Letter of the Month

To air your views and comments, please write to the editor, Richard Adams, at: Professional Broking, Haymarket House, 28-29 Haymarket, London SW1Y 4RX or email: richard.adams@incisivemedia.com

The writer of the Letter of the Month (as selected by the editor) wins a bottle of Veuve Clicquot Ponsardin Yellow Label Champagne.

It is difficult to think of any commercial insurance retail broker who does not look upon the SME market as being an important one. Attention is currently focused on whether the SME market will go the way of private car insurance and become dominated by direct insurers. I would like to distil this issue into one question and ask your readers to share their reactions.

In a simplified model of the SME market comprising SMEs, insurers and brokers, the insurer market can deal directly with SMEs and incur 'organisational' costs or can deal indirectly via brokers and incur 'transactional' costs.

For our purpose, organisational and transactional costs would be those in addition to costs that remain the same, irrespective of the channel used.

Organisational costs would need to include costs for such things as advice on products and guidance on alternative markets. The former is perhaps easier to imagine than the latter. For the latter, consider the Norwich Union private-car model where BDML is used for enquiries that do not fit NU's parameters. The organisational cost could be looked on as the income lost and expenses incurred in respect of business not secured by NU but not passed to BDML who may have won it. Feel free to disagree with this.

The question to which I would like to obtain reactions from your readers is: would it be correct to presume that, if organisational costs remain higher than transactional costs, then the SME market will continue to be dominated by brokers, or vice versa?

I would suggest that all the recent detail on SMEs can be encompassedwithin this question but, given the wit and ingenuity that abounds within the insurance market, I look forward to some disagreement.

David Pentleton Operations director, Giles Insurance Brokers.