Dive back in at the small end

Small to medium-sized enterprises are one of the hot topics of the moment, with many brokers and insurers jostling for position and keen to get in on the act. But, with 98% of businesses in the UK employing fewer than 50 people, the term 'SME' means a variety of things to different providers. However, when it comes to very small enterprises - clients with an average premium of a few hundred pounds - the traditional routes to market are looking distinctly vulnerable. All the ingredients are now in place for banks or others to attack this end of the SME market, in much the same way as the intermediated motor market was in the 1980s.

Consider the fact that a high proportion of the cost of these policies - commonly 50% - is taken up by administration and commission. It is not difficult then to imagine that someone, somewhere, is deconstructing the whole process to conceive a cheaper means of providing cover to VSEs.

Another factor that paves the way for an assault of this kind is the complacency of some brokers due to the low remuneration levels involved in supplying cover to this sector. The fact that it is uneconomic to provide risk management to VSEs erodes the ability of the brokers to differentiate themselves from potential offerings and the threat of new entrants.

Perhaps the way around this is not for brokers to open call centres and rushing to adopt the methods of rival intermediaries, but to work more closely with insurers. While there is nothing wrong with brokers having call centres, there is a history of brokers responding to the threat of new methods of distribution by emulating rivals. Allianz Cornhill's strategy to introduce risk inspectors (see News, p8), who operate at a fraction of the cost of surveyors, has been devised to address this very issue and, if its stance is representative, signals insurers' desire to keep the majority of the VSE sector brokered. AC is willing to do this as ultimately even this knock-down-price risk management minimises its exposure. It also restores a traditional unique selling point for brokers and is an attractive value-added service for the client.

As routes to market are fragmenting, with the lines between brokers and direct writers becoming increasingly blurred, the brokers' struggle could be helped greatly by getting increased value such as this out of their carriers.

As insurers dabble with direct offerings to ascertain how the customer wants to buy insurance, brokers are understandably concerned. But, now is the time to approach insurers for added support to keep delivering competitive service in a way that has a proven track record of being beneficial for all.