Commercial brokers; adapt or die?

The 2012 Datamonitor UK Commercial Distribution report stated brokers still held 83% of the distribution of commercial insurance in the marketplace.  In modern, competitive insurance new intermediaries are fighting for capital and commission as sales distribution channels become more varied. The result is brokers have to consider ways to stay stable amidst a flexible, soft market. The wider adoptions of digital and online technologies, too, pose a challenge for brokers that don’t adapt.

“58% of brokers said the level of commercial insurance they trade electronically had increased”
Insurance Times, 16/10/2013 edition

Is there really a threat to the very people who currently own relationships with the end customer? And are the changes personal lines a sign post for changes to be expected within commercial lines? With Insurance Times recently highlighting the ‘broker squeeze’ on commissions, innovative ways of increasing profit margins are fast becoming brokers’ priorities. With this in mind I’ve laid out some of the potential broker threats and opportunities to arise from them:


MGAs

MGAs are one of the (no longer ‘new’) intermediaries in the insurance chain. There are no hard rules on who this affects and how as it is on a case by case basis – some carriers profit share with MGAs as they take on the work, other brokers may feel a pinch on their commissions.

X Can be a threat to brokers who handle high volume, low value commercial business as a possible commission reducer

Could be an opportunity to start an MGA or bring coverholders in house, especially niche area brokers:

Brokers are increasingly bringing coverholder or MGA business in house; Lockton/ Mapledown and Arthur J Gallagher/ OIM Underwriting etc.  MGAs are able to quickly make rate changes, be entrepreneurial and take on new lines and books and retain control further along the customer chain – it is easy to see why the trend is not subsiding. Coverholders/MGAs grew by 275 in total from 2007 – 2012, now we are seeing ‘steady growth’ with 31 new MGAs from 2010 – 2012 according to Lloyd’s. However some of these new MGAs do fail and Saxon East of Insurance Times warns “Broker MGAs need a unique selling point”.


BINDING AUTHORITY

Binding is proving to be a revenue differentiator for medium to larger brokers. I.T is key for brokers and insurers to work together to process large volumes of policies in this way. Passing one document around 8 people before approval and labouring on spread sheets doesn’t add to anyone’s bottom line. Efficient processes free up manpower, meaning your staff could process double the amount instead of you having to cut costs, jobs and endure the subsequent negative PR.

X Is binding a threat if you don’t have a dedicated team? Ask your carrier partners.

Lack of binding or ‘account handling’ capabilities may or may not be an immediate threat to you take the lead from the insurers you work with. Do other broking companies they work with have dedicated binder/account handler teams to serve some of their schemes, or binding authority/coverholders to process books of business? How much business are they planning on processing this way in the future?

Binding is an opportunity for medium to large brokers to become or remain the preferred broker.

WHITE LABELLING

White labelling in personal lines is established; eliminating some personal lines brokers and enabling carriers to increase margins and undercut brokers. A recent example of the trust in white labelling is Brightside – turning to big brands ASDA and Debenhams in times of need.

X Threat to SME commercial insurance  

Is the diversity of white label adoption into bigger brands and niche markets a sign it will slowly become more widely used for other types of commercial insurance? Big or niche brands come the benefits of up and cross selling to a mass or targeted audience, so it is easy to see how this may grow in an ever brand dominated world.

Opportunity to get in there first for SME insurance and others?

You could offer white labelling as part of your broking service to retain some business and increase sales whilst taking away the leg work from not only carriers, but yourselves.

 

E-TRADING/ ONLINE

Retail/ B2C has officially sold direct since 1985, thanks to the infamous, Direct Line. Direct selling was, of course, then catapulted by the birth of the internet and now we see the influx of the likes of ‘cover4mobilephones.co.uk’ and ‘cover4travel.com’ from UK and Ireland Insurance Services for example.

Direct online and intermediary aggregator sites have been used for high volume, low value business for some time. The squeeze comes now as wholesale B2B start to look at online as a sales tool, will e-trading cut out brokers and how can you gain more inclusivity to these channels?

X The Broker Market in UK has been transformed by consolidation and the advent of disruptive ‘Online’ Models”Lloyd’s Market Review Presentation, 2012

Opportunity to all brokers

Create an online channel for your customers to engage with you, or join a B2B aggregator. Commercial lines aggregators already exist (iprism) and there are many ways to utilise online. ‘Marketplaces’ for products are another ‘channel’ increasing competition however – therefore pushing brokerage down in an already soft market; judging which ones will increase your product’s profit is vital.

We would recommend building products with the channels they are going to be sold via in mind. When opting for an online traded solution for example, minimising referrals should be a priority. This allows you to keep the cost of sale as low as possible and in turn, make pricing attractive.

Brokers are starting to view carriers more as customers –are you making the most of your carriers multi channel offering (if they have one)? Do your brokers make full use of their web-based portals or preferred channels to remain favourable, and in some instances get preferential rates?

Online is ever growing and can’t be ignored. Next it will be mobile and iPads, so web-based systems will facilitate what will be an even more an even more tech-savvy workforce– here is some research evidence of demand courtesy of IBM: The successful insurer will be digital – IBM Infographic.


CONCLUSION

Commercial insurance is now an ‘offline’ and ‘online’ market place.

There are many options to automate; messaging, policy admin and bordereaux systems. Or a multi channel system so you can open new distribution channels from one core system –  opening and closing channels for different schemes offers flexibility and is strategically (and financially) safer for medium-large, growing organisations.

If you lack a niche offering or strong enough relationships you could move more into carrier territory as Vantage have done – for whom broking now only accounts for 10% of their business. But realistically threats are not happening at the speed of light. Commercial brokers still hold power and relationships with end customers.

The threat, for now, is more about being competitive, strategically diversifying, automation and knowing BOTH your audiences, carriers and customers.

“Automation is still a choice in the current market but soon it will be a necessity, as technology is becoming part of the decision making process when people select a broker, MGA or underwriter as a partner.” Peter Montenaro, Head of Delegated Authority, Lloyd’s – 2012

After speaking with senior executives at both broking and carrier companies I’ve heard of a mutual respect – both seeing one another as a customer – this can only pave the way for collaboration on the best ways to stay competitive for one another.

 

Top 10 insurance stories of 2013

It’s official, Christmas adverts are upon us! The year is not done yet but I still found myself looking back over 2013 at what could be deemed UK Insurance’s top stories. Here is my pick:

  • Guess whose back? The newly appointed Chairman and CEO of Endurance, the renowned John Charman has already increased the share price simply by showing up! A market scholar says; “Their support [for him] is causing other multi-billion players to say: ‘Maybe we haven’t articulated a ballsy enough agenda’.”
    –Source Insurance Insider
  • “Amazing that even in a bumper year like 2012, 27 out of 92 Lloyd’s syndicates didn’t make any underwriting profit. Most were small…”
    –Source Mark Geoghegan, Editor, Insurance Insider
  • Dubbed ‘controversial’ by the insurance media, Berkshire Hathaway has struck deals to access Lloyd’s via facility – so far agreements are held with Willis and Aon – a trend that threatens free competition?… watch this space…
  • AJG continue to take over the world. Well, Giles, Belmont International and Barbon Insurance Commercial & Property in 2013, following 6 acquisitions in 2012.
    –Source AJG press releases
  • With so much M&A activity it’s no wonder that the value of European insurer mergers and acquisitions over the first half of 2013 were 1.6bn, the highest for 2 years
    Source Insurance Times, October edition
  • Ageas, AXA and RSA continued to produce Core Operating Ratios above 100% for commercial lines. Is commercial the new motor?
    –Source Insurance Age, March 2013 edition
  • There have been 33,445 complaints against top insurers to the Financial Ombudsman Service about general insurance since the start of 2011…
    – Source Insurance Times, September 2013 edition
  • The FSA became the FCA which was, at the time, anticlimactic. Despite 95% of the staff remaining the same they’ve insisted they will act differently and their publicity supports this (assessing staff bonus schemes, enforcing fines etc). The regulation panel at the Xchanging London Market conference seemed impressed to date with the FCA and PRA … another tbc?
  • Complaints about terms in insurance policies have risen by three quarters over the past five years. Nearly half of all complaints about unfair contract terms (UCTs) relate to insurance policies, according to data released from the FCA
    – Source Insurance Times, September
  • Three of the top UK broker networks bring in around 500 million pounds EACH in revenue; Brokerbility, Broker Network and Willis Networks
    –  Source Insurance Times, July edition

Any I’ve missed?

5 barriers to effective underwriter/broker collaboration

Balancing different commercial agendas between intermediaries and carriers will always make working together to achieve win-win terms a challenge.  Understanding and allowing your counterpart’s business objectives and limitations to influence your negotiations can, in turn, be used to drive your own objectives. What else enables an easy profitable and efficient working relationship? Here are a few things that have been brought to my attention…

1.            Info exchange

Broker submissions

Supporting information of the appropriate detail, length or format is still top of underwriters’ agendas. The London Market Group is enabling this process to be more uniform as part of the Market Reform Contract (MRC) to support broker and underwriter information sharing. Here’s what they say about the standard form of submissions, in their own words:

‘It offers a clear structure and means that brokers present contracts in a consistent manner. This in turn adds clarity to the broker/underwriter discussion and thus enhances the efficiency of the placing process… ensuring the content was aligned with the needs of contract certainty.’

Too little or messy information makes a valid underwriting judgement harder to achieve as well as increasing the risk of non-disclosure of material fact. On top of that reducing requests for further information, drawing out the process, benefits both parties.

Carrier service improved

Regular face-to-face meetings or phone calls, I’m told, are still the best way of maintaining good service levels and ensuring your incoming broker proposals are actually the business you write. That and up to date appetite lists are expected but not always delivered. The real benefit in maintaining these standards is the time freed up for carrier admin teams – when they are not wading through and logging unnecessary emails and proposals they can provide more support elsewhere.

2.            ACORD know how

At the April ACORD club, presentations were made by messaging champions from ACE, ACORD, Lloyd’s and Morning Data. They outlined the need for the market to improve the electronic exchange of structured data between brokers and underwriters. The best way for the market to do this? Full engagement from underwriters AND brokers with ACORD standard messaging.

Lloyd’s commissioned a proof of concept for messaging with the LMA (London Market Association) for their MRC (Market Reform Contract). Despite Lloyd’s working with a software provider and a number of brokers to develop a prototype, (North American Property MRC, Marine MRC and a MRCE), and it being established it could be successfully used in practice –  the London Market Modernisation Activity report  states there needs to be a market ‘pull’ and greater broker appetite for further investment.

Benefits of ACORD standard messaging:

  • Structured ACORD compliant data is automatically produced
  • The broker’s output is a PDF or Word version and an XML file containing the data
  • Human error is eliminated as broker and underwriter systems communicate directly
  • Time is saved on both sides by preventing the need for re-keying
  • If the broker changes any of the details, the underlying data will be updated and reflected in a new version

3. Market initiatives?

The commercially dynamic nature of the market brings huge advantages from free competition, diversity and innovation but is a major disadvantage when trying to address areas of common carrier and broker interest i.e. efficient collaboration.

Higher transactional costs come from DIY local methods of working which are continually resorted to after the failure of what is supposed to be ‘The Next Big Thing’. For example the “Darwin’s” “EPS’s” and “Blue Mountain’s” that inevitably make businesses sceptical about what truly is innovation and what is an expensive idea lacking in long term benefit or buy-in.

4. Solution to ‘sticking plaster’ systems

Poor systems selection based on historic requirements rather than future needs and poor systems integration with legacy systems are top pitfalls to avoid for future broker/ underwriter communication quality. Being blindsided by one new feature when the system doesn’t have the ability to support new distribution channels traps companies in the past –making it difficult to switch capital to new products, lines or geographies to ‘balance the books’ and create profit.

Attempts to expand into new classes or creating new or different products often result in ‘sticking plaster’ systems.

If you look at the retail industry, for example, those who remain profitable are forward looking with highly integrated systems strategies with flexible distribution channels to market. Those who have failed to bring together all of the operational and technology threads and ignore future channels are ending up with the liquidator.

Replicating a retail model for insurance would mean a fully integrated system that handles delegated authority, subscription and remote web-based products through an integrated broker portal.

This would make document, communications and policy details accessible for carriers and brokers to refer to, preventing unnecessary disputes and slowing of work. Reduced data transit time means more time to underwrite and broke deals.  The other benefit is all downstream activities premiums, claims and accounts are joined up in straight through processing.

RiskWrite features

RiskWrite case studies

5.            Doorstep advantage

From what I’ve experienced the ease of socialising with people in the London Market is taken as a given. Whether you started out with a stamp on the trading floor or have grown used to the culture sliding over from another industry, the proximity, as we all know, is a unique competitive feature.

London Market locality, however, increases the competition on your doorstep as well as your opportunity to take advantage of it. Are you making the most of networking with NEW people? Introducing yourself to people outside of your existing outlook contacts? I’m pretty new to insurance, so I want to translate face-to-face opportunities into potential long term commercial relationships/friendships.

My new goal? To follow up introductions more effectively off and online. For example, that interesting conversation I had with X at BIBA results in them as a new LinkedIn connection, someone I listen to on Twitter, invite to events and maybe, just maybe, them remembering Sabrefish when they need a new eInsurance system…

To arrange a demonstration or find out more, call 01923 312 366 or email info@sabrefish.com

Top 10 Lloyd’s, Coverholder & London Market quotes of the last year

Novae recently published their ‘Looking forward’ industry survey where they interviewed senior level influencers in the insurance industry to gauge their present and prospective analysis. It got me thinking, as I remember listening to Lloyd’s CEO Richard Ward present at the Xchanging London Market conference last year. Richard highlighted findings from that year’s annual PWC CEO Survey of insurance CEO’s finding that:

‘Nearly half of Insurance CEOs believe that the economy will continue to get worse over the next 12 months.’ Yet the report also found ‘90% are confident about improving their company’s revenues over the next 12 months’ (2012)

Compare that to this year and optimism still stands (despite austerity’s stronghold):

2013 saw ‘39% of Insurance CEOs are very confident about their ability to increase revenue over the next 12 months, and a further 49% are somewhat confident.’

Are you as confident in your organisation’s success? What has the industry been saying over the past year about the market and what will shape profit now and in the future? And most importantly, what are your competitors hearing and acting upon?

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Quotes

“Lloyd’s should continue to innovate and focus on product development and new lines and innovate and keep it close to business. And they should seek to resist the homogenisation of all syndicates.”
Novae ‘Looking Forward’ industry survey – February 2013

“The benefits of moving from a paper dominated community into the electronic age are manifold; speed, transparency, the development within each insurer and broker of KPI’s, the opportunity to better articulate and differentiate the value of performance, communication. The London subscription market will always have as its corner stone face-to-face negotiation – but as a practical matter technology provides a magnificent medium for better, quicker more auditable communication”
Barnabas Hurst Bannister, Chair of the London Market Group, Xchanging London Market Conference – September 2012

“It’s an interesting change from a few years ago, when it’s fair to say people were turning their noses up at delegating authority, giving the pen away. Now there is an acceptance that it’s the way to get good quality, high-volume, low-value business.”
Peter Montanaro, Head of Delegated Authorities, Lloyd’s, MGAA – April 2012

‘’It is imperative you get multi channel distribution correct, understand the relative importance of each channel and be intuitive to the future purchasing decisions of your customers – as well as investing time and energy in a unique proposition that adds genuine value and therefore provides longevity through, beyond the market cycle…’’
Dan Martin, Head of UK Regional Development, Catlin Underwriting Agencies, Sabrefish MGA event (formerly Salmon) – September 2012

“Technology is becoming part of the decision making process when people select a broker, MGA or underwriter as a partner”
Peter Montanaro, Head of Delegated Authorities, Lloyd’s, Sabrefish Insurance event (formally Salmon) – May 2012

“The UK is the leading exporter of financial services across the globe. The UK insurance industry is the largest in Europe and third largest in the world. The London insurance market is the most sophisticated insurance market on the planet”
Steve Hearn, Chairman & CEO, Willis Global, Xchanging London Market Conference – September 2012  

“The infrastructure is here in London, the talent is here, the subscription market is here, and brokers like it. Lloyd’s is more secure than it has ever been. Investors understand Lloyd’s now.”
Novae ‘Looking Forward’ industry survey – February 2013

 “Nexus Group (are) on course to become the largest independent managing general agency (MGA) in the London Market.”
Intelligent Insurer – March 2013

 “The underwriter who delegates ill-advisedly to a bad MGA has nobody to blame but himself. They should look at themselves because they gave their pen away. Somebody or something persuaded them to enter into that arrangement. I never blamed a broker for broking bad business to me. I only ever blamed myself for writing it.”
Reg Brown, Chairman, MGAA, Insurance Day – July 2012

 “If you have an MGA, as a broker or underwriter, you hold much more information about the nook that you write and it means you can work closer with insurers to ensure their profitability and enhanced cover for your clients. It is a relationship that a business of our size needs with insurers. Gone are the days where you just go in there and negotiate on commission.”
Robert Organ, Chief Financial Officer, Bluefin, Insurance Times – March 2013

Did you miss the Sabrefish launch party?

Last Thursday 28th February saw the good, the bad (Michael Jackson version, meaning good) and the attractive (!) gather to raise a glass to celebrate the launch of Sabrefish; following its acquisition out of Salmon – including the entire eInsurance business, RiskWrite software and staff.

Attendees from the likes of Aviva, Canopius, Drivenlower, Harel, Insurance Insider, LIIBA, Tysers, Towers Watson, T H March and Sabrefish clients and friends from DUAL Corporate Risks, Novae, Nexus Underwriting Management, W R Berkley and more came to Minster Exchange for the occasion!

Simon Ball, two-time RiskWrite customer and Director of Quotall said on the night;

‘I bought RiskWrite not once, but twice! Because why change a winning game. If there is a better solution out there – I’ve not seen it.’

The Sabrefish gang

The Sabrefish gang

Revellers

Revellers

The refreshments and nibbles were plentiful and a good time was had by all. Sorry to those who were unable to join us – we look forward to inviting you next time!

About Sabrefish

Design & build for your business     RiskWrite     Multi channel insurance     Clients      Case studies

Want to ask us a question?

Contact us on +44 (0)1923 312 366 or marketing@sabrefish.com.

Bed time

Bed time

 

Bon voyage! Salmon and Sabrefish swim to separate seas

Sabrefish, eInsurance specialists, announced today that it has acquired Salmon’s insurance business, including RiskWrite software and staff. The eInsurance team originated as part of Salmon in 1989. Salmon has developed commerce oriented projects for leading names in retail, insurance and retail finance over the last 23 years.

As of January 2013 the eInsurance side of the business, RiskWrite software,  it’s staff and some new additions separated from Salmon and is now a fully independant global insurance technology provider named Sabrefish.

Commenting on the news, Chris Harvey, CEO of Sabrefish said, “The acquisition of Salmon’s insurance business marks an exciting new chapter in the development of RiskWrite. This follows on from last year’s announcements of major new features in RiskWrite Enterprise Version 3 and the launch of RiskWrite Managed Service aimed at intermediaries and smaller carriers.”

When the insurance team operated under the Salmon brand they worked separately but alongside the retail team – sharing the same on budget, on time, customer oriented values which will continue to be upheld by both Sabrefish and Salmon. Salmon will retain it’s retail and manufacturing clients and Sabrefish its insurance clients and expertise.

With fond memories and excitement for the future, Sabrefish wish Salmon every success!