The popularity of broker networks around the world is growing slowly but surely as they continually adapt to the salient needs of independent brokers. Will this trend significantly transform the clout of the big boys in the insurance broking sector?
Special claims units for network brokers to guarantee first-class service to their clients; higher commissions, and the bigger negotiating power that network brokers have to obtain broader coverage terms for their own members (eg professional indemnity programmes for their own protection) – these are just a few of the key advantages that have given rise to the popularity of insurance broker networks in the market.
Other enticing incentives include the access to a greater range of insurance markets; opportunities for networking with insurer decision-makers and collaboration with broker peers at on- and off-shore broker network conventions; and access to special policy comparison, business compliance and risk coaching tools to assist with brokers’ professionalism.
Globalisation and strategy favouring networks
The growth of broker networks, said Mr Bruce Basso, CEO of Worldwide Broker Network (WBN), is a direct result of the continuous globalisation of businesses, advances in technology, and the standardisation of English as the dominant business language in the world today. “As these have impacted clients, so too have brokers needed to expand their resources and capabilities.”
In Australia, the popularity of networks in recent times has been driven in part, “by a segmentation strategy instigated by insurers to favour network brokers with a range of advantages because history has shown that these brokers are more profitable to them”, according to industry veteran Mike Donnelly, MD of Donnelly Insurance Brokers & Founding Director of the Insurance Brokers Network of Australia (IBNA).
“Further, marketing to a network group is more cost effective than trying to service a multitude of brokers. Insurers appreciate that there are strict entry rules with regard to joining a broker network and so are more confident in doing business with network members,” he added.
Contradictory market trends?
In the last few years however, broker networks – largely featured in the Australian and UK insurance markets – have seen considerable changes, most notably a consolidation of players.
Mr Mark Searles, CEO & Managing Director of Austbrokers Holdings said: “Broker cluster groups have been a key feature of the Australian market for a number of years and major changes over the last few years have related to the ownership of broking firms with various players looking to drive market consolidation via equity ownership.”
He added: “The level of equity ownership varies between the different groups, from those wishing to own 100% of the equity (eg Gallagher, Aon, Marsh etc), to ourselves, Austbrokers, who believe in the philosophy of the owner-driver model, ie a true partnership model.”
In similar fashion, the ownership of networks in the UK has consolidated into a few hands, “namely the larger brokers and one insurer (AXA)”, said Mr James Sharp, Director, TEn Insurance Services. “Marsh, Willis, AJ Gallagher, all feature prominently. And with the uncertainty over the future of Towergate and the potential sale of Broker Network Ltd which they own, there could be fewer networks still.”
Further, he said the “commission over-riders” that the networks used to be able to demand from insurers “are no longer what they were” and that even Aviva, UK’s largest insurer, “no longer deals with a number of them”.
So, does this mean that networks are losing their lustre?
Considerable clout in prices and placements
Not necessarily. Broker networks in Australia place in excess of A$6 billion (US$4.58 billion) in gross written premiums (or 44% out of an approximate A$17 billion GWP placed via intermediaries) in the market, across all classes of general insurance business – “enabling a significant buying power to negotiate superior products and services with major insurance and premium funding companies for their members,” said Mr Donnelly.
And as insurers veer towards refining their underwriting appetite to core business and allowing niche market specialists through delegated authority to write non-standard risks through brokers, “underwriting agencies are the flavour of the time again”.
As such, public-listed broker networks, the likes of Austbrokers and Steadfast, have each bought underwriting agencies to add growth to their businesses and placement facilities for their members. “So broker networks are gaining some control over underwriting and placement of risks in Australia.”
Another change in the market, added Mr Donnelly, is the introduction of new underwriting capacity arranged by one of the networks to compete with existing insurers which market direct to the public, and against brokers’ for traditional life and personal lines products.
Relevant proposition valued over size
Ms Sara Fardon, MD of Willis Commercial Network in the UK admitted that the difficult economic and soft market conditions have left little margin for error for brokers and insurers. “The distribution landscape is changing as traditional brokers are being challenged in the SME space and as insurers look to focus on core relationships.”
As such, she shared that the Willis strategy in the UK has been to exit its own direct involvement in SME and to focus its efforts through the network as the route to clients. In turn, its members can access power and resources of the Willis group and thereby allowing both sides to have “a symbiotic relationship that brings benefits”.
Limited resources will make insurers more selective of which brokers they will work with and hence there are two considerations: what value offering the network can offer insurers and; in reality, what individual members would offer to the network community. Willis Network, she said, is active in developing, for all members, individual placement strategies to help form stronger insurer relationships.
“It will be the network that offers the most value and a relevant proposition that will attract insurers rather than a network that has just grown due to indiscriminate membership. Insurers are keen on a healthy distribution with a strong landscape of independent regional brokers to ensure that consolidators and nationals are not overly dominant. To that effect, networks help bring the best of both worlds to the insurer market,” she added.
Networks will grow with continued global and technology advancements
Referring to his earlier mention of globalisation, ease of language barriers and technology advancements, Mr Basso is confident that with those continuing developments, there will be strong growth in the independent networks as they compete in today’s business world. Particularly on the latter, he said the ability for insurance brokerage firms without physical offices in other countries to compete has been greatly enhanced.
He said the younger risk manager or insurance and benefits buyer today is more interested in the sophistication and ease of use of the broker’s global technology platform to collaborate and drive their global objectives than worrying about whether it owns the office or not.
“It presents a different set of skills to be competitive in the global business environment. The ability to perceive a multinational client’s global needs and the ability to drive results to completion, solving and adjusting those issues along the way is what will make you a global player.”
Service and products offered render competitive edge
Finally, aside from the “benefits of big-business buying and negotiating power”, Mr Donnelly highlighted the “personalised service that major organisations cannot provide”. There is a substantial cultural difference between a network broker who maintains regular contact with their clients and are available 24/7, compared with a larger international broker that cannot afford that level of personalised service for SME clients.
“So, network brokers are well-placed to compete with the big boys if they come into competition with them through a comprehensive range of competitive ‘best of breed’ general insurance products for personal and commercial markets, as well as better service capability,” he added.