Start-ups set to increase in 2008?

At first glance, the idea that 2008 might prove to be a pivotal year in the re-emergence of broker start-ups might seem slightly far-fetched. After all, in recent years all the news has been of consolidation and acquisition in the sector, with genuine start-ups few and far between. Yes, there have been high-profile London Market players such as Oxygen, or regional entrants such as Birmingham-based Southall Harries or Bristol-based professional indemnity specialist Ntegrity, however the general tide has been that of the consolidators.

Yet finally, the tide could be turning. Both Cobra and UKGI's recent announcements that they are offering platforms for potential start-ups have reignited interest in the topic. Cobra's Genesis aims to create brokers around the country by offering them access to its panel of insurers, while UKGI, the broker support service, is also aiming to pay for start-ups to gain Financial Services Authority authorisation and UKGI membership fees.

According to Mike Williams, managing director at UKGI, there is now a very real possibility that the UK could witness a number of new insurance brokers in the way it did during the 1980s.

Williams said: "The consensus out there is that there are about 3,800 'proper' broking firms, by which I mean full-time, fully authorised general insurance brokers. The commonly held view is that in 2007, for the first time in living memory, the number of insurance firms stayed the same or actually increased slightly, so that start-ups matched the number of firms being taken over."

In the opinion of one senior commercial broker, the reason behind this change lies at the personal level: "Because of consolidation, there has been a side-effect. Directors have been bought out and brokers have been acquired but what people have found is that, after a year or so of having to sit on the sidelines as part of the contractual agreement, life once they are in situ at their new broker is not all they thought it would be; it doesn't sit that comfortably with them."

UKGI's Mike Williams agreed with this assessment: "Bob Beckett and I know from personal experience, particularly with consolidators, that there really is fallout. You get individuals that are entrepreneurial, who thought they had a future with an independent firm and don't feel the future with a corporate consolidator offers them what they want. They don't like being told what to do. All this means that there are more and more start-ups.

"There is an increasing number of court cases revolving around breach-of-covenant issues and many of these don't even reach the papers, so the movement of disaffected brokers is certainly a discernable trend. People want the freedom to do things in a professional yet dynamic way."

Robert Lumley, chairman at risk management specialist Lumley Jacobs, was involved in selling Lumley Letsure to Erinaceous. He said: "The insurance cycle has come around again. In the last round of consolidation the consolidators became disenfranchised from the customer and many brokers started their own businesses. You can't just absorb brokers and expect the relationships to continue as normal."

Nonetheless, getting an insurance broker up and running is not straightforward, with insurer-led pressures making any new ventures more difficult than they used to be in the opinion of some.

According to a spokesman for Cobra Genesis, life as a start-up in 2008 is very different from what it was twenty years ago, with the insurer relationship one of the most significant changes to have occurred in recent years: "There has been a kind of consolidation frenzy, not only among insurance brokers but also among insurers that are now picking and choosing their agency bases and making them smaller than they have been for many years.

"Start-ups find that they cannot necessarily get the agency agreements they need to come to the market. What we're offering is access to those markets through Cobra, not just through our existing agency agreements but also through our various schemes and access to Lloyd's."

Some have argued that the independent broker market needs start-ups to ensure it finishes; there are certainly many willing to help out.