the Queen Mary II to a humble sailing dinghy; cargo encompasses all kinds of goods being moved from one place to another anywhere in the UK or worldwide; and freight liability covers the companies that move those goods - haulage companies, freight forwarders, airlines, cargo carriers and, of course, shipping lines - against liabilities arising from their responsibility for loss or damage to the goods concerned.

Hull, cargo and freight liability

A good example of hull risks that may be commonly encountered by smaller brokers would be private yachts or pleasure craft belonging to company directors or other high-net-worth clients. Looking beyond this, for brokers with operations near the coast or inland waterways, there are opportunities with sailing clubs, port facilities, inland wharves or leisure industry clients.

The area of cargo insurance is filled with potential for any commercial insurance broker. And it is not just about those large containers seen stacked up on quaysides; any business that buys or sells goods, imports or exports, manufactures or moves goods from one site to another will almost certainly have a requirement for cargo or goods-in-transit cover - whether they realise it or not.

Equally, freight liability is not just about articulated lorries thundering up and down the motorways of the UK and Europe. Brokers near airports, rail terminals or seaports that have not yet explored the potential of this class could be ignoring highly lucrative opportunities. At the other end of the scale, local courier and parcel companies all require the right insurance package. And the right insurer can provide expert guidance, training and support to help brokers target these opportunities.

Currently, there is an area of opportunity for brokers resulting from the Financial Services Authority precluding non-regulated freight forwarders - effectively, almost all freight forwarders in the UK - from offering insurance to their customers from mid January 2005 onwards. The freight forwarders' trade association, the British International Freight Association, is seeking to secure an exemption from regulation for its members but, in the event that it fails to do so - which at the moment appears likely - marine brokers and insurers need to be alert to the possibility that the marine cargo requirements of the freight forwarders' customer base may soon require servicing in a different way.

Brokers are actively exploring, with freight forwarders, ways of exploiting this new market. Those that do so successfully will find themselves talking to customers who may not have previously utilised the traditional broker market to access marine cover. The subsequent opportunities for building a wider relationship and cross-selling other classes of business do not need spelling out.

Opportunities

Once you start looking, you may find that the opportunities are far more abundant than first expected. Take the following example. Six or seven years ago, a small independent broker, having placed a variety of risks with Royal & SunAlliance, acquired a new client that was in the process of setting up an international trading business. They talked initially about the usual risks normally considered when setting up a new company with six staff: public and employers' liability, directors' and officers' cover, office equipment, motor fleet, and so on. Soon, the broker had put together a nice little package for this new client.

But, after that first meeting, the broker started thinking a bit more about the client's business model. The company was involved in buying and selling their chosen commodity worldwide, but never had any actual physical stock on its premises. What about the time between purchase and sale when the goods were either in transit or sat in a warehouse? Could they really rely on the carrier, airline or storage company to provide adequate indemnity?

RSA worked with the broker and, ultimately, put together a cargo policy to match their requirements. Initially, the premium was in the low thousands of pounds, so the broker netted a fairly modest reward for his ability to spot an uncovered risk. But, over the years the business grew and the annual marine premium alone rose to a level in excess of £350,000.

Of course, not all marine cover will realise the same sort of premium but, hopefully, this example illustrates the underlying point that brokers should not discount the income that can be derived from picking up on marine risks their clients may face.

Composite or marine specialist?

But why take a specialist class of risk like marine to a composite insurer?

Why not go to a company that only writes marine? There are a number of well-respected marine underwriting organisations operating in the UK, primarily within Lloyd's and the London Market. Understandably, these are the obvious names that come to mind when thinking about marine business - and there is no question that many of them have the experience and the expertise to write marine risks effectively.

What they will not necessarily possess, however, is the capacity or the global resources of a major composite. Their underwriters may not be able to call on the expertise of property colleagues on stock risks, for example, or to discuss haulage risks with their commercial motor operation. For those brokers with clients that have operations overseas, will they be able to access global networks and the ability to service those operations locally?

What ought to be more obvious is the downside of simply parcelling marine risks off to a wholesale broker. Taking this option will obviously save time and administration while still generating some income, but brokers may be compromising earning potential by giving away a slice of the brokerage and forfeiting some of their ability to influence a client's experience of their company's proposition. Involving a wholesaler may also prove unhelpful on larger, more complex risks - where the client might require a long-term 'tripartite' client-broker-insurer relationship.

Not every composite insurer has a marine operation. But those that do tend to take the business very seriously and have well-resourced, capable and expert teams on board. It is certainly worth asking any composite with which a broker already deals whether they can help place or develop marine business. If they can, there are clear advantages in building on an established working relationship rather than attempting to establish new ones.

Dealing with a known insurer should yield enhanced leverage in negotiations over premiums or claims than with a smaller specialist underwriter. It keeps things simpler in administrative terms and ultimately helps to increase the perceived value of the overall relationship with the insurer. Adding in another class of business can help to raise a broker's profile with an insurer and improve the chances of securing advantageous returns when they are needed most.

Working with a composite can also deliver clear benefits in terms of remuneration. Insurers have not always been that good at factoring the total value of broker-insurer relationships into the deals they offer brokers. But, over the last 18 months or so, there seems to have been significant progress on this. Large composites are now much more adept at making the linkages between their constituent parts and seeing their broker relationships as a whole, rather than different departments operating in individual silos. Profitable marine business worth, for example, £100,000 - added in to the well-established £500,000 of profitable property business already placed with an insurer - could be the missing tranche that triggers a brokers business deal payment, for example.

One crucial determinant of a client's experience of the insurers recommended by a broker is claims. And this is where dealing with a major composite can really pay off. Many smaller niche companies tend to outsource their claims on marine, cargo and freight liability. Rather than jeopardising a relationship with a client for whom marine is only a small part of a broad range of risks, it could be prudent to work with a major composite that has a strong in-house team with the scale to manage costs effectively, train and develop its key staff and, critically, come back with a prompt and fair claim decision.

Some of the larger UK composites are also now strengthening their specialist risk management offering. They no longer rely on a force of general commercial insurance surveyors to service their commercial business and will have dedicated risk management teams for each class of business. If brokers access these insurers directly - rather than going via a wholesaler or placing the business with a smaller specialist - they have the opportunity to work in partnership with these teams over a period of time to deliver an enhanced level of customer service and expand the scope and perceived value of their involvement in the client's business.

Proactivity is key

But, enterprising brokers are not going to wait to be asked. With in excess of 15,000 brokers across the UK, there is no guarantee that any insurer is going to be knocking on your door tomorrow wanting to talk about marine business. It would be advisable to take the initiative and be proactive in developing marine business before other players get there first. In an increasingly competitive market, it makes much more sense to adopt a more innovative approach to carving out fresh niches than to compete with the herd on standard risks.

Opening a new front by targeting marine risks might generate relatively modest returns initially but, in an era of increased pressure on both premiums and remuneration, every little helps - and there is always the prospect that marine could grow to represent a significant revenue stream for your business. Working with a specialist marine operation within a major composite offers a secure and hassle-free way for brokers to access these opportunities.