Birmingham calling

The recession

Tjaardstra: How bad has the recession been in the local area?

Wheatley: The bottom line is that it takes a little longer to have a direct impact on our businesses [brokers]. A year ago some clients might have been nervous, but some such as in construction have been decimated. The knock on effects are huge and some small to medium sized businesses have gone out of business.

James: Some very longstanding clients have gone under. We are also seeing more tendering. People are beginning to approach their commercial insurance the way they do their personal insurance and automatically putting out for tender each year. That is a change that has come in the last two years.

Southall: We have evidence of clients going to two or three brokers even if they have longstanding relationships with their holding broker, something I haven't seen before.

Hands: There is an industrial heartland here, Coventry is heavily in the motor industry and there is strong competition from the Far East. I've had friends who have been out of work in the building industry for 12 months now.

Southall: They are still building office space here [in Birmingham] and you wonder who is going to fill it.

Campbell: The more visual sign for me is the lack of people in the bars on Broad Street and a significant fall in property prices.

Wheatley: Some good friendships have been tested because of the pressure on them to run their businesses efficiently, and of course they wouldn't be doing their jobs properly if they occasionally didn't go out to market. However, we have to tell clients how counterproductive it can be to appoint three or four brokers which can lead to miscommunication. We tell them to concentrate on one alternative.

Southall: To turn that on its head, that has created a number of opportunities to write new business and get in the door. We have two new account executives and clients are more responsive to introduction letters, although the strong relationships with the other brokers will always make it difficult, but they are being tested.

Campbell: Are clients using you to do a big market exercise?

Mackey: That's out of our control.

Southall: But there is an additional cost to brokers. If there are three brokers involved we are not interested.

Tjaardstra: Why are clients going under?

James: They are often well managed and have taken necessary costs out but they can't generate the sales to maintain the business. Even companies with very little debt, and often they are older people.

Wheatley: This has given many businesses an opportunity to clear out and some will emerge much stronger. While it's tough there are some positives. We have been looking at the way we have traditionally done things and this is a perfect time to drive change.

Hands: There are a lot of insurer and broker redundancies, including the consolidators. Smart provincials are making the most of that opportunity.

Hallam: We are seeing an amazing amount of CVs cross our desks who are being made redundant, those controlling around £1m GWP.

The future

Tjaardstra: What do you feel are the qualities needed for a broker in the future?

Hands: So many big name insurers have gone, what price is loyalty - do they see it more as a commodity?

Mackey: People's perception of continuity has gone out the window. They rotate their commercial insurance like personal lines.

Wheatley: If there has been a claim, they value you.

James: Many insurers don't recognise what brand is, they think it is name awareness.

Wheatley: How many truly differentiate their offering? Hiscox and Fusion do.

James: Value is presentation, product and pricing. Hiscox is perceived to have brand.

Southall: Many clients relate to the broker and say that is who they are insured with.

Mackey: Today is a good time to have a niche, and our product is bespoke to a large number of people. There are decreased turnover and wages and 8% of renewals we are missing out on because of liquidations. However, our niches keep us strong.

James: You are going to need a niche, MGA or specialism, you won't survive as a generalist high street broker.

Southall: I would disagree as that is what we do and we have grown 22% and 26% respectively. As a result of the consolidation in Birmingham there is a great opportunity.

Campbell: There is room for small top quality provincial brokers.

James: Locally there is an opportunity, but the issue going forward is to build brand and it could get difficult in five years time for you.

Campbell: I think you can develop brand by building excellent customer service.

Wheatley: There is a world to support the independent. I don't see how we operate any differently and we are still committed to fantastic, personal service.

Tjaardstra: Is it an advantage being 'large' in these times?

Wheatley: It is the kind of question you argue with yourself over at night. Yes there are significant advantages: developing MGAs for example. For our people, we have grown from being 100 people in Birmingham, and Oval has given them more opportunity to develop. It has also allowed us to attract talent we wouldn't normally have.

Southall: There will be a number of starts-up again. Some insurers are receptive and will support them. However, certain ones appeared to want to make it difficult.

Campbell: Some national brokers or consolidators are fed up with some of the promises not coming to fruition.

Wheatley: Some brokers, where future leaders weren't able to takeover, might be looking to set-up.

Hands: It is the insurers that react quickest which will do well here.

James: The difficult bit is to take your business to £5m brokerage. You need a niche offering.

Wheatley: Change appears to be happening every 10 minutes. And ultimately you end up at the same spot as 10 years ago.

James: The problem is that insurers have failed to do their core activity - and there has been a failure to make money out of underwriting.

Tjaardstra: Why are there still such differences between new business and renewals?

Southall: There are some massive differentiations, and it is hard to manage the expectations. If they want a 25% increase on a renewal you have to challenge it.

Wheatley: I used to think it was brokers driving the soft market, but there is a lack of control and quality [at insurers]. It is endemic of an industry losing control, we are dumbing down and it is making us all look like idiots. I have a case at the moment we are looking at that is paying £450k and we have a quote for just over £250k.

James: Some of the new insurers appear to be more professional in making underwriting profits.

Wheatley: They want lots of information. There is a phrase: some people allow the perfume of the premium to disguise the odour of the risk. It is spot on.

Campbell: Insurers are driven by new business targets. They pile it on cheap and you can't adjust the premium in one year to acquire the risk, but it takes three or four years.

Hands: Some managers need to hit targets, the pressure is there. Some are underwriting for market share and not profit.

James: The new thing is that insurers won't be able to come back from cheap.

Southall: Do these targets mean that if three brokers send in three different presentations - would they get the same price for all three?

Wheatley: If it is a sizeable risk many people ask you - what are you looking for?

James: Some insurers think they can dominate the market, and they think they are big enough to do so, but in reality they aren't that big even with a £2bn premium income.

Mackey: In schemes, the premium is less important.

Tjaardstra: What are the three things at the front of your mind for the immediate future?

Southall: Short term is clients and cash flow. Seeing those clients continue through the recession is one of the key things. Second is people and training - and we have done a training analysis of all our staff with our FSA consultants. We want to grow the business and want to service the clients, and make sure those back in the office are being looked after.

Wheatley: Cash is king. We look at how much we manage the credit we provide to clients. This market needs to change - everybody is talking about a hard market. In the past, the market has only risen after the failure of a major player.

Mackey: We have products, renewal dates and clients, but finding the right staff is an issue. Also insurer support, if they are not prepared to support you through the bad times that is an issue - we have changed our binders two or three times in six years.

Hallam: There has been a large amount of movement towards premium credit, showing that clients are being hit and can't pay upfront any more. Technology is clearly important and there is less choice with providers with the consolidation in that market. To increase brand is key and pricing needs to change and when one large player goes 'belly up' - the biggest thing is what your competitors do and we are seeing some of them fail.

Tjaardstra: What is the most important aspect of management in these tough times?

Wheatley: Communication is key - you have to be open and honest. If there is a problem, your staff are often best placed to come up with the appropriate solution. Clubs is a large facility and it is tough, and you have to realign the focus to make sure you concentrate on what is going to be there in the future. If there is no pay rise, redundancies or lack of bonuses, one of the biggest motivators can be to look around you - we all see it in the news everyday.

Campbell: Some people feel the grass is greener on the other side, but it's often not.

Hallam: Staff will go a long way provided you demonstrate you can stand in the trenches with them, that you are not hanging them out to dry and you can take on the chin what they have to - and they can do some amazing things.

Southall: We need to mirror the benefits of the larger employers. Ultimately though it all goes back to clients, many of which are struggling, and without them we don't have a business.